The water heater goes out and costs $800 to replace (eight months of income) or a bad tenant causes $2,000 in damages and forces a month of vacancy.

@ me I'd be your first poster talking to you at the proverbial water fountain during our lunch break!

This includes the fact that I currently pay for trash and water, but eventually want to have the tenants cover water expenses. 

You should always check out the major systems in the property i.e. the roof, the A/C, the water heater, the foundation, etc..

I need to replace 2/3 of the current water heaters.

You've given them another reason to FC since there was a property transfer without their consent.The lender will most likely take the path of least resistance: take the property to Judicial Sale and file a claim for any loss.

Even accounting for electric, water, and sewer hookups needing to be set up, it seems plausible that buying one of these as a rental could offer a better ROI than constructing a freestanding ADU building.

For instance, if you have 50 residential units, with 50 roofs, 150 toilets, 50 hot water tanks, etc. you have a huge liability at any given moment where nearly all of the repair and maintenance expense is on you.

Expect to at least pay for water/sewer.Where is your tax number from?

If not, I pass.The first time you get a $600 water bill for one month from a single unit because the tenant "forgot to tell me about the leaking toilet" will help you understand why.