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Updated 3 months ago on . Most recent reply
An ADU can be more cost effective than buying out of State - We build them!
Hello all LA residents! I get in touch with a lot of CA investors who look elsewhere for cashflow and solid returns because they cannot maximize their profits in their area (CA/LA/SD).
Currently LA county is highly promoting ADU's and it can actually be a better investment than trying to search out of state.
Prospective investors reach out to me looking to spend around 150-200k on a deal in the Philadelphia area to get cash flow. What they fail to realize is that the deals they will find in this price range are often in Class D areas, section 8 rentals, and lack any solid appreciation. Not only do they have to manage this type of building out of state in hopes of higher cash on cash return, but they put themselves in a risky investment on the other side of the country.
Renting out a building for 1500-1800/m that costs around 150-200k with some rehab seems like a decent investment for a CA resident, but I can assure you, that after management, expenses, maintenance, evictions, repairs, and other risks that come with class D investment - you are not walking away with much - in fact you are likely buying a headache.
In LA county ADU's can rent anywhere from 1600-2400/m depending on the size of the building and particular area (typically 1 bed style). My partner and I build these ADUs at an effective cost (under 200k - including labor and materials - 450 sqft or so) and with a timeline around 3 months or so.
Wouldn't it be better to invest in an ADU for under 200k and get anywhere from 1600-2400/m in rent in your own backyard than trying to invest in Section 8 rentals out of state and do a rehab for them?
If you're able to build on your lot it the returns far outweigh out of state investing. You can hit the 1% rule investing in CA...
This strategy is also perfect for someone looking for a househack to offset their mortgage in high priced CA
Reach out if interested in receiving a quote or learning more
- Alan Asriants
- [email protected]
- 267-767-0111
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#2 Managing Your Property Contributor
- Investor
- Poway, CA
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#2 Managing Your Property Contributor
- Investor
- Poway, CA
>Wouldn't it be better to invest in an ADU for under 200k and get anywhere from 1600-2400/m in rent in your own backyard than trying to invest in Section 8 rentals out of state and do a rehab for them?
In general no, but there are some exceptions. This is because that $200K investment OOS is purchasing $200k of value. That $200K ADU addition is adding maybe half of that value. You have a negative $100K+ initial position. This negative position consumes years of the actual sustained cash flow.
Anyone adding an ADU in CA needs to 1) understand the value that will be added by the ADU and the resulting negative initial position 2) recognize there is no cash flow until any initial negative position is recovered. 3) understand the impact of the rent control when adding an ADU 4) Understand the effort involved. Adding an ADU is typically more effort than a BRRRR but with far worse returns. 5) understand the financing available to add the ADU and compare it to acquisition financing.
Adding a single small unit is the most expensive residential development. This is why it is not a wait for the market to catch up with ADUs. The issue is adding a residential unit in such a manner is expensive. Most all residential units are not built individually. They are build in some volume and are cheaper to build than building a 400 ft little ADU. Even a 1200' ADU will have significantly cheaper PSF than the 400' ADU.
Sending my best wishes to all the fire victims.