Los Angeles: Adding an ADU to a Multi-Family (2-4 units) Property

[Edwin Loredo]

Hey BP investors/landlords, first post on the forums, and looking to get some advice when it comes to ADUs in the Los Angeles area. I currently own a 2-unit property with a garage that I plan to convert into an ADU. Does anyone have any insights as to how the ADU will impact property value? Is it realistic to expect at least a 1:1 level of appreciation (i.e., $100k in renovations = $100k+ in appreciation)? Given ADUs are relatively a new trend, are there enough comps when it comes to the appraisal process to significantly drive value?

[Will Barnard]

Dan you are making an assumption that the $100k cost to build is only worth $50k today. That may or many NOT be true. Secondly, when it comes to a long term buy and hold, and your goal is monthly cash in your bank, then that $14,400 is there no matter what the value is. Lastly, you have completely eliminated the probability of market appreciation in LA which is (based on history) higher than most areas of the country and the likely fact that in 5 years from now, appraisers and lenders will be giving full valuations of these products. So again, play the long game and add to your cash flow with low risk is the play here.

Are there higher returns out there, sure. You could have invested in Gamestop yesterday and sold today but could you do that consistently day in and day out like that cash flow comes in day in and day out? Doubt it.