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- 🏡 Accessory Dwelling Units (ADU)- 🏆 Add Income and Value to Your Properties
🏡 Accessory Dwelling Units (ADU)- 🏆 Add Income and Value to Your Properties
Ben Apple
April 25, 2023
Hi friends - I'd like to extend a special welcome to the new subscribers this week.
As this is a new and growing newsletter that breaks down a new real estate trend every week in 5 minutes or less, I'd love to hear feedback and let me know what you'd like to see in future trend breakdowns.
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Okay, on to this week's trend breakdown.
Here’s what you will learn in today’s email:
Can I build an ADU on my property?
Can ADU regulation apply to multifamily investments?
How much does it cost?
What's the ROI?
Who are the top designers and builders in the space?
And more!
👉 Problem
The US housing shortage is driving up the price of home ownership, especially in urban areas where land is scarce and expensive.
⚡ Big Idea
Accessory Dwelling Units (ADUs) give home owners the ability to create an extra residential unit on their existing property to rent or use.
📊 Charts and Data
Freddie Mac research showed over 1.4M ADUs listed in the US from 1997-2019, with an 8.6% YoY growth. The fastest growing markets were Portland, Dallas, Seattle, LA, and Miami.
California has been a leader in ADUs and has seen massive growth, with over 60,000 permitted since 2016.
🔥 Opportunities
Create a rental income stream on land that you already own
Adding an ADU to your property can add an income stream as a rental property and add an average of 35% to a home's value.
KitHaus makes tiny homes that can be added to your backyard as an ADU
Villa shows you how to add value to your home with an ADU
Add ADUs to multifamily projects
LaTerra acquired a low density building and is able to add 10 ADU units as per California law to increase housing supply
Create design, build, or development firms to support ADU growth
Cottage helps clients with feasibility and design and find local builders
Maxable helps provide homeowners and investors with resources on designing and building ADUs.
💼 Case Studies
Multifamily Development - LaTerra development was able to add 10 units within an existing low density property using recent California ADU legislation.
Affordable Development - A report was prepared for the US Dept of Housing highlighting various ADU case studies and the benefits of ADUs as affordable housing.
Single family rental addition - Case study of ADU rental yielding $2,500 per month in San Diego rental property backyard.
🤝 Players
Plant Prefab - Secured $42M in funding to expand its production of pre-fab units with smart technology.
Multitaskr - Done-for-you ADU with 100% financing
United Dwelling - VC backed - Partners with home owners to finance, build, and manage ADUs with a revenue share agreement.
Cosmic - Solar powered ADUs that generate more power than they use
Spacial Homes - Providing beautiful, sustainable pre-fab homes
Adobu - Raised $20M to be the one-stop-shop for building ADUs.
Cover - Raised $60M to design and build sustainable ADUs.
Boxabl - Prefab tiny homes and ADUs; Also, Elon owns one.
Cottage - Raised $15M for platform to connect homeowners with builders of ADUs.
✨ Predictions
Design innovations will lead to new types of ADUs
Steelblox makes modern, modular ADUs
Spacial Homes provides eco-friendly sustainable ADUs.
Boxabl makes tiny homes that can be added to your backyard as an ADU
New use cases for ADUs will evolve
Studio Shed designs ADU flex spaces that can be used for office, gym, guest suite, etc.
Multifamily developers may use favorable ADU zoning to add additional units and ROI
Changes in zoning will create more opportunities for ADU development across the country
Financing options will expand as companies provide provide loans, as well as traditional loans
⚠️ Risks
Regulatory risks exist as changes to zoning regulations and building codes can determine ADU feasibility
May be difficult to borrow money for an ADU project as lenders seek to understand the product and risk
Demand may shift away from ADUs with more multifamily and single family options
🧐 FAQ
Can I add an ADU to my property?
Zoning and regulations vary from city to city. Check this ADU city regulation directory and check local resources for up to date information in your neighborhood.
How much will it cost to build?
Costs will vary depending on the type of project, but this self-reported survey shows an average of $180k, about $305/sf. Remember, if you are buying pre-fab units, you also need to consider potential added costs, such as site work, permits, and utilities.
How much can I make renting an ADU?
Once again, rental income will vary with market, but for an ADU in a desirable neighborhood, you could make between $1,500 to $3,500 per month in gross rental income.
How does an ADU affect the value of my property?
Valuation is typically increased by adding usable and rentable square footage to a property. While local market is a major factor, one study showed that ADUs can boost property values by an average of 35%.
✅ Key Takeaways
The housing shortage has caused a high demand for homes, and ADUs can provide a great option for additional office or living space or renting out for income
Multifamily developers and investors are starting to seize opportunities to add additional ADU units to maximize returns
Existing homeowners can build ADUs to create additional value for their property and potential rental income
🔗 Additional Resources
ADU Case studies - Affordable Housing
Freddie Mac - ADU Insights
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