Somehow I blinked and time seems to have flown by. My kids are more independent and need less help, my parents and I are re-adjusting our roles and they need more help, and I’ve come to realize that retirement is only around 15 years away… how can this be?!?! I feel I’m still in my 30’s but life circumstances are clearly reminding me that I’m definitely middle aged. Are you in the same boat? If so, then you’re probably facing some of the same financial challenges and tough decisions that I am. This is why I believe that ADUs are a solution that many of us are looking for, both financially and in relation to the future care for our loved ones. Here are 5 reasons why I believe ADUs are the future of housing:
- Housing Affordability – Let’s talk numbers. According to the California Association of Realtors®, in Quarter 3 of 2022, the average home in the San Francisco Bay Area cost $1,075,250. The monthly payment for a home valued at this amount would equal $6,170 per month (which includes taxes and insurance.) In order to afford the “average” home, the minimum qualifying income would have to be $185,100. But let’s say you’re living in the SF Bay Area suburbs such as Contra Costa County. The average home there costs “only” $753,310. This equates to a monthly payment of $4,1320 and a minimum qualifying income of $129,600.
Now let’s have a reality check… if you have grown children in their mid 20’s to early 30’s, they’re probably interested in purchasing a home of their own. Chances are they’re renting an apartment. Rentcafe.com shares that, “The average rent for an apartment in Contra Costa Center is $2,499.” Census.gov estimates that the average household income in Contra Costa County between 2017-2021 was $110,455.
Breaking this down, the minimum income needed to qualify for an “average” home is $129,600 but the average income is just $110,455. Add in inflation and rent and it would seem almost impossible to save for a down payment on a home.
An ADU is a great solution because as a parent, you already have property. Imagine spending just $250,000 on a home? This is a feasible way to help your grown children to have a space of their own while increasing your property value. They could even purchase the home themselves and build their own equity!
- Aging Baby Boomers – After World War II, prosperity gave way to the rise of the Baby Boomer. By 2030, all of these once babies will be over the age of 65 and they make up over 21% of our population. This means that a lot of us Gen Xers are at a point where we have to think about the care of our aging parents. Between my husband and I, we have one set of parents who are financially secure and have all of their end plans in place while our other set of parents have no home equity and live paycheck to paycheck. After a bit of research, I’ve discovered that for our unique situation, it would cost around $5,000 per month in an assisted living facility. (If you could see me, I am literally cringing at that amount. YIKES!)
An ADU would help immensely. Our kids still live at home so we are limited on living space right now. However, an ADU would provide an additional 380 square feet or more to our property which means grandpa and grandma would live just across the yard. They would have their privacy while we can have the peace of mind knowing that they are safe, healthy, and cared for.
- Using and Building Equity – As someone who works in the real estate industry, I’ve found that a majority of our clients plan to use the equity in their home to either fund or supplement their retirement. An ADU can increase your property value quite a bit. It has been found that ADUs can increase property values up to 30% and can even increase resale value up to 50%! (Of course, these numbers are based on the type of ADU and location of the property, so be sure to contact your real estate professional for your exact numbers.) The Census Bureau found that in 2020, the average person over 65 years of age had approximately $300,000 in equity in their home. This could easily fund an ADU.
- Added Income – Let’s say your sister wants to take care of your parents or your grown child gets a great job opportunity out of state. What could you do with your ADU once your family needs have ended? Glad you asked! Renting out your ADU is the perfect way to bring in additional income. Once the rent pays for the ADU, you have a potentially steady source of revenue.
- ADUs as Home Offices – Covid 19 showed us that working from home can be a very convenient and effective way to conduct business. We’re also in a time period where the Internet has elevated the entrepreneurial spirit and many people are building businesses from home. An ADU makes the ideal home office in that it’s separate from your home which allows for privacy and a dedicated space just for meetings and work. Talk it over with your financial advisor; you may be able to rent your ADU from your own company and gain financial benefits that way, too.
With housing affordability making home ownership a challenge, the high costs of senior care, inflation causing many people to delay retirement, and more and more people needing additional living space, ADUs just make sense in today’s world and beyond.
Are you wondering if an ADU is right for you? Call ADU Warehouse today! We’ll discuss your options concerning placement, floorplans, and more. We also have partnered with reputable real estate agents, insurance companies, landscapers, and lenders to ensure that the process of building your ADU is as seamless as possible. Call us today!