Los Angeles ADU valuations explained

[Jonathan Taylor]

Good Afternoon Local LA BP folks,

I know this has been a hot topic among the local LA investors and as a mortgage broker I was very curious on how ADUs are actually valued as I keep hearing different sides to this. I spent a good amount of hours talking to local LA residential appraisers to get an idea. Bottom line is, ADUs are NOT valued the same as an additional unit nor is the rental income considered in their valuations. The best example I found was if you have an SFR with a pool and an SFR without a pool. The SFR with a pool is given maybe 20k-30k more in value. Same concept for ADUs. Its a value add line item and assigned values ranging from 20-50k. Now the appraisers I spoke to did not speak in absolutes as they would constantly say 'probably around' and 'depends on the comps of recently sold in the area' to justify the property values assigned to ADUs.

Let me know your thoughts but this seems to stick as I spoke to 5 local LA  residential appraisers, all consistently reiterating the above comments. To be clear, this is info about Los Angeles county ADUs only, I did not speak to any appraiser outside of this county. 

[Will Barnard]

The purpose/intent of garage conversions to ADU or stand alone new construction ADU units is to hold and generate either a new income stream from your residential single family property or create a new living space for a family member/friend, etc. It should not be intended to use as value for a flip, rather a long term strategy to build and hold. 5-10 years from now, when your rent pays for the construction and more and more properties with ADU's are sold, there will be more comps and likely given a bit more in valuations as time progresses.

For today, expect to build them to hold for long term and generate higher cash on cash returns than buying a new property. You already own the dirt so all you have is the construction/design/utility connection costs with ADU's. That is what makes them attractive, at least here in Los Angeles with the high rental rates.