If I am unable to find a buyer, I will at least make the listing side commission, so I virtually have no downside risk.3.

I will only pay interest on funds as they are drawn and can pay them back anytime during the loan term.A potential downside is the rates are variable.  

As for the down side is when you try to qualify for a loan and you need that extra income from your ADU qualify, lenders would still appraise it as a single family meaning they would use market comparable rents for one single rent vs a house with a legal ADU which could increase your borrowing power up to $10k or more.

That’s their downside, what’s the upside to taking your offer over being done?

These people either 1) Have money sitting around with nothing to do and are afraid of the market with its volatility 2) Just use arbitrage and borrow at like 4% and loan to you at like 15% and keep the spread with no downside. 

The downside is that most knowledgeable passive investors won’t consider an investment that hasn’t had at least a Reg D filing, and that the sponsor opens himself up to lawsuits from disgruntled investors and has no statutory defense that he would have had he done a proper Reg D offering.  

What’s the downside?

The only downside to buying at auction is the competition but like you said, looks like no one else is making offers so, maybe that will be the same at auction.

I know that is not what you are asking, but ice makers just present a situation where the upside is small and the downside is expensive and time consuming.

A couple of downsides to them is that tenants typically only commit to 1 or 2-year leases so there is a lot of turnover making it more labor intensive.