Hello, this is my first time posting so let me know if I do something wrong! We currently house hack a 1890’s triplex that we have more or less completed a BRRRR and gotten stabilized. However, it is an oddball in that it has a 500 square foot vault (like think concrete bunker with steel vault door). This is attached to the unit of the house we currently live in. We are trying to figure out our next step — we have had an architect draw up plans to convert the vault into livable space — part would become a 4th unit (studio) that we would intend to use as a STR, and part would become additional living space for our unit (take it from 1ba to 2ba, add a laundry/storage room…) or, we could leave it more or less as-is, get our unit rented, and buy a new property to move into (ideally looking for something with a detached ADU we could rent to keep building/scaling our little portfolio). I’d like to get some personalized input around what might make the most sense given our specific goals and market conditions. But, what kind of person should I even look for that could advise us on our strategy? Who would be familiar with the trade-offs between continuing to improve a property or buying another… and have insight into short term as well as long term rentals… and be familiar with my locational market? Thanks! Appreciate any thoughts either on who I should be looking for, or on the decision itself. also let me know if there is a better category I should post this question in!

our neighbor, also an owner-occupant, has a back cottage that they STR — so we’d definitely fail the 500ft test if we move away! This discussion has me thinking that even if we plan to, and are able to, STR it now, we need to make sure it works well as a LTR also. To keep our exits and alternatives open!

Thanks so much! Super helpful breakdown for a newbie like myself!

Buying a 2nd property vs. building ADU?

Caleb Brown

Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes

9mo

My main question with adding the 4th unit would be the zoning, permits and dealing with the city. That can take awhile and they might not allow it. I would do some digging there about how feasible that is. Along with that getting bids would be something I would get before going to deep either direction. Financially it might not make much sense. If it'll be difficult/expensive/take awhile it'll make more sense to house hack another property. Another question if you did that ADU, does the city allow STRs?

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Caleb Burdett

OP

Member since 2025 · 8 posts · 1 vote

9mo

@Caleb Brown thanks for the reply! It is zoned R5 + OR so I don’t think there will be any trouble from the zoning end — also, there has been some recent regulation making it easier to add ADUs to properties here, so I’m not terribly concerned about that.

Also, owner-occupants generally don't have too hard of a time getting greenlit for STR here, (we have used a unit of this property as an STR already), but it's a helpful to remember that if we move off of the property we might have trouble continuing to use that unit as an STR.

We have been in communication with a GC in conjunction with the architect work and have a rough ballpark cost that we think should at very worst break even... In terms of equity, the added equity should at the very least match the cost of construction but possibly be much higher. From a cashflow perspective, the income from the added unit, even as a long term rental, should cover the payment on the HELOC (we would be funding it with a HELOC) — as a STR we should be able to do much better than that. But I'm working with a pretty wide range of potential added equity and potential cashflow and hoping for more accurate numbers.

I could go to the trouble of getting an “after renovation” appraisal, but I feel like that will be only part of the information I am hoping to get. I’m trying to think what kind of person might have the experience to know whether this is an incredible plan or just a mediocre one.

So I guess to sum up — in terms of “difficult/expensive/takes a while” I expect it to be relatively easy on the zoning/permitting front, moderately expensive but not prohibitively so, and on the time front, the permitting might add a couple months but I fully anticipate we could complete it by the end of 2026.

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

9mo

You are not the typical case adding an ADU to a SFH. However, if you were, Colorado Springs has near the worst ADU valuation in the country per NAR data. If I look at the NAR data and assume the homes without ADU were similar to the homes with an ADU (not necessarily a valid assumption) not only do ADUs add much less value than their cost to add, but the ADU addition lowers the value of the property.

Adding a single small unit is the most expensive residential development. In addition it has as much or more work than other value adds. The capital outlay starts long before income is produced.

I highly believe if you can find a good investment property to purchase that it is likely to produce a better return especially if it has a value add other than adding an ADU that is similar scope to adding an ADU.

The first dollar value is the average home selling price without an ADU and 2nd value is with the ADU addition. The first non dollar value is all listings, the 2 nd is those with ADUs. First percentage is percent of listings with ADU, 2nd percentage is he price added/subtracted by the ADU as a percentage. NAR Data Nov 2021 (a bit dated):

Colorado Springs, CO

Colorado

$418,100

$235,000

1,012

15

1%

-44%

good luck

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Jefferson Black

Member since 2026 · 4 posts · 1 vote

8mo

An ADU is not an approved use with a duplex/triplex in Colorado Springs. I just spoke with the planning department about a similar project in OCC about a week ago. The senior planner basically told me that I had the right idea, but that the city wasn't set up for it. In my case, the property is zoned R2, so I had more hurdles than you would. You'd need a variance, and I gather there's a snowball's chance in hell at this point you'd get one for this.

Additionally, the new ADU ordinance from last year says that a STR license will not be issued for any property that has an ADU. If you build an ADU, there's a good chance they'll deny your renewal on those grounds.

1 Reply

Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

8mo

@Caleb Burdett my thought it always going to be on the money. Meaning, how will you pay for things? So, if, for example, the ADU was the same amount of money as a new home downpayment (plus closing costs), then I would suggest the new home. Another property will significantly outweigh the appreciation value of an ADU on a home. However, if the ADU was, let's say 1/3 of the money as a downpayment, then I would certainly consider staying in the property and renovating the ADU. You might have different thresholds than I am suggesting but that's how I would go about the decision.

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Caleb Burdett

OP

Member since 2025 · 8 posts · 1 vote

8mo

@Dan H. thanks for the breakdown. I find the ADU impact on property value of -44% hard to believe… but maybe that is partly because I don't really understand the difference between an additional unit that would classify a property as a duplex/triplex/quad, versus an additional unit that gets classified as an ADU. I should look into that.

I will say that I have been watching for properties in the downtown and OCC neighborhoods that are either a duplex or two detached structures, and nothing has been anywhere near $235K. The best thing I’ve seen so far was a duplex for $410K. But this is just me browsing on-market deals, I am not very sophisticated or experienced!

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Caleb Burdett

OP

Member since 2025 · 8 posts · 1 vote

8mo

@Jefferson Black thanks so much for the info about STR/ADU situation. When we appraised the property most recently, it was designated on the appraisal as a SFH with an ADU rather than a duplex or triplex. It's such a wonky layout that it leaves everyone scratching their heads. I guess if they are going to refuse the permit, we will find out soon…

But we were intending to design it with STR in mind, so if that is off the table, that will be a major factor in our plans!

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
8mo
Quote from @Caleb Burdett:

@Jefferson Black thanks so much for the info about STR/ADU situation. When we appraised the property most recently, it was designated on the appraisal as a SFH with an ADU rather than a duplex or triplex. It's such a wonky layout that it leaves everyone scratching their heads. I guess if they are going to refuse the permit, we will find out soon…
But we were intending to design it with STR in mind, so if that is off the table, that will be a major factor in our plans!

Remember the data was from Nov 2021. In my market properties are up more than 50% since then. I will add that markets were ADU additions lowered property value was very few (but there were a couple/few in southern CA). NAR data showed ADUs added less than $20k value in my market and this was far worse than the average (but most markets the ADU added less value than the hands off cost of an ADU addition).
An ADU added in single family zone is not a duplex. In general owner occupants pay the most for properties. Good RE investors make sure the numbers work. Virtually all properties sold to owner occupant do not underwrite well for investments. I suspect this is the biggest reason ADU values are poor in so many areas.
Note poor valuation is one of many reasons ADU additions are typically a poor RE investment. Here is a list of why adding a single ADU in single family zoned areas in my CA market (some of these will not appply to your market) is typically a poor RE investment:
1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the 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. The first part of this may have recently changed (someone indicated it had changed but I have not verified it).
10) Small number of small units is the most expensive residential development there is. This implies residential units can be built at lower costs and provide better return than building a single ADU.
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.
Good luck
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Jefferson Black
Member since 2026 · 4 posts · 1 vote
8mo
Quote from @Caleb Burdett:

@Jefferson Black thanks so much for the info about STR/ADU situation. When we appraised the property most recently, it was designated on the appraisal as a SFH with an ADU rather than a duplex or triplex. It's such a wonky layout that it leaves everyone scratching their heads. I guess if they are going to refuse the permit, we will find out soon…
But we were intending to design it with STR in mind, so if that is off the table, that will be a major factor in our plans!
Certainly! Have you looked up the property on the assessor's site? That will tell you what it's actually categorized as. The zoning will tell you what's permitted, but the assessor's site will tell you what they think it is. Here's the URL: https://property.spatialest.com/co/elpaso/#/
Small multifamily and single family are definitely valued differently, so I think it would be worthwhile to make sure the appraisal takes that into consideration. Small multifamily seems to come with a large premium here in the Springs.
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Caleb Burdett
OP
Member since 2025 · 8 posts · 1 vote
8mo

Certainly! Have you looked up the property on the assessor's site? That will tell you what it's actually categorized as. The zoning will tell you what's permitted, but the assessor's site will tell you what they think it is. Here's the URL: https://property.spatialest.com/co/elpaso/#/
Small multifamily and single family are definitely valued differently, so I think it would be worthwhile to make sure the appraisal takes that into consideration. Small multifamily seems to come with a large premium here in the Springs.
I had not! Classic case of “you don’t know what you don’t know.” Looks like according to the assessor it is Single Family Residential (but zoned R-5/OR) and lists a total of 1 dwelling unit. So that probably means we still have options, though maybe still not so much on the STR front. Thanks again for sharing your local knowledge and experience!
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Caleb Burdett

OP

Member since 2025 · 8 posts · 1 vote

8mo

@Andrew Postell thanks for the suggestion about comparing the upfront cost. I think Buying a new property would be about 3-6x the cost of building the ADU — not the down payment specifically, but the total amount financed from a monthly payment perspective. I think we'll hit the 1% rule if we build the ADU and use it as a long term rental — I think we'd do much better than that as a STR, but I'm now learning we may not be able to get the permit for it… so that will definitely impact the math.

If we bought a new property, I’d be pretty darn surprised if we hit the 1% rule… it would definitely be more money in, more money out though.

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Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

8mo

@Dan H. Speaking the truth about ADU's and hurting everyone's feelings.

I asked a similar question like two months ago. I've since recovered and came to my senses about trying to build one in my market.

1 Reply

Jefferson Black

Member since 2026 · 4 posts · 1 vote

8mo

Like everything else, it depends. A basement can be extremely cheap to convert to an ADU, depending on the age of the home. A detached ADU of the same size will cost just as much, if not more, than new construction. The details change all of the numbers.

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James JonesPro Member

Investor · Collierville, TN 38017 · Member since 2017 · 625 posts · 455 votes

8mo

You’re really choosing between deepening one asset vs adding another lever.

A simple way to frame it:

Convert the vault if:

• The all-in cost creates new income at a strong yield

• Zoning and STR rules are stable and predictable in your market

• The added unit meaningfully increases appraised value and refi options

• You’re comfortable taking on a custom, non-standard build risk

This is a “maximize this property” play. It can work, but it’s capital-intensive and less liquid if assumptions change.

Buy another property if:

• You want diversification and simpler underwriting

• You’re optimizing for scale, repeatability, and optionality

• You’d rather deploy capital into a clean acquisition than a bespoke conversion

• You plan to continue BRRRR or house-hacking as a system

That’s a “build the portfolio” play. Usually easier to replicate and easier to exit.

On who to get advice from:

You want someone who sits at the overlap of:

• Active investor (not just an agent)

• Familiar with ADUs, STR rules, and local zoning

• Comfortable modeling both cash flow and refi outcomes

• Actually owns similar assets, not just advising on them

A local investor-operator or small multifamily-focused broker who owns property will usually give you better guidance than a pure architect or agent alone.

One final thought: custom projects can juice returns, but clean acquisitions tend to scale cleaner. Neither is wrong. The right answer depends on whether your priority is optimization or momentum right now.

1 Reply

Caleb Burdett
OP
Member since 2025 · 8 posts · 1 vote
8mo
Quote from @James Jones:

You’re really choosing between deepening one asset vs adding another lever.

A simple way to frame it:

Convert the vault if:

• The all-in cost creates new income at a strong yield

• Zoning and STR rules are stable and predictable in your market

• The added unit meaningfully increases appraised value and refi options

• You’re comfortable taking on a custom, non-standard build risk

This is a “maximize this property” play. It can work, but it’s capital-intensive and less liquid if assumptions change.

Buy another property if:

• You want diversification and simpler underwriting

• You’re optimizing for scale, repeatability, and optionality

• You’d rather deploy capital into a clean acquisition than a bespoke conversion

• You plan to continue BRRRR or house-hacking as a system

That’s a “build the portfolio” play. Usually easier to replicate and easier to exit.

On who to get advice from:

You want someone who sits at the overlap of:

• Active investor (not just an agent)

• Familiar with ADUs, STR rules, and local zoning

• Comfortable modeling both cash flow and refi outcomes

• Actually owns similar assets, not just advising on them

A local investor-operator or small multifamily-focused broker who owns property will usually give you better guidance than a pure architect or agent alone.

One final thought: custom projects can juice returns, but clean acquisitions tend to scale cleaner. Neither is wrong. The right answer depends on whether your priority is optimization or momentum right now.
Thanks so much! Super helpful breakdown for a newbie like myself!
0 Reply
James JonesPro Member
Investor · Collierville, TN 38017 · Member since 2017 · 625 posts · 455 votes
8mo
Quote from @Caleb Burdett:

Quote from @James Jones:

You’re really choosing between deepening one asset vs adding another lever.

A simple way to frame it:

Convert the vault if:

• The all-in cost creates new income at a strong yield

• Zoning and STR rules are stable and predictable in your market

• The added unit meaningfully increases appraised value and refi options

• You’re comfortable taking on a custom, non-standard build risk

This is a “maximize this property” play. It can work, but it’s capital-intensive and less liquid if assumptions change.

Buy another property if:

• You want diversification and simpler underwriting

• You’re optimizing for scale, repeatability, and optionality

• You’d rather deploy capital into a clean acquisition than a bespoke conversion

• You plan to continue BRRRR or house-hacking as a system

That’s a “build the portfolio” play. Usually easier to replicate and easier to exit.

On who to get advice from:

You want someone who sits at the overlap of:

• Active investor (not just an agent)

• Familiar with ADUs, STR rules, and local zoning

• Comfortable modeling both cash flow and refi outcomes

• Actually owns similar assets, not just advising on them

A local investor-operator or small multifamily-focused broker who owns property will usually give you better guidance than a pure architect or agent alone.

One final thought: custom projects can juice returns, but clean acquisitions tend to scale cleaner. Neither is wrong. The right answer depends on whether your priority is optimization or momentum right now.
Thanks so much! Super helpful breakdown for a newbie like myself!

Glad it helped, Caleb. We all start somewhere.

The biggest advantage you have as a newer investor is that you can build the right habits and underwriting standards before bad deals teach them to you the expensive way. Keep focusing on fundamentals and asking good questions. That alone puts you ahead of most people.
1 Reply

Brian Bohrer

Real Estate Agent · Colorado Springs, CO · Member since 2021 · 279 posts · 121 votes

8mo

Hello @Caleb Burdett,

I agree with others above about the valuation of your property and how the ADU may not add as much value as you would expect. But I would suggest considering you goals in mind for the property. Are you planning to resale in the near future or hold on to the property as an income source for years or even decades to come? If you plan to hold and use these properties as an income source, I would not be as worried about valuations as long as the rental income numbers hit your goals.

We have an appraiser on our Real Estate team at Muldoon Associates here in Colorado Springs and they way most ADU's are valuated is based on simply adding the ADU sqft/bed/bath count on to the sqft/bed/bath count of the primary residence on the lot. They do not valuate ADU's based on a 2nd structure on the property (as of now), like a house & cottage or a duplex for example, so this does decrease the valuation.

Also, consider that if you are living in one of the units on the property you can short-term rent (with a city issued permit) any of the other units. But once you move away from the property, ADU's are ONLY intended to by used as long-term or longer than 30 day stay (mid-term) rentals. Also, once you move away you can only get a permit issued for an STR that is zoned R-2 or above (you have already passed this hurdle) and must be at least 500 ft away from any other STR in the neighborhood.

I hope this helps and would love to be a resource for you if you have any other questions.

I wish you the best on your RE journey! :)

Take care,

1 Reply

Caleb Burdett
OP
Member since 2025 · 8 posts · 1 vote
8mo
Quote from @Brian Bohrer:

Hello @Caleb Burdett,
I agree with others above about the valuation of your property and how the ADU may not add as much value as you would expect. But I would suggest considering you goals in mind for the property. Are you planning to resale in the near future or hold on to the property as an income source for years or even decades to come? If you plan to hold and use these properties as an income source, I would not be as worried about valuations as long as the rental income numbers hit your goals.
We have an appraiser on our Real Estate team at Muldoon Associates here in Colorado Springs and they way most ADU's are valuated is based on simply adding the ADU sqft/bed/bath count on to the sqft/bed/bath count of the primary residence on the lot. They do not valuate ADU's based on a 2nd structure on the property (as of now), like a house & cottage or a duplex for example, so this does decrease the valuation.
Also, consider that if you are living in one of the units on the property you can short-term rent (with a city issued permit) any of the other units. But once you move away from the property, ADU's are ONLY intended to by used as long-term or longer than 30 day stay (mid-term) rentals. Also, once you move away you can only get a permit issued for an STR that is zoned R-2 or above (you have already passed this hurdle) and must be at least 500 ft away from any other STR in the neighborhood.
I hope this helps and would love to be a resource for you if you have any other questions.
I wish you the best on your RE journey! :)
Take care,
Thanks for the insight into the way ADUs appraise. It is attached to the house, so no separate structure calculus to worry about anyway.

If the price/sqft of the new living area added value equal the current price/sqft of the existing living area, then I think we’d break even in terms of cost and added value (I.e. we spend $100K via a HELOC and gain $100K in property value). So I think we’re in pretty safe territory of at least not losing tons of equity.
our neighbor, also an owner-occupant, has a back cottage that they STR — so we'd definitely fail the 500ft test if we move away! This discussion has me thinking that even if we plan to, and are able to, STR it now, we need to make sure it works well as a LTR also. To keep our exits and alternatives open!

0 Reply

Brian Bohrer

Real Estate Agent · Colorado Springs, CO · Member since 2021 · 279 posts · 121 votes

8mo

Absolutely! I would make sure it would at least breaks even as an LTR first. Then if you can find another creative way to increase your income (mid-term, short-term, co-living, etc) it is just icing on the cake!

I will say that STR in this market is a little saturated as well... Be sure, if you are not already doing an STR, that there is demand in your area. That you are near touristy attractions or amenities that people want to be near. We had a huge run-up of STR's in Colorado Springs during the covid boom from 2020 - 2022 and many investors have had to switch strategies as the economy has cooled since then.

I wish you the best!

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Buying a 2nd property vs. building ADU?

Buying a 2nd property vs. building ADU?

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