All Forum Posts by: Hai G.

I have two identical 1-bedroom cabins right next to each other on the same lot in the Smokies. Exact same configuration and layout and almost the same amenity. Both had a heart shaped jacuzzi tub in the bedroom. I chose to remove from one of the cabins when it wasn't working, and replaced with a desk and a chair. Interestingly, that cabin books more and garners slightly higher ADR. In summary, nobody cares for it even though almost all of my guests were honeymooners/couples/anniversary people. I would suggest removing. 

Thanks for sharing, Chen. Curious what kind of rent are you foreseeing for the new ADU build? Are you doing it for long term rental purposes?

I recently completed an ADU build (attached ADU) in one of my properties. While the return is good with that one the prospect has gotten worse with plummeting rent in the Bay Area and higher build cost that I'm not sure if I would build another one. Curious about your thoughts.

I read this article (from Stessa's digest email) and pricing seems to be going the right direction for properties with ADU. Still some ways away, but early evidence that ADU is catching on given how new it is.

https://www.forbes.com/advisor...

• - In January (before the pandemic took hold), homes with ADUs were selling 1.8% (two days) faster than the same time in 2020.
• - In November 2020, that pace jumped to 26% (22 days) faster than 2020.
• - Homes with ADUs were selling 18% faster year-over-year in November.
• - The median listing price for homes with ADUs sat at $567,000 in November, up 14.5% year-over-year, and outpacing the overall home price growth rate of 12.7%.
• - Finally, the price per square foot of ADU homes increased to $183 in November, an increase of 16% year-over-year.

One solution is you can set up a mailbox on the outside where both units have access to. Have the residents pick up their mail and leave the other ones. 

On internet connection, if the main residence has Comcast, you can ask the JADU to get AT&T. You can't have two accounts of the same address with the same company, but you can use multiple companies for separate account. A technician will likely need to do some wiring but that happens regardless and you'll be set up for the next set of tenants. 

Getting deliveries may be more annoying. Sharing one address means the delivery person will knock on the door of the main residence by default, unless special instruction is given for each delivery. If there's a good system for this would love to learn more. 

Do some market research on what the rental price difference is between the different bedroom counts in your area. In my market, going from 2 to 3 generates an outsized return vs going from 1 to 2, for example. 

On design, I was able to fit 2 bedrooms in a 600 sq. ft. ADU layout. So technically you can make any size work given your lot's ability to go up to 1200. Here's a case study.

https://infinitesabbatical.com/adu-design-tiny-house-on-600-square-feet/

I do think you would want to do some research on incremental return per square feet keeping bedroom count constant. For example how much incremental rent does a 3-bed generate on 1000 sq. ft. vs. 900 sq. ft., or how much more rent can you get going from 750 2-bed to 900 2-bed. If the difference is not that much, and especially with a ballooning city fee structure, it may not be worthwhile.

@Jeni Nikolova

It is better to let it sit than to deal with the added headache down the road out of desperation to get it filled at the moment.

I’d always rather drop the price than drop my standard when it comes to tenant screening (I’m also in the Bay Area). From the description, it sounds like even if I were to drop the price I wouldn’t want to rent to the person.

I know of landlords who were unwilling to drop prices and compromised on tenant screening standard (also in the Bay Area). More often than not they had to deal with months of nonpayment and ultimately cash for keys to get them out (formal eviction is difficult).

It’s not worth it.

Not sure about East Bay, but six feet minimum from primary unit for South San Francisco. 

https://www.ssf.net/Home/ShowD...

If you think of this from an angle of cash-on-cash return, perhaps it is easier to see the benefit and necessity of doing this.

- In your example, if a remodel cost of $25K nets an incremental $100/month increase in rent, you're looking at an annualized return of 4.8% (100*12/25000). Think of this as the baseline (lower bound) quantifiable return. 

- However, it's more than that. As you alluded to, you'll most likely get better quality tenants, which leads to faster tenant fill-in, less turnover, higher chance of rent collection, etc. Actual quantifiable return of this is unknown, but you can factor that in as an upside to the baseline return above.

- Furthermore, it may decrease future expenses for the kitchen vs if a remodel is not done. Quantifiable return of this is unknown, but another upside you can add to the lower bound.

So after all that, your return is at least 4.8% annualized for this remodeling investment. Is that good vs other investment alternatives? Only you can tell.

I myself had been in this line of thinking before as well - how long does it take to get my money back. But essentially that's equivalent to asking how long does it take to double my money, which rarely helps me frame investment decisions efficiently. 

One exercise I do is I imagine every spend/investment using the 1% rule. Suppose I'm spending $25K on a "house", does it net at least $250/month in "rent"? If so this will most likely "cash flow" even if I borrow money to do this (aka "mortgage"), so that's probably a good investment in any market. 

In Bay Area all-in architect fee for me to build a detached ADU (800 sq. ft.) was $12K (inclusive of engineering and title 24). Permit fees total were roughly $5K. Hope this provides a reference from another expensive area in CA. More detailed breakdown below.

https://infinitesabbatical.com/adu-permit-process-and-fees-5-step-guide/

@Diane G.

The increase in inventory could be conversion of Airbnb units to long term rentals. Anecdotally I’ve heard many Airbnb operators who aren’t able to get bookings do that to get some income in. When bills need to be paid many may be okay pricing low to fill the units.

No data yet on trend as far as I know but will be keeping an eye out. Supply flooding in the market will for sure drop rent, though will wait and see what the effect is once shelter in place is eased.