Portland, OR ADU vs. Turnkey

[Brandon W.]

Hello BP Community,

I have a scenario I wanted to run by you. The general subject has been covered quite a bit here, but I had some specifics and specific numbers I wanted to share. I am of course looking for overall feedback, but I also am looking for what questions or information I am not including. I have owned one rental unit in the past, but this is relatively new to me.

I am in Portland, Oregon and have been planning on building an Accessory Dwelling Unit (ADU) on our current primary property for the past 6 months or so. Ended up getting plans draws and submitted to the city and then ran into some complications with setbacks. Frustrating, but also made me circle back to a turnkey option we have been looking at.

Here are the comparisons and please feel free to share feedback liberally.

Option 1: Build detached 1/1, 370 sq. ft. ADU/Backyard Cottage

$65,000 total cost

Rent for $750-900 a month, and utilities would be included as they are not separately metered.

Property taxes are hotly contested at this point, as our county has been drastically increasing them once building has completed. I am guesstimating my taxes would increase from $2,500 to $4,500.

I would then refinance all into my current mortgage, ending with a $260,000 new loan balance.

Cash flow of about $400 (if rented at $850), after factoring increases in property taxes, HOIs and utilities.

Option 2. Purchase 3/1.5 or 3/2 Turnkey Property

Total Cost: 60-85K

20% down and with financing looking at out of pocket cash of 17-21K.

Cash flow of about $250-325, after mortgage, taxes, HOI and mgmt.

Would then refinance primary and pull back the out of pocket cash I used to finance, resulting in a new loan of $215,000. I need to refinance for additional reasons, but would like to do it all at the same time.

Appreciate your feedback!

Brandon

[Scott Radetich]

Or option 3, 3 turn key's for 60k down making 750-975 a month. 

I too am pondering this scenario. I've got a place in SE Hawthorne that would be perfect for an ADU. I went on and ADU tour this summer and was blown away by the amount of rents some owners were collecting from Air BNB. One guy was collecting 3k a month for his studio, and it was only around 600-700sf. Shoot, I can change sheets for 3k. Even the month to month rentals were bringing in substantial rents, so its hard to argue against adding an ADU.

From the sounds of your post it seems you are leaning towards the ADU. So for that i'd say go that route, but try and make it larger. A few extra sf, won't add that much in construction costs but would make it so much more desirable to rent. Now if you are limited based on setbacks that's another thing. I'd then say take another look at the turn keys.

btw - Right now I'm working on buying more units. I can always build the ADU later. I'd rather have a few more properties that are on a fixed 30 year, 4% interest loan, than one ADU.