There are many reasons that adding a single ADU in southern CA is a less than ideal RE investment (i will post a list at the end) but the negative initial equity is a primary reason as the initial negative equity position consumes the initial cash flow and can take many years to recover.As for converting your home to a rental….

Chris,What are you looking to finance or accomplish I ask because with a quick Yelp review there are some negative reviews.

I stayed in a STR with over 200 5-star ratings, and not a single negative.

- FYI: it's only illegal to try to rent it out, the property owner can usually legally live in a nonconforming basement unit.If you do all this you may still negatively cashflow each month, so make sure your income can cover and/or your cash reserves.If you do this successfully, you will learn more in 1-2 years than you would reading here on BP for 5+ years:)Good luck:)

Also, the fees plus being a forced buyer with a deadline on a 1031 exchange may negate the small tax savings.

- FYI: it's only illegal to try to rent it out, the property owner can usually legally live in a nonconforming basement unit.If you do all this you may still negatively cashflow each month, so make sure your income can cover and/or your cash reserves.If you do this successfully, you will learn more in 1-2 years than you would reading here on BP for 5+ years:)Good luck:)

I tried using the biggerpockets rental calculator this morning and the cashflow was negative, but I may have been too conservative with the numbers.

But if you are okay with negative cash flow and want more the appreciation, new builds are definitely the way to go. 

I love section 8 but it comes with positives and negatives just like any other strategy.

Just remember: most negative reviews are written by problematic tenants.