Advise on ADU vs invest somewhere else?

[Mike Re]

Hi All,

I am just starting out and read as much as I can on the forums and ready to take the first step. 

The option I am leaning towards is to build an ADU in my backyard, rent it out and get first hand experience on managing rentals and then expand out. The other option is to go with out of the state rentals. While this may be ok for the experienced, i am worried about not choosing the right area when I don't have any rental management experience given where we are at in the RE cycle.

My ultimate goal is to own a/some multi family units for scale and increased cashflow to not worry about day job.

Here is why the ADU makes sense to me:

1. Proximity: to deal with any issues.
2. Minimal cash outlay while increasing the house value from adding new space
3. Expensive rents in the area

Financials:

1. Thinking of constructing about 620 Sq.Ft ADU given the zoning restrictions and lot space.
2. Cost estimate : 150k (Have not validated this with a GC yet but will do). 
3. Expected Rent : $2300/month = $27600/year. Thats 1.5% which is above the 1% rent rule
4. Will take a HELOC on the current house at approximately 4.5%.
   • I can fund the project without taking the HELOC also.
   • Is there any better way to do this than the HELOC?
   • Since this will be new construction, For a few years the CAPEX should be minimum.

Two questions:

1. Important question: can I use the $150k (HELOC) along with the other money I have (Upto $500k) in a better way for the long term? To be clear, am I wasting time to reach my end goal by taking baby steps instead of starting out say, with a Multifamily syndication and figure things out as I go. Because to me either path requires me to learn the ropes. I can also probably take the hybrid approach and do both may be?

2. Less important but, With an ADU, Should I be worried about future sellability of the house in any way? I understand that some people may be turned off especially when purchasing at high costs. On the other side, equally, given the high cost of housing locally, there may always be someone who may want an ADU to reduce costs. I plan on living in the house at least for the next 8-10 years. So may be this is a non-issue?

Thanks.