Focusing in on your intro is that you are interested because it is a busy market - basic human instinct and it is not entirely wrong. 

However, our current situation is a bit unique and has a human aspect we can't overlook.The potential tenants in question are in immediate need of housing, and we have the opportunity to provide them with a safe and comfortable place to live.

The most likely form will be a Dwelling Fire policy (also called a Landlord policy by some companies).For your family, you may need to get a renters policy. 

I'm seeking insights into the pros and cons of investing in Accessory Dwelling Units (ADU) in south bay versus buying a condo in east bay, particularly in terms of appreciation and cash flow.

HB262 states:"An Act relating to increases in rent for dwelling units; and providing for an effective date."

I did some research (after the fact) and found out that they are habitat for humanity homes and there are some more sec 8 homes up the street.

Property Value: The DIY option is viable for properties with improvements under $1.2 million improvement value (acquisition cost minus land allocation), covering most 1-4 unit dwellings.

There is not a physical lease & the tenant clearly has made this their dwelling place..

Hi-Desert Dwellings 

SB1212This bill, on and after January 1, 2025, would prohibit an investment entity, as defined, from purchasing, acquiring, or leasing an interest, as defined, in a single-family dwelling or other dwelling that consists of one or 2 residential units within this state.