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We’ve been in the real estate industry for over two decades and an increasing commonality that we’ve been seeing is multifamily investors. From a cultural perspective, in many countries families live in close proximity to each other to help care for the young and the elderly. Somehow over the past few generations in the U.S., we’ve moved away from this living arrangement. However, with housing affordability becoming a huge obstacle to overcome and the high cost of senior housing making caring for aging parents outside of the home not an option, more and more families are returning to multifamily living situations. Here’s what you need to know about multifamily investing when purchasing an ADU.

An ADU (Accessory Dwelling Unit) is a great option for modern families and multifamily investors. Basically, an ADU is a permanent backyard home that sits on a foundation and the plumbing and electrical systems are tied to the main home. These homes range from studio to one or two bedroom floor plans and can be anywhere from around 380 square feet to 800 square feet. These homes tend to start around $250,000 and can go up depending on the size of the ADU, the finishes you choose, the condition of your property, etc. While this is a large chunk of change, the average home in California costs around $740,000. An ADU could run you about the same price as a condo… and this is a NEW home without HOA fees and sharing walls with strangers.  

Here are some important issues to consider before you become multifamily investors:


Yep, this is definitely the elephant in the room that has to be addressed thoroughly. We recommend discussing everything mentioned and more with a financial planner, lawyer, and/or real estate professional. Get all of your terms and agreements in writing to avoid arguments and confusion down the road.

When adding an ADU, who is going to pay for the structure? Will the homeowner pull equity out of the existing home to pay for it? Are Grandma and Grandpa going to sell their current home and allocate the funds from the sale towards the ADU? If you have a hefty bank account or healthy investments, should you pull from those and gift the ADU to your grown kids who need a place to live? All of these options involve legalities concerning taxes, 1031 exchange rules, and more, so definitely discuss your options with a financial or real estate professional to determine which option is most beneficial to you and your unique situation. 

Once you determine how you’re going to initially fund your ADU, there are other financial decisions to be made for the long term. If you paid for the ADU, will your parents or grown kids pay rent? Will they contribute towards water and garbage bills? If your parents paid for the ADU out of their home sale, will it be willed to you and deducted from the total estate if you have siblings who want an equal share of the estate? Will the ADU residents pay a portion of the property taxes? If your aging parents are medically fragile and need to move, can you rent the ADU out and will you divide the incoming rent between your parents and you if they paid for the unit? 

Property Upkeep

Living together seems great until you actually live together! Discuss your living arrangement and expectations beforehand to avoid frustrations later. For example, who’s responsible for maintaining the yard that you both share? If the dishwasher breaks in the ADU, who’s going to pay for the repair? If your grown child is staying at the ADU and has a dog that you’re not too fond of, where can it use the bathroom and how often do you expect the little presents to be picked up? What part of the yard is the ADU resident’s? You may like a minimal yard but Grandma thinks that the more pots and gnomes you add, the better. 

More Options

Here’s an out of the box idea that came to us recently. The parents who are the current homeowners of the property decided to build an ADU for them to live in while their grown children took the main house and the larger mortgage. This is a great way to keep the property in the family while the aging parents can adjust their budget for future plans. 

Another option is to build the ADU, rent it out to a renter to pay for it, and then when it’s paid for itself it can be used for aging parents or grown kids. This takes away a lot of the financial burden on your family while giving you options down the road. You can also live in the ADU and rent out the main property to generate more income until your family is ready to move in. 

Now let’s say you have parents AND grown kids who need a home. According to California ADU regulations, you can have one ADU and one JADU (Junior Accessory Dwelling Unit). A JADU is when you add on to the existing home like converting a garage into a liveable space. This is just another way multifamily investors can get the most out of one property. 

Do you have questions?

Of course you do! This is a lot to think about! Call ADU Warehouse today to learn more about ADUs and becoming multifamily investors. We are a team of contractors, real estate professionals, lenders, landscapers, and entrepreneurs who work closely with lawyers, property managers, and insurance brokers to give you the best full service experience available. We’ll help you to find the right ADU floor plan and discuss the process with you so you’ll know exactly what to expect. Additionally, we’ll assess your current property value, the estimated value with the ADU on it, and what you can expect to earn from renting out the ADU. We’ve worked with many multifamily investors who venture into real estate and we are confident that we can help you with this important financial decision. Call us today!

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