Socal Casitas ADU Construction Specialists
How to Make My ADU a Profitable Investment in Inglewood?
To make your ADU a profitable investment in Inglewood, you need to tackle challenges related to market visibility and tenant management. Start by using effective marketing strategies, such as social media promotion and local advertising, to attract potential renters. Additionally, manage construction and operational costs wisely to ensure a good return on investment. By focusing on these strategies, you can maximize the profitability of your ADU.
Introduction to ADU Investments in Inglewood
Why are ADUs popular in California?
ADUs, or granny flats, are becoming more common in California because of the state’s housing shortage. With rising home prices and limited land for new homes, adding an ADU is an affordable way to create more living space. These units can also bring in extra income through rentals or be used to house family members, such as adult children or aging parents.
How can an ADU increase property value?
Building an ADU on your property can increase its value by adding more functional space. Homes with an ADU are more desirable to buyers since the extra unit can be rented out, used by the family, or turned into a home office, making the property more flexible and attractive.
Is it possible to sell an ADU in Inglewood?
In California, a law called AB 1033 allows local cities to create rules for selling an ADU separately from the main home, similar to how condos are sold, as long as specific requirements are met. In Inglewood, selling an ADU separately might be allowed under certain conditions, like if a qualified nonprofit built it, if there's an agreement for shared ownership, or if the city permits the ADU and the main house to be owned separately.
The ROI for building an ADU in Inglewood
We analyzed multiple projects, and we determined that on average you should expect a 16% ROI for an ADU project in Inglewood. The ROI does not account for the property's acquisition cost. 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 Inglewood 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 Inglewood
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 $46,383, covering essential aspects of the project's development and approval process.
The total project cost, including hard and soft costs, is $389,283. 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 Inglewood 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 $60,717 or 16% ROI. At this level of return, the investment in an ADU to sell it offers a substantial return on investment relative to the total project cost and the market value making the city a highly attractive and promising location for housing projects. In addition to the high 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 Inglewood comes with a total cost of $389,283. If financed with a 6.5% interest rate loan, this results in a monthly payment of $2,461 or $29,532/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 $31,200 annually. At this rental income, which gives you only $1,600 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 has a program called the CalHFA ADU Grant Program, which helps homeowners with the costs of building an ADU. Homeowners can receive up to $40,000 in grants to cover expenses like permits, design, and property assessments for single-family homes, starting in 2021.
Building Your Team for the ADU Project
When you begin your ADU project, it's essential to assemble a reliable team. After securing funding, ensure your property is suitable for an ADU and check for any size restrictions. If you plan to rent or sell the ADU, it's important to hire experienced professionals such as architects and contractors to keep everything on track. Working with local experts who have experience with ADUs will help ensure the project is done correctly.
What are some other financing options for building an ADU?
There are multiple ways to fund your ADU project. A Home Equity Line of Credit (HELOC) allows you to borrow against your home’s value, providing the option to take out money as you need it. A Home Equity Loan provides a lump sum that you repay in installments. Cash-out refinancing lets you tap into extra money by adjusting your mortgage. Renovation loans can cover the cost of construction, and some private lenders may offer more flexible terms than traditional banks.
Potential Challenges and Solutions
Can an HOA prevent the construction of an ADU?
No, a homeowners association (HOA) cannot block you from building an ADU. Laws such as AB 670 and AB 3182 safeguard your right to build, and if an HOA tries to interfere, they could face penalties.
Maximizing Profitability in Inglewood
Marketing Strategies to Increase ADU Investment Returns
To get the most out of your ADU in Inglewood, smart marketing is key. Collaborating with local real estate agents and creating appealing property listings can help attract potential renters or buyers. Offering virtual tours allows people to view the property remotely. Additionally, leveraging social media platforms like Instagram and Facebook can help you reach a broader audience and generate more interest.
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