Build an ADU or invest out of state?

[Pat Saperstein]

I recently got an estimate for converting my garage to a legal studio apt. rental (ADU) unit. It's upwards of $100k, I know, it sounds insane to most of you but is pretty average for Los Angeles considering the amount of permitting. I could probably rent it for at least $1500 per month so that's a pretty decent return, but then we would have a stranger living in pretty close proximity (small lot). It's also more cash than I have available so I would have to supplement with a HELOC or refinance. Would I be better off buying an out of state property and not putting all my eggs into the property I live on? I'm interested in buying a duplex in Portland, Ore. so my son can get a break on rent and I can rent out the other side, but that market is pretty expensive too and there are few duplexes. Assuming I could raise $100k in cash, it would be pretty tough to find a fixer upper in the LA area that I could rehab and rent out for under $550k, which is another alternative. What would you do? Realistically I would prefer to just use the $60k I have in cash and not have to deal with extra loans. Thanks!

[Brad Hammond]

@Pat Saperstein, I think you also need to look at what the ADU will do to your home value and if you are going to sell/refinance any time soon. If not, you might be able to do better in Portland. It is expensive, you would be looking at around $300k-$400k for a duplex and cap rates are around 4-6%. However, you should be able to cash flow and realize increased rents over the next few years. Let me know if you have other questions on the Portland market.