A California Homeowner Fixed Up Her Converted Garage and Rents It on Airbnb. It Now Pays for Her Mortgage. The number of ADUs permitted in California surged from about 8,900 in 2018 to 23,660 in 2021.

When Selma Hepp decided to transform the former garage in her backyard into a suitable home for her parents in late 2019, she didn't think it would be too hard.

The structure on her Burbank, California, property had already been converted into a living space by the previous owners. Hepp's father was a builder in his native Croatia before immigrating to the US, and she figured he could handle the renovations. Plus, Hepp is the chief economist at CoreLogic, a real-estate-data and consulting company, so she had friends and colleagues who could offer advice and contacts.

Hepp purchased the property, which includes a three-bedroom home, in 2018 as a fixer-upper and wanted to take advantage of California's new laws allowing the construction of accessory dwelling units, which are additional homes on single lots.

California has done more than any other state in the country to pave the way for property owners to build ADUs. The state has passed a series of laws allowing for, and in some cases helping pay for, ADU construction. The number of ADUs permitted in the state surged from about 8,900 in 2018 to 23,660 in 2021, according to the Terner Center for Housing Innovation at the University of California, Berkeley. Most are being built in Los Angeles.

The cost of building an ADU typically ranges from about $100,000 to over $400,000 in California and, across the country, ADUs are disproportionately going up in richer and whiter neighborhoods.

Renovating was more work than she bargained for

As it turned out, the garage needed a slew of changes — including an altered foundation — to comply with the city's building codes and regulations. So Hepp sought some outside help, setting herself a budget of $50,000.

"We went in initially thinking we're just renovating it, but after complying with the code, it turned out that it was much more than that," Hepp told Insider.

She found a recommendation for an affordably priced architect on Nextdoor, an app for community social networking. It took the architect months to complete his drawings of the proposed renovations. And after the city came back with revisions, and the architect submitted his updated plans, he stopped responding to messages, Hepp said. She figured he'd gotten busy with new projects as demand for renovation and construction projects spiked during the early months of the pandemic.

^{The dining area inside Hepp's ADU. Courtesy of Selma Hepp via BI}

Eighteen months into the process, Hepp finally had drawings from a different architect. But that was before she was told the garage foundation needed to be leveled. She would also need to take out two of the unit's walls and replace the roof.

"It took forever to find a foundation person because the foundation guys, all of a sudden, were quoting me $50,000," she said.

She said she felt like she was being ripped off.

"I totally believe in the theory that if you're a woman getting a quote for work done on a house, it's, like, at least 30% more," Hepp said.

Through friends, she finally found someone to fix the foundation for about $8,000, she said. Construction began, but it was an arduous process, in part because the homebuilding industry faced pandemic-related supply-chain issues and was overwhelmed with demand. Hepp was also slowed down by the confusing process of inspections and the need to obtain approvals for various aspects of construction.

"It was very stressful because every step of the way, I needed to figure out what the next step was, and it was sort of hard to get a straight answer," she said. Hepp added that the building process would likely be even more difficult for someone who has fewer resources and connections in the real estate industry than she does.

^{The kitchen inside Hepp's ADU. Courtesy of Selma Hepp via BI}

Pivoting to Airbnb

After more than three years, the 500-square-foot studio was finished this summer. And Hepp managed to stay approximately within her $50,000 budget, she said. The unit features a courtyard and a separate office space in a converted shed.

During the course of construction, Hepp started dating someone new, and they ended up buying a home in Mid City, a neighborhood in Central Los Angeles. She moved out of the main Burbank house, where her parents now live. They take care of the Airbnb and help welcome guests.

Hepp said she struggled to find a long-term tenant, likely because her home is near several major film studios' headquarters, and Hollywood writers have been on strike for months. So she's renting the ADU on Airbnb.

"Because of the strike, I put it on Airbnb because there's enough tourists that come through, and they want to go to Universal. They want to go to Burbank Studios or Warner Bros. Studios," she said.

^{An outdoor seating area outside Hepp's ADU. Courtesy of Selma Hepp}

She said the unit had been almost constantly full since she started renting it, and she's making about $3,000 a month. She also managed to refinance her mortgage a few times over the past several years and pays $2,700 a month, which is now covered by her ADU's rental income.

Despite the long and complicated process of bringing her ADU to life, Hepp said she thought they're a good way to add housing to an overstretched market. About half the properties on her Burbank street have ADUs, she said.

"If you need an additional unit, which LA needs definitely — we do have a housing crisis — it will add rental property and rental space," she said. "Not everybody's going to take advantage of it because not all properties are situated in such a way where you can add more units. But I do see potential there. It's a step in the right direction."