3 Reasons to Build and ADU

An argument for building an ADU: Home Owners Perspective

#1: Additional Monthly Income

  • It’s fairly straight forward, if you have additional space within your property and rent it, it will produce income. In some areas the project development cost might not pencil out due to market rent values. But in city areas such as San Francisco, Los Angeles and San Diego to name a few, the market rent might be more than enough to cover your existing mortgage + project financing with money let over at the end of the month.
  • From the point of view of a young family with a starter home, this can not only start looking like passion project but a possible investment/college savings plan. If financed correctly an additional unit can provide the additional income and relief of a monthly mortgage burden which can then enable them to quickly save to cover other debts and/or fund college for their children.
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#2: Increased Property Value

  • Lets take Los Angeles for example, depending neighborhood the median per square foot cost can range from $350-500 per square foot. With that being said, construction for a new home will range from $190-250 per square foot. Taking these numbers as a baseline, take the (lowest per square foot new home cost = $350) minus (highest per square foot construction cost = $250), that would give you a difference of $100 per square foot.
  • Meaning that you can possible gain $100 equity per square foot for the project you build. Typical ADUs range from 600-1200 square feet in size. Given these numbers you can get a clear idea equity bump you can get in your property.

#3: Providing Housing for Students, Elderly and/or Family

  • First, the financial incentive is probably the main thing that might drive a home owner to build an ADU. But another perspective can be that you are doing a good in you local community. You as the owner, control who can live there, quality of unit you provide and the cost, one might provide housing for a student and/or elderly that can not afford a market rate new condo but will happily live in a Accessory Dwelling Unit.
  • Second, you can provide housing for your own extended family. Although living with extended family might not be for everyone, two families can provide mutual support for each other. Such as sharing responsibility on the mortgage or simply by looking after younger members of the family when the other is away at work. Based on a conversations I have had with family friends, multiple generations living within one property, has become a  solution for them. According to Forbes “multigenerational living has resent 30% in the last 7 years, with 1 in 5 American’s living in this type of arrangement”. Can this work for your family?
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In Conclusion

These are just a few of the reasons why one might pursue building an additional unit on your property. It goes with out saying that the figures explained here were general and anyone looking to build should calculate their owner numbers to make sure they make sense for them. You might find that it more than a few reasons listed above might work for you!!!

Sources

https://www.forbes.com/sites/nextavenue/2016/10/09/multigenerational-living-is-back-and-thats-a-good-thing/#965f99e58077

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