During the last downturn, prices in San Diego dropped the least out of every market that I watch so I consider it less risky than other markets and why I think the lower cap rates are justified.

The quality of her home justifies the value she has set vs comps.

They are almost impossible to justify as they are almost always avoidable. - Employment and income verification- this is also important to understand whether the tenants can afford paying the rent, and also protects not only you but them as well from trying to get a place they cannot afford which will put a financial strain on them.

The deals that come at a 40% discount are going to have a problem that justifies that for the seller.

(the city of KC is very block by block...in a green zone, you can take an identical home, but move it .5 miles east or west, and get a 50-100k price difference). an example of a home that I would consider to be in a green zone is at 1928 E 81st Terrace, Kansas City, MO 64132 (if you want to zillow it), this is a good example of a property I would consider to be worth checking out...I would guess their is some underlying issue with it being listed for 75 with a tenant in place at 925, but still, with taxes only being 362, and being right on the edge of the highly sought after Waldo neighborhood, by the numbers seems like a good deal.There are plenty of other great homes to find for 50-100 in the KC metro, but generally speaking they on the outskirts of the metro, and the market rents will not justify the purchase price.

I personally can't justify putting down 20% on a primary. 

Bottom line, if you don't have a firm exit strategy to pay back your HELOC then you haven't found an appropriate investment to justify risking the roof over your head. 

Make sure you have appropriate comps to justify any valuation that you need prior to building the ADUs.  

I know I drank more than $450 in booze in their lounge this year to justify my yearly fee!

The key here is make sure you there are comps that can justify a decent appraisal for your costs and effort.ADU financing is often either secured debt (HELOC, margin loan, some other form of equity loan) or at worse than F/F terms.If you just look at the cash flow, it is over 1% of cost which in most CA is great.