Capy Construction
How to Make My ADU a Profitable Investment in Carson?
To turn your ADU into a profitable investment in Carson, focus on understanding the key factors that influence your returns. The primary challenge is ensuring that the costs associated with constructing and managing the ADU are outweighed by the income and added property value it generates. Solutions include optimizing construction and soft costs and maximizing rental income by setting competitive rates to attract tenants or buyers. By strategically managing expenses and enhancing your ADU's appeal, you can increase its profitability and achieve a solid return on investment.
Introduction to ADU Investments in Carson
Why are ADUs popular in California?
ADUs, also known as granny flats, are becoming more common in California due to the shortage of affordable housing. With rising home prices and limited land for new construction, ADUs offer a practical solution to add living space. They are cost-effective, can provide rental income for homeowners, and can be used in various ways, such as housing for family members, young adults, or seniors who want to stay close to relatives.
How can an ADU increase property value?
Building an ADU can boost the value of a property by adding extra, adaptable living space. Homes with ADUs tend to sell for more because the space can be rented out, used by the family, or turned into an office, making the property more attractive to buyers.
Is it possible to sell an ADU in Carson?
In California, the AB 1033 law lets local governments set rules for selling an ADU separately from the main house, similar to how condos are sold, as long as certain regulations are followed. In Carson, selling an ADU separately could be possible if certain conditions are met, such as the ADU being built by a qualified nonprofit, having a shared ownership agreement, or if the city allows separate ownership of the ADU and the main house.
The ROI for building an ADU in Carson
We analyzed multiple projects, and we determined that on average you should expect a 15% ROI for an ADU project in Carson. This ROI value is low and it signals a risky investment. Consequently, unless you have personal goals you want to achieve, we consider that an ADU project in Carson is a risky investment. As a benchmark, a good investment for us is when the ROI is min. 50%+.
Interested to find out the market value of an ADU for your property?
Case study: 900 sq. ft. ADU built in Carson
Scenario 1: Build to sell
ADU Building Area
The project involves constructing an ADU with a total area of 900 square feet. This ADU is large enough for a 2 bedroom, 1 bath unit. This scenario assumes that you already own this property and there is an existing primary residential unit on site.
Total Project Cost
Based on the industry reports, the construction cost per square foot is $381, resulting in total hard costs of $342,900. Soft costs encompass various expenses incurred during the planning, design, and permitting stages of the project. These include fees for professional services such as land surveying, structural engineering, architectural design, soil engineering, and permit fees. In this case, the soft costs amount to $47,576, covering essential aspects of the project's development and approval process.
The total project cost, including hard and soft costs, is $390,476. This estimate reflects the overall investment required to complete the construction project and obtain the necessary approvals.
Total Added Market Value
The sale price per square foot for a residential house in Carson is estimated at $500. This represents the anticipated value of the completed building per unit area in the current real estate market.
Multiplying the market value per square foot by the building area yields the total added market value. In this case, the completed project is expected to add $450,000 in value to the property.
ROI (Return on Investment)
The ROI provides insight into the project's profitability by comparing the total added market value to the total project cost. In this analysis, the potential gross Profit without considering acquisition or financing costs amounts to $59,524 or 15% ROI. At this level, building an ADU to sell it provides a relatively low return compared to both the costs and the market value. In addition to the low return, you’ll have to consider the short capital gain tax, in case you want to sell it before 2 year's end.
Scenario 2: Build to rent
Potential Rental Income of an ADU
Constructing a 900-square-foot ADU in Carson comes with a total cost of $390,476. If financed with a 6.5% interest rate loan, this results in a monthly payment of $2,468 or $29,616/year. Ideally, renting out the main house could cover this payment, while the ADU is a source of additional income. Renting out a 2 bedroom, 1 bath ADU long-term could generate approximately $30,000 annually. At this rental income, which gives you a $380 possible profit per year, you probably look at paying off the loan by simply renting the ADU.
The city's rules state that rental periods should be at least 30 days, so short-term rentals aren't allowed. Although sites like Airbnb can bring in higher income during busy times (for example, $600 for a five-night stay), long-term rentals offer more consistent earnings. With a long-term rental, you don’t have to worry about finding new tenants all the time, cleaning between stays, or repeatedly advertising, leading to steadier income and less upkeep.
Check if the market value of your ADU covers the construction costs.
Is there financial assistance for building ADUs?
California offers a program called the CalHFA ADU Grant Program, which helps homeowners with funding to build an ADU. Since September 2021, this grant can provide up to $40,000 to cover initial costs like permits, design, and property evaluations for ADUs on single-family homes.
Building Your Team for the ADU Project
To start your ADU project, it’s important to gather a team of professionals. Once you've secured funding, check if your property qualifies for an ADU and make sure there are no size restrictions. If you plan to rent or invest in the ADU, hiring experts like architects and contractors can help make sure everything runs smoothly. It’s also useful to hire local contractors who are experienced with ADU projects.
What are some other financing options for building an ADU?
There are a few different ways to fund your ADU project. One option is using a Home Equity Line of Credit (HELOC), which allows you to borrow money based on your home's value whenever you need it. Another option is a Home Equity Loan, which gives you a lump sum to pay back over time. Cash-out refinancing lets you take out more money by increasing your current mortgage, and renovation loans can help pay for building an ADU. Private lenders may also offer more flexible loan terms than traditional banks.
Potential Challenges and Solutions
Can an HOA prevent the construction of an ADU?
No, homeowner associations (HOAs) cannot stop the building of an ADU in single-family neighborhoods. Laws like AB 670 and AB 3182 prevent HOA rules from restricting ADUs, and enforcing such rules could result in fines or penalties.
Maximizing Profitability in Carson
Marketing Strategies to Increase ADU Investment Returns
To get the most out of your ADU investment in Carson, effective marketing is essential. Working with local real estate agents and creating eye-catching marketing materials can attract potential renters or buyers. Offering virtual tours allows people to view the space online. Social media platforms like Instagram and Facebook can also help increase interest and make your property more visible to a wider audience.
Get the ADU Analysis to attract buyers and close quickly. It's 10x cheaper.
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