There is nothing that could happen at your rental that wouldn’t be your fault for not preventing, curing, fixing.

Ensure your contractor has a clear timeline, keep extra cash reserves, and start marketing your rental rooms early. 

Ensuring your rental market can sustain these costs will help maintain profitability over time.The 7% DSCR loan is relatively high, and refinancing later at a lower rate could improve your long-term cash flow.

If you do it all above board, you would pay taxes on the rental income received and your daughter would be using post-tax dollars to pay rent which isn't the most efficient.

I have 3 long term rentals, but this is my first time with commercial property. 

ADU's over 750sf receive reduced impact fees (25% of SFR charge).

If you were to sell the rental, what would be your budget and buying criteria to house hack?

(Except something like 1/2 of a duplex where the rental 1/2 is worth as much as your exchange.).

The planning staff should be able to walk you through any options for zoning changes or variances if there's a way to make short-term rentals work in your case.

You'll find that rental property investing isn't scary at all and a great property manager can actually save you more money than they will cost!