Which leads me to 2.2) I'd recast, not pay off the current position.

It is increasingly more difficult to pay of even one mortgage when you are cashflow negative, let alone multiple.

Mostly people with minimal RE experience are adding a single ADU and they often make that choice based on cash flow without taking into account the negative equity position.  

Also, focus on 2 years of job/income stability.Class D Properties:Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciationVacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions.

Also, focus on 2 years of job/income stability.Class D Properties:Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciationVacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions.

Also, focus on 2 years of job/income stability.Class D Properties:Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciationVacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions.

With 5% down payments and all the expenses deducted, there seem to have close negative/only around $100 cash flow each month.

Why would I be cash flow negative and losing money for years and years?"

Additionally, they have another property which has appreciated in value, carries low interest rates, but has negative cashflow and essentially feels like it just locks money away.

A Plus, a neutral or maybe even a negative to some.