That is a lot of negative cash flow.Adding the ADU will have cost and effort but should improve the negative.  

Your costs can probably be deducted.

After researching, we found that converting a single-family home into a duplex could cost around $200-300k.

It cost us $3,000 to demo the shower and retile it.

Where did you underestimate costs?

I have to figure out the cost/investment of building a home from scratch vs potential rental income, etc. 

It depends on your goals and usage.  

I'm pretty sure that the cost to get this done is not cheap!

Shawn - I would suggest you develop a pro forma based on the stabilized state of the property to understand if it cash flows once all units are occupied being sure to include all reasonable revenue assumptions (rents, vacancy factor, etc..) as well as expenses (debt payments, maintenance, utilities, property management, taxes, insurance, turnover costs, etc..)

I've got a 500 self-storage under contract.My analysis is 46.5% ROI before debt service. 34% ROI after debt service.ROI is dependent largely on financing in my opinion more than the actual financials of the property.