New to Real Estate · ___ · Member since 2022 · 7 posts · 1 vote
I recently bought a 3 bedroom and 1 bath home with about 1100 sq. ft. It also has an attached 1 car garage that is about 380 square feet. I am currently building and ADU in the back yard that will be about 900 sq. ft. It will be a two bedroom and 1.5 bath unit. Once the project is done I would like to take advantage of appreciation and begin executing the BRRR strategy. With a cash-out refi I am not sure which would be the better investment: Option A build a JADU in the attached garage, or option B invest in another property? What are things to consider when making such a decision? Currently I am living in the main home but do not see my self living in it for more than 5 years. My long term goal is to keep the property as a rental property. Also, if I opt for option A, could I refinance once again or is it unlikely?
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
JADU due to OO requirements add very little or subtract value from the property. Properties with ADU and JADU are a financing challenge. Talk to your lender about the challenges.
Almost certainly a new acquisition will produce the superior return.
ADU and especially JADU typically add less value than their hands off costs to add. This initial negative position consumes the initial cash flow and it can require years of cash flow to recover the initial negative position. They typically have financing worse than acquisition financing. They can take a year to produce income (how long has your ADU build taken?). They detract something from current primary whether it is a garage or just yard space. The ADU addition is similar work to a BRRRR but with a good BRRRR I can extract my full investment with the refi.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
I agree with Dan. The JADU is only valuable if you stay there. With that said, maybe the home becomes a 4 bed/2 bath because of it and that might have value as a rental. Look to see what 4 bedrooms are renting for.
I tend to see appraisers give a flat dollar value for ADUs, regardless of size. With that said, consider building only up to 749 square feet to avoid the impact fees. I'm assuming you would be building a 2 bed/1 bath. The rents would be similar but cost you less.
Use the different towards the next property.
A better value add on your existing house is adding another bathroom within the floor plan. This way if a toilet breaks, your tenants have a second one to use and you don't have to pay a premium for a plumber to go there last minute.
JADU due to OO requirements add very little or subtract value from the property. Properties with ADU and JADU are a financing challenge. Talk to your lender about the challenges.
Almost certainly a new acquisition will produce the superior return.
ADU and especially JADU typically add less value than their hands off costs to add. This initial negative position consumes the initial cash flow and it can require years of cash flow to recover the initial negative position. They typically have financing worse than acquisition financing. They can take a year to produce income (how long has your ADU build taken?). They detract something from current primary whether it is a garage or just yard space. The ADU addition is similar work to a BRRRR but with a good BRRRR I can extract my full investment with the refi.
Good luck
Dan thank you for your valuable input. I was not aware of the valuing of ADUs. I bean construction in March and if all continues to go well, the ADU is to be finished by late August/early September. I will definitely contact my lender. Again, thank you for your input!
I agree with Dan. The JADU is only valuable if you stay there. With that said, maybe the home becomes a 4 bed/2 bath because of it and that might have value as a rental. Look to see what 4 bedrooms are renting for.
I tend to see appraisers give a flat dollar value for ADUs, regardless of size. With that said, consider building only up to 749 square feet to avoid the impact fees. I'm assuming you would be building a 2 bed/1 bath. The rents would be similar but cost you less.
Use the different towards the next property.
A better value add on your existing house is adding another bathroom within the floor plan. This way if a toilet breaks, your tenants have a second one to use and you don't have to pay a premium for a plumber to go there last minute.