BOTH homes have one main level and one basement level.Why would I try to compare a 3 bed 2 bath and try to comp it against a 5 bed 3 bath?

The next level up in there is Axiom followed by Ascension. 

The lake level has dried up quite a bit BUT the property is still waterfront!

Do you need to have the cashflow now, or are you planning on growing the cashflow to some level in the future, etc.

(We have an IRS lien that will be paid off in four years and I am pretty sure that could be worked around.)My wife is hell-bent on being able to "burn the mortgage" as soon as possible and is resisting refinancing with a $30K cash-out to drastically improve the functionality, curb appeal, and comfort of the home we've lived in for 35 years.I feel we should do the refi, make the house new again, and enjoy where we live. 

You are learning several skill sets to include parts of a renovation, maybe management of a renovation from a higher level, and you are meeting contractors and realizing time lines for renovations. 

The bottom of the price range will typically have the best opportunity for rehab and rent, and as a bonus the level of distress at the bottom of the asking price range will typically turn off those happy couples looking for their turn-key white picket fence dream home, so competition for bids in that range isn't so crazy.

It does not include leveling of floors, tile or grout.  

We just have completed our renovation and added a beautiful AADU on the first floor of our split-level house in Seattle, Washington.Now we are in the process of refinancing and renting out the unit downstairs.We are currently living in the unit upstairs.My question is, which insurance type would be appropriate for our situation?

The building has a stone foundation that can be accessed from a crawl space that is below the entire lower level unit.