All Forum Posts by: Carlos Ptriawan

Thanks, Julie, you're very lucky when you're able to get this property with ADU literally appraised as zero and rent it out for > 1k. I shall be thinking the same. These days just the cost of architect+permit itself is already 20-30k.

I think the root cause of the problem is a combination of such things:
- construction cost is too expensive
- existing home is cheaper than new construction
- Market/rent value is actually more beneficial to the renter 
- since ADU is not popular, there's no common way how to appraise it properly.

@Jon Schwartz Jon answer is the key here and super helpful. I heard the same story in Bay Area market. It seems ADU primary use is for family use/inheritance and the house will not be sold until the next few years.

There's no way I build ADU for 300k and be appraised for only 50k. It doesn't make sense. 

The only lucky guy is those who bought the property with illegal ADU especially during 2009 crash as the ADU is now legal.

Devin, the key here is you buy the right property at the right price with the cheapest money possible which means you need to use a conventional lender that can give you around a 2 percent interest rate. The difference for 100k houses is around 100 bucks monthly just from the interest. Don't just buy any homes.

If you interested: they seem having tiny homes in San Jose and Berkeley, you can contact them. https://pacificatinyhomes.com/...

Hello Debbie, the best is if you can pay the debt service thru a conventional loan because the rate is much lower. Try this as much as possible, if you can't you can use a private lender but they usually only lend up to 50%-60% with 5%-6% rate. 

Another way you can do: move to your rental, live there for two years, and just sell it to avoid paying the full tax.

Mario: is that ground-up ADU or conversion?

I'm analyzing the last two years sold the property within MLS in central San Jose,CA (not your area). I search for "ADU" keyword, I found hundreds of entries but only as buzzwords to the enticing buyers (such as "potential ADU" blabla). I checked many listings and only very few sold property that already has ADU when being sold.

Those are MLS ID ML81797004 , ML81704057.

Then I run the comps. I found their PSF value is actually the same as other property that doesn't have ADU. Of course, this method may not be that accurate. Maybe the sale value of ADU will be appreciated properly when there's many more adoptions in the market. Who knows.

Some more observation on building ADU from business perspective:

-I think building ADU is making more sense if the objective is to use it to family member HOWEVER people can always upgrade or downsizing by selling their SFR and switch to buy a duplex or triplex if they want ( Eg: cost of per unit duplex in San Jose is 400-600-ish , cost of building 2BR 3BR ADU from ground up is $250-350K, not much different but with ADU you can't leverage that much.

- In case you're using it for investment then THE Construction cost is the major problem that you need to solve: you need to make sure all the cost associated with building ADU must be at least 0.6 from the projection revenue. Lets say you build an ADU 1/2BR with $200K with cash, you rent it for $2000/mo. This makes sense from CoC however this might *NOT* be the best investments. Why ? because you can't do leverage too much in construction and the cost of building/cost of money is much higher and rental value in Bay Area is actually still pretty cheap ( market in bay area is showing rental is cheap and construction cost is expensive and home affordability is at its lowest).

- It is also very market specific: making 2 BR ADU with the same cost is more profitable if you have high equity house in Palo Alto compare if you have low equity house in East San Jose as their markets are totally the opposite.

- But as general rule -- building ADU is better financially if you also live in the same property, you could literally live for free in Bay Area if you financing the rehab cost with low interest.

- Another investment perspective: If you have 200K to spend , rather than building ADU , you could literally buy Four/Five 7-8% CashOnCash (20-25% down) with almost similar equity appreciation like in CA, from home out of state.

- Next issue is the appraisal, currently nobody know how the market or appraisal going to appraise house with ADU. There're more negative story in this aspect.

As summary, from investment perspective:  building ADU is a "good" speculation with possible reward, if you're lucky enough it may be good for you if you meet your objective and financial/non-financial goals.

You need to have good software to analyze this as it's local specific. There's a certain zip code (for example in CO) that builds is much better than fix-n-flip or buy. The keyword is what Greg mentioned above. 

Looks like Jason post is deleted ...

@Jason Pabon here's some of my business idea to RS:
- please have a video tour in the listing.
- please have a paid independent buyer agent process. Sometimes it's needed for the buyer to do due diligence.
- please include county accessor information / URL on your website.
- RS needs to expand the BYOP program nationwide where buyers can use your own real estate agent for a  fee when we buy OOS. No need to have a lease guarantee for this kind of program. We can share the inspection costs. RS doesn't need to be too generous to its offering :)