I'm looking into having an extra income while owning my own place and eventually being able to rent the "ADU" and the upstairs area of 2 bed and 2 baths in the future.

Is there anything else we can do to utilize the extra land and make the property more appealing to short term renters? 

So in addition to the HOA fees, you will be paying extra in interest. 

In this scenario, if you DON'T get an earthquake policy, you get a bit extra in cashflow, but if the house is destroyed by an earthquake, you owe 400k on a pile of rubble...for some smaller investors, I'm guessing that could be enough to bankrupt them (particularly if that scenario happened across numerous properties...if, for instance, you ended up owing 1.5-2 million on 3-5 properties that were all turned to rubble, I'm guessing that would be game over for most smaller mom & pop investors who tend to have 3-5 properties). 

If you are borrowing the money for the purposes of construction, the lender may require a certified general contractor to oversee or complete the project.Lastly, you might be able to add an extra income stream if you could locate a mechanic who could use the garage and live upstairs in the apartment.

And look for it to cashflow.And they say don't use your own money so that you can maximize your cash on cash return and have money left over for any extra renovations or expenses that you did not expect. 

If you make an extra profit some months do you market extra with that or simply treat your self?

Just got to add a little extra time putting them together.  

You can get good deals on tenant ready and sometimes better deals on properties that need a little extra TLC.

I'm sure you could use the extra space with a baby on the way.