Most policies (homeowners or dwelling/fire policies) that include RC contractually require you to rebuild in order to get the Replacement Cost.

It is zoned for an ADU (Accessory Dwelling Unit).

Originally posted by @Isaac Passmore:Originally posted by @Russell Brazil:You can only have a full kitchen if you have a licensed accessory dwelling unit, which is available only to owner occupants.So if I occupy the unit and do the conversion while living there I'd be ok. 

Accessory dwelling units are permitted in single families only.

Only saying this because of the situation described is evidence of water hammers .. in my experience when the dwelling is left unused for a period of time. 

With the concept of “scale of economy”, the more units you can get with this multi family dwelling, the better.

You probably paid some deductible property taxes at settlement and purchased a rental dwelling insurance policy (the policy premium is deductible if paid last year). 

Another tact is to focus on specific habitability issues - "Habitability" is a good word to use because as a landlord you are required to provide a habitable dwelling - that require renovation that cannot be performed while the unit is occupied.

I live in the attached ADU while a couple rents the other part of the dwelling.

These dwellings are nightmare, because they are old and require lots of work; in addition, the profit is not there.