What is the Best ADU Size to Build in El Cajon (Zip Code 92020)?
New to Real Estate · Fairfax, VA · Member since 2020 · 35 posts · 10 votes
Hi everyone,
I’m in the process of closing on a property in El Cajon (zip code 92020) with RM2200 zoning and enough space to add ADUs. I’m trying to decide on the best strategy for building:
• Should I go with a 1-bedroom, 1-bath ADU, a 2-bedroom, 2-bath ADU, or even a 3-bedroom ADU?
• Which unit size would rent faster and have higher demand in this area?
• Are there specific trends or tenant preferences in El Cajon that I should consider?
I’d love to hear from anyone familiar with the rental market in El Cajon or who has built/rented ADUs in similar areas. Thanks for your insights!
Make sure you know how much value will be added by the ADU. In general in single family areas they add significantly less value than the hands off cost to add the ADU.
My initial protege added an ADU in Escondido which is working class like El Cajon. It added far less value than the cost of the addition. I hear the same thing at local meetups and on this site. Especially a meet up on private lending, ADU additions are discussed regularly (new attendees looking for money for their ADU additions without being aware that no one there will lend on ADU additions).
You also see this in the action of the flippers. In general they will add the ADU only if it is existing living space such as workshop, bunk house, office, etc. they will not usually do garage conversions. They virtually never do ground up ADU additions. Profits do not justify their effort even with the ADU addition in this case typically not being hands off .
Here is a list of things that make ADU additions a less than optimal RE investment but the value added and starting with tens of thousands negative is a big one that needs to be well understood.
1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged by the ADU (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?
9) adding multiple ADUs or adding an ADU to a quad looses F/F conventional financing. This reduces exit options and affects the value.
10) Small number of small units is the most expensive residential development there is. This implies residential units can be built at lower costs than ADU additions and provide better return.
11) adding an ADU to SFH can make the SFH fall under rent control. In CA currently only MF properties are rent controlled. If the house is older than 15 years old and an ADU is added, it can become rent controlled. Rent control laws are market specific. Make sure you know the impact that adding an ADU will have on any rent control.
12) investors seldom include the land value in the overall ADU costs. The reality is the land has value.