Is Building An ADU A Good Investment?Is Building An ADU A Good Investment?
An Accessory Dwelling Unit or ADU is something you may have only recently heard about; however, they have been around for some time. And they are growing in popularity for a variety of reasons. The first reason is that they present such a significant investment opportunity for homeowners.
An ADU is a secondary living unit included on a single-family residential lot. These small units go by other names as well, but ADU is the most commonly used. An ADU may be a detached construction on the property, which is often referred to as a guest cottage, mother-in-law suite, or granny pad.
An ADU could also be a converted garage, shed, or basement on the property. You can build what is called a “bump-out ADU,” which is essentially an addition added onto the existing house. The primary residence is often where the owner lives; however, many property investors see building ADUs as an ideal way to increase their current investment. Regardless of where on the property you build the ADU, they are still considered an accessory to the main house, are significantly smaller than the average US house, and a large number of informal ADUs exist due to the varying regulations regarding their existence.
Here are some of the benefits of building an ADU.
1. You can increase the potential profit of an existing property.
There are few ways to improve the profit gained from a property you already own. You can increase the rent, but only as much as the market allows in that area. If you raise the rent too much, you risk not being able to get it rented, which will cause you to lose money. You can also pay off the mortgage on the property, which will dramatically increase the profit, but most people don’t have the money in the bank to completely pay off a mortgage. Building an ADU will allow you to increase your profits without increasing your ongoing expenses.
2. The initial investment is low.
Building an ADU is significantly less expensive than building a primary residence, in part because of the size. ADUs are intentionally smaller, so the expense of building one is going to be less than a traditional house. Spending less building means the return on investment (ROI) will be better.
3. You can offer something fun and creative.
Tiny homes are trendy, and people are seeking them out. Building an ADU allows you to create a fun and creative space where people will want to live. You can build something that looks like a tiny cottage, a fairy house, or a gnome cottage. It is all dependent on how creative you want to get and the space you have available. Creating something unique will ensure rentability, which will help maintain your investment.
Regulations on ADUs vary significantly from one region to the next. Before investing time, money, and resources into building an ADU, it is essential to research what the local regulations are to avoid wasting money. Because ADUs have been informal for a long time, many smaller municipalities don’t have specific rules, but rather group them under rental or investment properties. Many areas have already embraced them; ADU Los Angeles, for example, is growing significantly due to the limited real estate space available.
If you are new to the world of property investing, you can look for investment properties that will allow you to build an ADU on the property. For example, Ashe County Real Estate can help you find mountain property for sale throughout North Carolina. They specialize in mountain property and log cabins, so you can easily find a property with enough space for an additional dwelling.