In terms of the math, let's look at return from rental income and return for equity:For each item, calculate a year's return, and there's your approximate ROIFor the ADU conversion: ($4000/month x 12 months)/$500,000 cost = $48,000/$500,000 = 9.6%That's before expenses, which will cut that number down by several points.

-The week leading up to the day I was supposed to get paid back (6 months late) he ignored all my texts over a 10 day period.

Mike still has his name on the first Deed of Trust and that still needs to be paid monthly until it gets paid off.So, Sam now owns the house, Sam makes payments to Mike.

Your set up expenses will be costly and may sway your decision making.List on both Airbnb and VRBO. 

As an aside I buy properties I can fix up upon the initial purchase or shortly thereafter so as to minimize future expenses.

Having rental income cover my living expenses.

Paid 12K to get the driveway paved with ample parking and turn-around space.

Was it a deal that seemed too good to be true, a property with hidden potential, or a creative financing strategy that paid off big time?

According to the prelim study, 78% remains in 39-year MACRS and the balance amounts to a $200K increase in our depreciation expense this year (catch up from foregone depreciation since 2011), which is an estimated tax savings this year of $65K.

Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.California is generally more cumbersome than other states when it comes to taxes and filings.