All Forum Posts by: Matthew Forrest

@Brandon Carlson I just did a refi on my SFH at which I converted the a 700 sqft hobby room (not the garage) to an ADU. I had two appraisals done. One appraisal came back at original purchase price +$20k and the other came back at property purchase price +$45k. To me that proves two things: that SFH appraisals are subjectives, and that your ADU will not appraise for what the income value of it is. My ADU brings in $2k/mo, but I have no comps so its worth very little to an appraiser.

Completely agree with @Dan H. in that you can't trust the developer's ARV or typically anyones who's incentives are not aligned with yours. Developers are there to sell ADUs. If people don't like lower ARV's the developers can't sell ADU builds and they won't make money.

In terms of cash flowing an ADU, I found success by lowering the construction cost and converting an exiting structure (separate "hobby room" which was not the garage). Looking for properties with these existing structures definitely lowers the potential lead pool, but I was able to convert the space into an ADU for ~$50k and it brings in $2k/mo in rent. There was a slight premium on the purchase price for the hobby room, but the numbers definitely worked out.

@Steven Macdonald I would not rely on a refinance to pay off the hard money loan. I completed my ADU and went for a refi and got an appraisal at property purchase price +$20k. Essentially this valued the ADU (700 sqft 1/1) at $20k. If there are good comps in your area it may work out for you, but I wouldn't take the risk if you could go the HELOC route.

I built an ADU at my SFH and it was a great investment to improve income, but so far it has been tough to realize the value in terms or equity/appreciation. Personally I think ADUs are useful, but they will be best used on multifamily properties that are valued based on the net operating income.

@Alex Wang If you ADU building (mechanical, electrical, plumbing) permit is closed you'll need new permits, but that isn't a big deal. My ADU has a separate electric meter, but I only did that because I already had to install a new panel and the drop was basically free. If I wasn't already doing the panel work, I would have just split the utilities proportionally since there's almost no return on the meters if the tenants are currently paying all utilities.

@Jeff Cliff Unless you're going to spend the money to separate the utilities metering or there currently isn't enough hot water I don't see a new heater being worth it. My ADU has a separate water heater and HVAC, but that's because there is significant space between the two. If they were closer together the one water heater would be sufficient.

@Jeremy Pelle I went the SFH and permitting and ADU route and I have to say that there were some huge disadvantages when it comes to appraisals that make it very difficult to realize the value of your improvements. In my area there aren't many SFH's with ADU so I was got $25k worth of value on my first appraisal. Even thought its kind of like a duplex, duplexes were not used as comps. I prefer the 5+ unit strategy now since those are valued based on the income, but even a duplex would be better since you can build multiple ADUs as well as have better comps.

@Sydney Sherman
I really like @Mindy @Mindy Jensen's answer from a business standpoint. You get to be very clear up front and it relieves you of all liability. However, I think the way you communicate it in a house hack situations in important because the relationship you have with your tenants is likely more friendly than strict business. I renovated a bathroom in a 3/1 house hack with tenants. The project went long and the bathroom situation was rough for a while, but I was always very transparent about what was going on. We talked about the progress every once in a while and let them contribute to some design decisions so they felt included. At the end, as hard as the process was I asked if there was anything I could do to compensate them and they said not to worry about it. If you chose the right tenants for your house hack, you probably won't have any issued with construction. 

@Suzanne Guzman

I second the closet!

@Drew Rehman The way I read the comment above is that ADUs in general will not go into the home square footage calc.

@Chris Mason Does you your comment about "features" apply just to manufactured ADUs or does it apply to all ADUs?