I know some people that have property free and clear don't care if they lose it and only carry liabliity insurance to protect against accidents on the property, medical or legal bills, etc.Do I have no other recourse but to carry full coverage?

Hello Tim,I have no experience with California or that specific code but I can tell you that anywhere you try to add a unit it is going to need to fire separated through any means that the fire could spread. 

DSCR rates have been lower than conventional lately and DSCR offers 40 years amortization, 5/6 ARMs, Interest Only to help cash flow.If you have any questions feel free to reach out I enjoy helping and talking REI!

Has anyone had any experience in this space?

By leveraging our experience and Seth's insights, we secured the property at a favorable price that allowed room for renovation and a profitable resale.

If you have any additional questions, feel free to reach out.Very Truly Yours, Marlene

You will be taxed on gains he could have taken tax free.

But if you need further help, feel free to PM. 

If you're interested, feel free to DM and I can send you some recommended resources. 

And feel free to ask more questions as you go along.