To ADU or not to ADU

[Alecia Loveless]

I am refinancing a property to free up money for additional investments.

I currently have a 2 family with room to convert the garage into a studio. The total cost will be $70,000. I’m thinking of using some of the refinance money to start the garage conversion by doing the portion where the roof needs to be raised which is the hardest, most expensive part. I could then finish the project over time. I expect this to cost about $30,000.

This will be a different construction crew from my usual contractor and will keep him free to work on other jobs.

The finished rental value of the unit will be about $900/month. This will be pure cash flow of 12% return per year. The ARV will be at least what has been put into it.

Would you do the roof work so the rest of the project could be finished over the course of the next year or so as funds were available or would you focus on just buying a different property entirely that would make more cash flow? Or would you make the whole project a priority and finish it ASAP?

[Henry Clark]

OP. Just considerations

1. Does the ADU make this property more valuable "relatively" to similar properties? Example what is the market for your say 2/1 versus the 3/2 market in your area? Realize this is a standalone ADU I believe.

2. How does this ADU return and potential appreciation or value add compare against taking the $70,000 and leveraging more properties?

3.  I’m being chicken little right now in our investments and deleveraging.

4. Timing. Can you rent the 2 out while adding the ADU? Or is the 2 empty and now is a good time to do the roof extension?

Basically due to the size of the cash available I wouldn't look at the ADU by itself. Would rank it versus other investment options over the next year.