Detached ADU pros/cons in bay area

[Deepak Bhosale]

Hi,

I am evaluating whether building a detached ADU (1 bed/1 bath 500 sq ft) on my property is a good idea in bay area (Santa Clara).

Talking to realtor and appraiser, it is clear that detached ADU won't appraise to the same value but will generate rental income.

My concern is, if I spend 200K building 500 sq ft ADU and it appraises to 50K, I will have to spend long time earning income from rent before I break even. (I am assuming $2000 rent out of which about $1500 would be net cash flow after expenses).

I am contemplating whether I should just increase square footage of my existing house to have 3 bd/2 bath from current 2 bd/1 bath. Thoughts?

[Lamont Chen]

@Deepak Bhosale

You can look at it from 3 angles:

1. Build detached ADU (if zoning allows) with permits 200k. Appraises for +50k and rents for #X

2. Expand existing home (if zoning allows) with permits for $#, Appraises for $#K, refinance?, and since you are living in it $0 rent.

3. Spend the $200k to buy another investment or multiple.