ADU Worth the Investment?

[Ray Martinez]

Hey there BP Community, 

I'm in the early stages of constructing an ADU and I've just been offered an opportunity for a job in AZ. (I'm currently in CA)

If I continue with the construction of the ADU, will I get the investment back if say I have it for at most 12 months?

Will the resale recoup the investment?

I'm constructing a 1 Bedroom/1 Bath 360 Sq Ft Garage Conversion in San Fernando Valley.

Thanks everyone!

[Dan H.]

Originally posted by @Ray Martinez:

Originally posted by @Jon Schwartz:

Originally posted by @Ray Martinez:

Hey there BP Community, 

I'm in the early stages of constructing an ADU and I've just been offered an opportunity for a job in AZ. (I'm currently in CA)

If I continue with the construction of the ADU, will I get the investment back if say I have it for at most 12 months?

Will the resale recoup the investment?

I'm constructing a 1 Bedroom/1 Bath 360 Sq Ft Garage Conversion in San Fernando Valley.

Thanks everyone!

Ray,

The ADU will make sense if you hold the property as a rental, but not if you sell the property in the near term.

ADU's aren't valued as traditional additions because they don't add square footage to the original house. Instead, they're valued as an amenity, like a swimming pool or wooden porch. Most appraisers these days are valuing ADUs at $40K-$50K, which is less than you're paying to build it, I'm sure. So don't expect to recoup your costs in a sale.

However, if you keep the home and rent out the ADU separately from the main house, you'll be getting an excellent ROI. What's a 1/1 rent for in your area? $1500/month? If you building an ADU for $100K and it generates gross rent of $18K/year, you're probably looking at a net return of $15K/year or 15%. That's AMAZING in LA!

So if you're planning to sell in the next year, stop construction. If you're planning to hold for a couple of years, keep building.

Good luck!

Best,

Jon

 Jon 

I like the idea of renting out, but I believe there's a restriction in the City of San Fernando about utilizing both the main dwelling and ADU as investment properties. Either one needs to be owner occupied.

I agree with the potential ROI. Perhaps I'll find value in a Rental Property purchase instead.

CA state law prohibits a jurisdiction from requiring owner occupancy (OO) on a traditional ADU or the primary dwelling associated with it.

CA state law does allow requiring OO on a Junior ADU (JADU). Every jurisdiction that I am aware of does require OO for properties with a JADU.

As long as it is a traditional ADU (not a JADU), then there is no issue renting both the ADU and primary structure.

Good luck