All Forum Posts by: Matthew Forrest

@Joseph Schmitt I agree with @Dan H. and support a detached ADU. The rents should be significantly better and you could build it such that you spend twice as much money, but get 3x the income. More return per dollar invested is always nice.

@Bryan Bujarski Did you get the house yet?! 

The answer to the question or whether or not it was worth it is that it was 'ABSOLUTELY WORTH IT,' but my justification for that is more than an answer to whether or not it was a good investment. The short version is that this purchase took me from having no real experience to having completed my "first deal." I've done several other deals since then and I don't think I would have had the confidence to move forward without getting started with something. In terms of returns, I live at the property and my income is more than PITI so I'm satisfied with it, but its definitely more of a single than a home run.

@Brendan Dekora Awesome! Thats really good information and could be a great tool to help finance ADUs. From what I recall about 203k loans, isn't there a max loan amount? I remember it being relatively low... or maybe its higher for LA?

@Joseph Schmitt Just because we can build ADUs doesn't mean we necessarily should. Take a look at the numbers for building an ADU like you would on any other deal. Looking at the ratio of cash required to finish your project vs. the projected annualized returns on the project will tell you whether or not you should build an ADU.

Most ADUs that I have heard about have been financed through a cash out refi of the property, a HELOC, or via cash (how I did mine). Construction loans are also an option, but the term and interested rates can make these unattractive. Personally I do not like ADUs on single family lots right now. Although the cash flow can end up working, the value of the capital improvement is often not recognized by appraisers. Therefore, the cash you put into the property can get locked in there.

@Bryan Bujarski I ended up coverting a hobby room (700 sqft building and not a garage) so its not a direct comp. That being said I can't speak to most of your questions, but most estimates of added value from an ADU on a single family lot that I have seen are inflated. Unless you have a direct comp in your area that has sold and shows market value, I don't think it is a good assumption to give any more value than construction cost to the property. I could also see a garage conversion reducing the value of homes in certain areas.

@Susan Tan

Those options would be assuming you already have equity in other properties to borrow against. Otherwise cash is a popular option.

Hi @Susan Tan!

Most of your questions were things I overlooked while working on my ADU so I'm glad you're asking now vs. learning the hard way like I did

1- Get referrals... like a lot of referrals. Once you start with one contractor it can be tough to switch so make sure you choose wisely. Ideally you would find a highly recommended general contractor that has their own quality people so you only need to find one good person. Also, remember that the lowest bid won't always save you money over the course of the project.

2- Depends. Months to a year seems typical.

3- Get competitive bids to make compare prices and don't pay for services/materials you haven't received. Have a well documented payment schedule with milestones would be helpful to keep the project moving.

4- HELOC or cash out refi if you would benefit from a refi regardless. I think the better question would be lease favorite, for which my answer would be hard money loan. You don't want high interest debt that's dependent on a refi after the completion of the project.

@Kevin Rea

Los Angeles, CA. Got here six years ago and thought I would move back to New York City within two years. Turns out I’m disappointed I didn’t get here sooner! I’m never leaving.

@Matt Nuttall

Awesome! I love the South Bay. How did you get that to break even cash flow wise? Did you end up renting by the bedroom or adding a bedroom?

@Michael Rice I think the maximum size sections of the document that you linked to should be read as:

If you are allow to have an ADU that's bigger than 800 sqft, then it can be up to 50% of existing SFR or 1200 sq. ft., whichever is less.

It doesn't make sense to include minimums in the maximum size section and I don't recall seeing in the state ADU text that there were minimums at 800 sqft. I'm in LA county and I have a permitted detached ADU that's 700 sqft.