Rehabbing and adding ADUs in OC?

[Dylan S.]

Our company is looking to jump into SFR investments and want to look for properties in the OC area with value-add potential to either rehab or add an ADU/convert a detached structure to an ADU. Ideally, we'd like to buy an oversized lot and build a separate ADU on underutilized space and/or convert a detached garage. Then the goal would be to either sell it off or keep it as a rental for a long-term hold. I know certain cities have different ordinances/rules for building ADUs. Which cities are best to execute this strategy? Has anyone had experience adding ADUs to properties in SoCal? How does that impact value? Was the cost to build worth the additional rent/value the property sold for?

[Joe Homs]

@Dylan S. I've lived in the OC pretty much my entire life. We used to call them "Granny flats." This was a great purpose for them, but I do not recommend them for a value-add at all. They will run you around $200-$300K to build. If you make $30K a year from rents it will take you 10 years to pay off the ADU. The appraisers also find it very difficult to give you the value you are looking for.

Good Investing...