Quote from @Allan Tualla:
Quote from @Robin Simon:
A lot of the typical ways will be to add a bedroom or add square footage (all dependent on market, specific property, etc.). These are usually biggest bang for your buck.
@Robin Simon Thank you for your reply! When you say adding square footage, you mean adding an ADU?
In southern CA adding an ADU does not typically add value exceeding the hands off ADU addition. Much of the time the ADU adds less value than the costs and sometimes significantly less. This is different if you are a developer or going to do much of the work yourself. Make sure you understand how your ADU will be valued.
adding an ADU in Southern CA is a cash flow move, however there is no real cash flow until the initial negative position is recovered.
here are other reasons adding an ADU in Southern California is not an optimal RE investment:
1) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged (HELOC, cash out refi, etc). Leverage magnifies return.
2) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
3) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
4) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
5) this is related to the value added by the ADU, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
6) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
7) Related to the value added by the ADU, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?
good luck
