The ADU regulations (which vary in significant detail on a city-by-city basis) in San Diego compel the City to allow the use of the existing water and sewer services, but the costs for the homeowner to extend them to the ADU are on the homeowner.In terms of poking holes, you're missing the horizontal costs

But we do exist!

So our mortgage is at 3.375% so it wouldn't cash flow if we did a full cash out refinance.

Other people helping pay down the mortgage How did you find this deal and how did you negotiate it?

My primary focus for this investment is on long-term appreciation potential and leveraging rental income to pay down the mortgage, in this case I have no cashflow.Given the current market conditions, I understand that cash flow might not be immediate, but I'm more interested in the potential for appreciation over time and the ability to offset expenses through rental income.

The majority of wealth comes over time from equity through mortgage paydown and appreciation.

The reason has to do with a base line effect, a couple with a stable income that is required to qualify for a mortgage will usually make enough to qualify for a 200k house.

Interest rates are in the 8% range for investment loans.Here is a basic review - https://smartasset.com/mortgag...

So you can buy a commercial zoned prop or one w/ an existing license to qualify - otherwise you'll want to look outside of city limits. 

Briefly studying the markets across the US, I have found this trend: Where new construction was red hot and building was promoted by the local municipality, they are enduring a more Buyers market and on the flip side, areas where there is not a lot of new construction and only really existing homes for sale - there is a sellers market.