Capy Construction
How to Make My ADU a Profitable Investment in Glendora?
To make an ADU in Glendora a profitable investment, focus on understanding local market trends and identifying potential growth areas. Research property values and look for ways to enhance your ADU's value, such as through strategic upgrades or efficient design choices. Consider cost-effective construction methods and explore options to increase the property's appeal and functionality. By staying informed and making smart investments in both construction and property enhancements, you can maximize the return on your ADU investment in Glendora.
Introduction to ADU Investments in Glendora
Why are ADUs popular in California?
ADUs, often called granny flats, have become a popular option in California because of the housing shortage. As home prices rise and there’s less land for new homes, building an ADU is a cost-effective way to expand living space. These units also offer the opportunity for extra income through renting or can provide close housing for family members, such as grown children or elderly parents.
How can an ADU increase property value?
Building an ADU can increase the value of your home by adding more usable space. Homes with an ADU are more appealing to potential buyers because the extra unit can be rented out, used for family, or turned into a home office, making the property more versatile and desirable.
Is it possible to sell an ADU in Glendora?
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 Glendora, 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 Glendora
We analyzed multiple projects, and we determined that on average you should expect a 16% ROI for an ADU project in Glendora. This ROI doesn't include the acquisition cost for the property. 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 Glendora 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 Glendora
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 $45,540, covering essential aspects of the project's development and approval process.
The total project cost, including hard and soft costs, is $388,440. 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 Glendora 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 $61,560 or 16% 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 Glendora comes with a total cost of $388,440. If financed with a 6.5% interest rate loan, this results in a monthly payment of $2,455 or $29,460/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 $32,400 annually. At this rental income, which gives you a $3,000 possible profit per year, you probably look at paying off the loan by simply renting the ADU.
The city's regulations require rentals to be at least 30 days long, meaning short-term rentals are not allowed. While platforms like Airbnb might offer higher profits during peak times (such as $600 for a five-night stay), long-term rentals provide more reliable and consistent income. With long-term rentals, there's no need to constantly search for new tenants, clean between stays, or re-list the property, resulting in more stable earnings and less maintenance.
Check if the market value of your ADU covers the construction costs.
Is there financial assistance for building ADUs?
Yes, California offers a program called the CalHFA ADU Grant Program, which provides funding to homeowners looking to build an ADU. Since 2021, the program has been giving grants up to $40,000 to cover costs like permits, design work, and property evaluations for single-family homes.
Building Your Team for the ADU Project
When starting an ADU project, it's important to gather a skilled team. After securing funding, check that your property meets the requirements for building an ADU and ensure there are no size limitations. If you plan to rent or invest in the ADU, hiring experienced professionals like architects and contractors will help keep things on track. Local experts with ADU experience will ensure the project is completed to a high standard.
What are some other financing options for building an ADU?
There are different options to help pay for your ADU project. A Home Equity Line of Credit (HELOC) allows you to borrow money based on your home's value, with the option to take out funds as you need them. A Home Equity Loan gives you a lump sum that you pay back over time. Cash-out refinancing lets you adjust your mortgage to unlock extra cash. Renovation loans can also help cover construction costs, and some private lenders may offer more flexible terms compared to traditional banks.
Potential Challenges and Solutions
Can an HOA prevent the construction of an ADU?
No, a homeowners association (HOA) cannot prevent you from building an ADU on your property. Laws like AB 670 and AB 3182 protect your right to build one, and any attempt to block it could result in penalties.
Maximizing Profitability in Glendora
Marketing Strategies to Increase ADU Investment Returns
To make the most money from your ADU in Glendora, good marketing is key. Working with local real estate agents and creating appealing promotional materials can attract renters or buyers. Offering virtual tours lets people explore the property remotely. Using social media platforms like Instagram and Facebook helps you reach a wider audience and increases interest.
Get the ADU Analysis to attract buyers and close quickly. It's 10x cheaper.
Related Articles
ADU Solutions for Aging in Place in Glendora
All You Need to Know About Building on Properties in Glendora Under SB-9
Everything You Need to Know About SB-684 Development in Glendora
How to get your permits fast or the benefits of using SB-423 in Glendora