ADUs as an investment strategy in California Metro Areas

[Brian Larson]

At the beginning of 2018, California passed a state standard for Accessory Dwelling Units (ADUs). This law wiped the slate clean of the patchwork of regulations throughout the state. The legislature claims to have passed this new law to help mitigate the housing crisis in California. Since these legal changes took place, many city building departments have been flooded with requests for ADU Projects.

Has anyone on BP looked at the financial numbers for building an ADU in a metro area in California to get a positive cashflow? It seems like it might be a good real estate investment strategy.

For example, if someone were to buy a distressed metro property in Downtown Sacramento. You could remodel the house and then build an ADU. This would essentially create a duplex without all the red tape. But do these financials makes sense?

I think this investment strategy is hard to evaluate because there is little historic data on ADUs.  Furthermore, appraisers often have issues evaluating the value of properties with ADUs.

Does anyone on BP have any advice or experiences that they could share on this ADU investment strategy idea?