So Cal ADU vs. Investing out of state
We own a home in middle class neighborhood in a quiet residential neighborhood Los Angeles with a decent school district. Our lot size is about 6500 sq. ft., with a detached garage space which we are considering to covert to an ADU rental unit for extra income. We are going to be having a baby in 1.5 year and we would like to use the rental income so I can be home with the baby. We should preface it to say the home is near two small colleges, Google campus and near the shopping center (includes T-Joe).
This ADU will cost about $100k to $150K(cash) 400 sq. ft., from start to finish on the existing structure. I can rent out the unit for $1700 to $2200 a month which pays more than 60% of my mortgage, but I have so many questions that only gets me too scared to make the next move.
- My concern is what affects having the ADU will have on my home's resell value 10 years from now. In my neighborhood where homes are listed between $900k for a tiny fixer-upper to $1.8 for a decent size turnkey, I have seen smaller homes are so hot, high in demand by first time buyers where as larger homes go stagnant due to the higher pricing (due to the sq. ft. not because of the location)and targeting smaller audience group who can afford that higher price point. I have watched homes listed for $1.7m reduced down to $1.5 to sell. Home that sits on the market has to compromise in the sale price-that's the bottom line.
- To the contrary, one can argue that having the rental income is going to entice those first time buyers who may otherwise be priced out of that range but if I were a buyer I would first start to wonder how hard it is to keep the unit occupied throughout the year? Then my second question is the issue of privacy. I may even ask "Am I a chill, laid back landlord who is cool with living with a stranger?" How many of you would actually rather have a small fixer-upper than a large home where you have to share the space with a tenant?
- The alternative is to take that money and invest it in areas like Riverside, Inland Empire, Modesto etc, but that would require another loan and the money is getting more expensive as we know it.
- The last option is to invest in another state, but this idea seems far fetched and risky especially that I am going to be home-bound with my baby. But if I were to do it I wouldn't want to leave the west coast.
At the end of the day, there is no risk free investment. Can all of you real estate experts shed some light on my dilemma. I would surely appreciate it.