Who has successfully built an ADU?

Question

Looking to get feedback from anyone who has successfully built an ADU on their primary residence. I realize when building an ADU and renting it out, you lose a level of privacy but it's a sacrifice for rental income. But is it worth it? Does anyone have any regrets or wish they could go back and do something different?

I am looking to build an ADU on my own lot. I just was awarded a $40k grant from CalHFA to go towards and ADU so I'm highly motivated at this point. Just looking to get feedback on do's and don't. Thanks in advance.

Keeley Painter · Answer

I did it as well and would def do again. Converted my 425 sqft workshop at the back of my detached garage to a studio apartment for $60K. Pulled some of the money out when I refi'ed last September at 2.75% rate. My rental brings in $1800/month (utilities included as they aren't separate - yet). My mortgage (PITI) is $1592/month. I'm basically living for free while continuing to build equity! Loss of privacy is minimal. I put up a fence section in front of the ADU front door and window that looks out into my yard which helped. Originally was renting to travelling nurses then tried AirBnb for one holiday weekend, but recently signed a 1 year lease which is way less work and hassle.

Andy Brohard · Answer

@Eddie Torres I built ours in 2017 and would 100% do it again. If it’s a good idea for you or not all depends on where you’re at and what you want out of it. I’m happy to connect and chat more if you want to shoot me a DM.

Dan H. · Answer

Make sure you know how the property will be valued after adding the ADU. In many CA markets, the ADU adds less value than the hands off cost of adding the ADU. This results in the initial cash flow being required to recover this negative position. An initial negative $50k position would take over 4 years to recover at $1k month profit. Search BP and you will find numerous posts on properties that added ADUs that resulted in large negative positions that they require years of cash flow to recover. Most HELOC are variable rate. I am always leery of using variable rate financing and reserve its use for short term debt. This is more true in a time of increasing rates. I expect the fed to raise their rate 0.75% to 1% this week. I also expect outstanding returns on my leveraged debt (HELOC, margin, etc). For example, that $100k could purchase $500k of property at 80% LTV (not including closing costs). The $100k would be far better leveraged and likely to produce better return than it would on a $140k investment ADU. Adding ADUs are not passive. They may be as much or more effort than a BRRRR. I historically have achieve infinite return on most of our BRRRRs (meaning all financial investment was extracted). Point being adding an ADU takes time and work. It is not like investing in S&P500, REIT, or joining a syndication You already mentioned to loss of privacy and reduction from existing unit (loss of yard, garage, whatever) does it still sound great? Maybe, but do your research. Good luck

Jennifer S. · Answer

Those ADU figures look great. Could you share how many square feet your studio turned out to be? Still 425 sq ft? $1800 for that size is a great number. I'm considering ADU opportunities in Maine perhaps and was happy to see a success story somewhat nearby. (I know that Burlington commands higher rents than other places in New England). How long did the conversion take and was the paperwork / construction onerous? Many thanks and congrats again!

Andy Brohard · Answer

@Eddie Torres It's all over the map TBH but in LA there are more comps with ADUs now than there were before that appraisers are using. I know people that have gotten it appraised inline with 1k per sqft. and others out in Riverside area that basically got next to nothing. If you're planning on doing it as a BRRRR or a flip I don't know if it's a great strategy but as a primary residence you're planning to stay in it's almost a no-brainer. We're getting over a 2% rule on our ADU build and that's practically impossible with any other type of real estate in LA.

William Coet · Answer

you are getting 1800 for 425 sq.ft adu?

Eddie Torres · Answer

@Keeley Painter Wow! What a killer decision that was! What kind of value did the addition of the ADU bring to your over property value when appraised?

Eddie Torres · Answer

@Andy Brohard What kind of appraised value are you seeing in your area after ADU is built?

Eddie Torres · Answer

@Andy Brohard Thanks for your input.

Eddie Torres · Answer

@Will F. Great feedback. Thanks. Property taxes definitely will go up after build but it's my understanding that only the ADU will be re-assessed, not the entire Property.