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Sitting On Money: Angelenos Cash In On Booming Real Estate Market With ADUs

LOS ANGELES (CBSLA) – When the pandemic hit, many people suddenly found themselves with extra time on their hands and got to work with home improvements, so much so that it drove up the cost of lumber. This period then prompted one of the hottest trends: turning homes into income property.

"It's been more financially helpful than we even thought it would be," landlord Mike Horowitz tells CBS2 News This Morning's Suzanne Marques.

A charming cottage studio in the backyard of the Horowitz home in Atwater Village has become a little slice of paradise. Until a few years ago, it was a garage.

"The house was built in the 1920s, and it was a little garage that we weren't using, mostly because the driveway was so narrow," Horowitz said.

So Horowitz converted the garage into what is termed an Accessory Dwelling Unit (ADU). It's a permitted home that can be rented out or used to house family members. Horowitz rents it out and now makes thousands of dollars a month.

"In a good month, it's better than our mortgage payment, which is unbelievable," Horowitz sad.

To help address the state's housing shortage, California earlier this month passed Senate Bill 9, which allows homeowners to build multiple units on their lots. It's so new, there are no set guidelines, but demand is expected to rise. The hope is that cities can keep up with demand and help the permit process, which often makes projects take much longer

Chen Yaacov specializes in building ADUs with his Reseda-based company Pearl Remodeling. The most common ADU is converting a garage, normally about 400-square-feet for a studio or one bedroom.

"The initial stage is obviously finding out what you can or cannot do because there's certain restrictions that the city might apply for one property over another," Yaacov said.

When the pandemic hit, business was quiet for a couple months, then Yaacov's phone started ringing off the hook.

"People just making their domain a lot more comfortable for them, realizing that they might be staying home more than what they used to," Yaacov said. "People are definitely thinking about how to get more money, and how to utilize things better. If somebody had an office that they were renting, and now they figured, 'You know, I can have my own office.'"

Yaacov says there are two main things to consider if you plan to rent your space. The first is if you are comfortable with guests staying on your property. The second is the cost. ADUs can cost anywhere from $50,000 to $100,000. He says equity has made affording it much easier.

"Even if you don't have the money," Yaacov said. "If you are okay, and you're considering getting some extra money and raising the value of your house, and you don't worry about people in your property, then it's the best investment that you could do because you'll be making money the day we finish construction and you start renting it."

Even if you don't rent out your space, raising your square footage is one of the fastest ways to make your home worth more.

"Our initial calculation was that, if nothing else, it would help the property value," Horowitz said. "So while you're building anything, you always are wondering if it was a good idea while, you know, construction is happening and its a little bit of a disruption. But we've found it amazingly worthwhile."

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