Quad Plex Search

[Jovelyn Punzal]

Hello! I wanted to come on here and reach out to the broader network! I am looking for a 4-PLEX in the City of San Diego or a Single Family Home with a Permitted ADU already on the property/ADU development opportunity or something similar! Plan is to House Hack/STR-MTR. Lets chat!

[Dan H.]

Typically purchasing a property with an ADU is the better financial decision. This is because ADU additions typically add less value than the hands off cost to add the ADU. So adding an ADU is often a value subtract meaning you spend more than the value added.

In addition, even hands off ADU additions are work. Hiring the right architect and contractors, conveying desires, selecting finishes, etc.

Versus if you buy a property with the existing ADU, you may not get exactly what you would design. However, you are getting it at the reduced cost and getting financing associated with the property purchase (conventional residential financing).

Why adding an ADU is often one of the worse RE investment (but better than adding a JADU):

1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?

Good luck