I am looking for alternative perspectives on what I am finding. I have read about the various ways to finance building some version of an Accessory Dwelling Unit (ADU) [basically a small guest house of some sort added to a home]. (home equity loan, renovation loan) but because they are not as easy to pay for / finance like a small home, and not as guaranteed to raise the value on an appraisal after it has been built

-> It seems like they aren't super popular because a lot of people don't want to drop 60-90 K, go through the Hassell of permitting/building when they could just be using that money for multiple down payments on properties. 

It does seem that they are worth it in very high rental places in California, Oregon, Seattle, especially if you can find a company that does all the work at a price that justifies the rent you'll get back.  

Now, my take away is that in not as high rent places, it's better to try and find properties that already have them, pay that premium on purchase price, especially if you can find a deteriorated home where you got a deal that is far cheaper than if you had to build one yourself. 

I am also curious if anyone is finding it worthwhile or profitable to locate properties and build the ADU as a part of your fix and flip or hold moves?

@Ben Magee - I agree with all your comments and thought that this would be a great new business model in California with the passage of new state law on January 1, 2020.

In reality, it has not panned out. I think it is very hard to make the numbers work from a pure investment standpoint. You are right.....sometimes it make more sense to take those same dollars to a traditional investment down the road. Rather than go through the time and effort to build and ADU. There are always exceptions but I have come to the realization that buying a property with an ADU versus building one is the way, way better option for most investors.

I am always on the lookout for ADUs, even if they are not permitted because in my limited experience, it is easier to fix what is there than build something brand new.

Originally posted by @Ben Magee :

I am looking for alternative perspectives on what I am finding. I have read about the various ways to finance building some version of an Accessory Dwelling Unit (ADU) [basically a small guest house of some sort added to a home]. (home equity loan, renovation loan) but because they are not as easy to pay for / finance like a small home, and not as guaranteed to raise the value on an appraisal after it has been built

-> It seems like they aren't super popular because a lot of people don't want to drop 60-90 K, go through the Hassell of permitting/building when they could just be using that money for multiple down payments on properties. 

It does seem that they are worth it in very high rental places in California, Oregon, Seattle, especially if you can find a company that does all the work at a price that justifies the rent you'll get back.  

Now, my take away is that in not as high rent places, it's better to try and find properties that already have them, pay that premium on purchase price, especially if you can find a deteriorated home where you got a deal that is far cheaper than if you had to build one yourself. 

I am also curious if anyone is finding it worthwhile or profitable to locate properties and build the ADU as a part of your fix and flip or hold moves?

ADU is only worthwhile in very expansive markets. In IOWA, WHERE LAND is cheap and plenty, there is no need to do that.

In SF bay area, land value is usually higher than house value. That is where ADU makes sense. A piece of land about 5000 sf will cost 1-2m on the peninsula, and about 400k - 1m east bay. FYI.

@Ben Magee I know in Des Moines, the City government is in the early phases of how to update the zoning code to allow ADUs. But after the huge fight they had over the last few years about short term rentals, and the rules around them. ADUs kind of went to the back burner for the City of Des Moines.

@David Song , get points. Nice to see someone from Redwood City. I used to love to go to S'bastians coffee on Woodside Rd. I taught in Palo Alto with a program with Stanford, I was living in the Bay Area from 2015-2020 which is really when my mental obsession with ADU's started. Iowa is cheap.

@Rene Owczarski , nice to hear about, but yeah, that seems to be the story in so many cities. The progressive folks get drawn out by the back lash. Will be interesting to see how things change over the years. 

@Brian Larson , loved reading your thoughts. Sounds like we are in similar mindset. If financing changes to where it is much easier to get loans and cash our refinance 6 months after being built, I think they would explode in those areas.