Good idea to build house with attached ADU for rental investment?

Question

For those looking for additional details.

I live in the Seattle area. I am planning on purchasing a lot somewhere in the Eastside (Redmond, Issaquah, Sammamish). And within the next 2-3 years I am planning on building my forever home on the lot. Provided that the County/City/HOA would approve, would it be a good idea to build an attached ADU for renting out? If the main home is between 2500-3000 Sqft (3-4 Bedrooms), I am thinking the ADU would be between 1000-1500 Sqft (2-3 bedrooms with 1 or 2 garage). How much value would this entire property add when compared to a Single Family home with around 3500 Sqft?

Sebastian Marroquin · Answer

Are you thinking about refinancing the property once finished? (the end goal will determine your strategy and why I ask).

I took a quick look at this property there on zillow:

13158 234th Ct NE, Redmond, WA 98053

(I don't know the market there... so I don't know if this is over priced or under priced... and this is just an example):

The property is 3,560 sq ft @ $372 per sq foot: listed for $1.325 million.

So based on this: a 3,500 sq ft home would be worth about $360 to $375 per sq foot (assuming the home is priced well).

In many areas : On the contrary: if you have a home that is 2,500 and an ADU is 1,000 sq ft: the numbers won't be the same. It is market specific, but you can say that the 2,500 living space would be closer to that $372 per/ sq ft (or $930k plus  the value of the ADU) : so maybe $100k to $150k more : so you can see how it won't be the same value. (talk to several appraisers in your area or in the area you want to buy in before you decide on what to do!) and also cross reference with a good realtor that can give you values and "future values" for any scenario.

I would:

Get the "team" together and have all parties give you input:

1. Appraiser

2. Realtor (that has knowledge of additions, construction and new construction)

3. Architect / engineers

4. Contractor

Once you interview for each team member and have the "team" you want to work with: then you can have a zoom meeting so that you have synergy with the team and so that they understand each other's point of view and way of thinking. (some may be concern more with aesthetics, some with functionality, and some with being cost effective: so you have to understand and know what combination of all of that and balance of those you want for your project).

example: sometimes I work with home owners or investors that want a good balance of those... or sometimes, some clients say to me...Sebastian, I don't care about saving money (I don't want to over pay) but I am not concern with budget to a realistic extent. :)

I also saw:

4900 270th Ave NE, Redmond, WA 98053

Listed for $700k (2500 sq ft) but it looks to be a fixer : @ $277 per sq ft with a huge lot: (I don't know if the same market as the home above: and where your realtor would come in... )

but if you look at this: you could buy something like this and renovate it: and add the ADU : 1000 sq ft for about $150k to $200k all in: where you spend $100k on the main home: and now you are all in for $700k + $100k +$200k : total $1 million (which is less than the finished home above).

If you are building new:

The questions is : Why? To customize ? to save money? Only you can answer that question.

if you buy a lot for $300k

soil, surveys, etc + building plans + all details and + engineering + fees from city and fees for studies+ utilities:

would be anywhere between : $50k to $100k (depending on city) and the people you work with.

Construction: about $200 per sq ft: just to be conservative (our costs out here are much lower depending on scope of work).

but with these numbers in mind:

1: pre work: $100k (to RTI ready to issue permits)

2. 3,500 sq ft times $200 per sq ft: $700k

3. Purchase of lot: i saw one on zillow for $300k

4. hardscape/ landscape : $50k ball park

total so far: $1.150

contingency (aka emergency: $50k )

Total : $1.2 million for a custom home at 3,500 living space (you could design the home so that after the fact; you convert a wing of the home (1,000 sq ft) to the ADU.

the home would be worth about $1.3 + (equity of about $100k + )

****

If you go the other route:

build home at 2,500 sq ft + ADU at 1,000 sq ft

you will end up with the same total build out: $1.150

and the value: estimate: about $950k to $1 million + ADU VALUE or about $150k : total value: $1.150 (break even).

There are a lot of moving parts that I do not know, and I think that if you connect with the right people and create the team I mentioned above, they will give you the right numbers for

1. Studies

2. Architecture and engineering along with other things like (title 24, etc etc )

3. City fees + utility fees

4. construction costs

5. land costs (make sure you check on zoning and max % of build out) architect can do this for you: but better if you are on top of it so that you can manage the team.

Had a free morning today :) : hope this helps you a little bit.

Sherief Elbassuoni · Answer

@Kc Brown, this looks like a great plan. Building ADU varies quite a lot based on the ADU SqFt and finishes you use. I have seen numbers around $140K-$200K.

Regarding added value, this will be a new property, so most of the construction cost should be reflected in the value of the house. That said, it really depends on the CMA analysis that needs to be done later on once we know the specific location, area, finishes,...

I hope this helps.

Feel free to reach out for any comments or questions.

Thanks!

Kc Brown · Answer

Thanks @Sherief Elbassuoni for the response.

Adrian Chu · Answer

Check with the city to see what their requirements are.  Then, see if that fits in with the design you want to achieve with your home.

Different jurisdictions have different views towards ADUs.

Seattle requires it now for any house where the square footage is more than half the lot size. Seattle also lets you rent out both the ADU and main house separately.  Kirkland allows that as well.  Most other cities do not.

Jordan Low · Answer

Just keep in mind the local regulations.  Bellevue requires that you must live in one of the properties. You cannot rent both out.

Jay C. · Answer

Why build a large ADU? That costs more and it invites more people. The smaller the ADU the larger the profit margin. Or maybe you are lonely and want a whole ton off stranger's on your property?>Myself I want a couple or a single guy who works all the time. Its been the best renters ever.

Daniel Alhadeff · Answer

KC, good Plan.  The appraiser will look at the additional bedroom / bathroom counts in the DADU, then add them to the SFR bedroom/bathroom counts already on the lot.  Banks/Appraisers usually wont give value to the new addition or value it as a separate house.

That's my experience anyway!

Thanks,

Daniel

A6 Urban Properties, LLC

Property Management / Investments

206 430 2973

Good idea to build house with attached ADU for rental investment?

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