According to a Gallup poll, real estate was voted the best long-term investment by Americans for the 11th year in a row beating out stocks, gold, and more. The answer for this is clear: with the housing affordability crisis and the housing availability crisis, high demand has driven prices up. Inflation is also something that is inevitable. Generically speaking, the average house doubles in value every ten years. Clearly real estate is a solid investment and here are a few ways that Accessory Dwelling Units (ADUs) can help in maximizing property value.
The size and type of ADU you can build is dependent on the size of your property, the condition of your property, and what it can accommodate. For example, if you have a smaller lot or a lot that has limited room on it for an ADU (maybe you have a pool or large shed), then you may need to choose a smaller ADU to fit on your property. Or perhaps you live on a hill with rocky terrain in a remote area. The cost of excavating the rock and engineering an ADU on a hillside may not make sense for your bank account. Or perhaps you live on an acre with wide open space. A two bedroom ADU could make perfect sense for you. Each property and owner is as unique as the ADU they put on it. Maximizing property value starts with working with what you have and addressing its potential.
How Will You Use Your ADU?
Let’s talk ROI (return on investment) here and a lot of your ROI is dependent on the purpose of your ADU. If you’re thinking about using an ADU as a rental unit, knowing the monthly mortgage of your ADU minus the potential rent could be a determining factor for both you and future buyers. Or maybe you have aging parents and you want them to live closer to you so that you can ensure their health and safety. Knowing the cost of senior living in your area can help you decide if an ADU is the better, more affordalbe option. COVID has allowed a lot of people to work from home or run their businesses out of their homes. How much are you paying in professional rental office space? Should you put that money towards an ADU instead? These are all ideas to consider when maximizing property value with an ADU. Consider where you’re investing your funds and which option will have the best result. When you rent an office or senior apartment, the money is gone when the lease is up. If you invest those funds into your ADU, you’re paying off your ADU and therefore setting the stage for potential passive income.
An ADU is truly an investment as the average unit could start at around $250,000 so here are a few ways to maximize property value: 1) Think about the long term investment. The studio ADU may seem more appealing because it costs a bit less, but a one bedroom unit could have more rental potential in the long run while costing only a few dollars more per month. 2) Budget friendly finishes may be the better option for an ADU you rent out. Hardwood floors may get scratched, carpets will get stained, and marble countertops can be easily ruined if a hot pot is placed on it. As a landlord, the last thing you want to do is keep replacing expensive finishes after each tenant. Today’s laminate flooring looks like real wood and is virtually indestructible. Quartz countertops resist stains, scratches, and are easy to maintain. Also, avoid trendy tiles or design features that will quickly date your property. Neutrals will appeal to the masses (aka your potential renters) and will have a longer lifespan than colored cabinets or funky backsplashes.
Consider the Market
Research the local real estate market to understand the demand for rental units or additional living spaces. Tailor your ADU’s design and features to cater to the preferences of potential renters or buyers in your area. Discuss with your trusted real estate agent how homes are selling with an ADU on the property. Do people in your local area find it an asset or a deterrent? If you were to sell the property, how would the ADU be valued? Would you be able to recoup your investment? When you’re ready to rent or sell the property, market the ADU effectively. Highlight its features, such as the potential for rental income, private living space, or the ability to accommodate multi-generational families.
Maximizing Property Value
When you’re maximizing property value, think beyond just the ADU’s space. How well does it blend in with the current house and the surroundings? How can you tie in the landscaping and make it a seamless environment? Perhaps you can add decking, pathways, and plants to unite the two structures. Or maybe you create a separate, private entrance from the front yard to the backyard to appeal to renters. You could also designate a parking spot for renters or create a handicap accessible ramp for aging parents. Think about the property as a whole and not as two separate structures.
Ask the Professionals
Consult with contractors, real estate agents, and property appraisers to get expert advice on maximizing the property value through your ADU project. Also connect with your lender and financial advisor to see what the best financing options are for your unique situation. Should you pull out equity from your home? Does a 1031 exchange work if your parents sell their home and purchase an ADU in your backyard? What do you need to know as a landlord? What other costs are involved such as landlord insurance and an increase in property taxes?
Are you thinking about maximizing your property by adding an ADU? Call ADU Warehouse today! We partner with the Rick Fuller Team and their real estate specialists will be happy to tell you the current value of your home, the potential value of adding an ADU, what the current, local rental market looks like and how you can maximize your property value. We look forward to working with you!