Abodu
How to Make My ADU a Profitable Investment in Maywood?
In Maywood, boosting your ADU’s profitability requires overcoming challenges such as fluctuating market conditions and managing construction costs. Start by researching local real estate trends to set a competitive price and making design upgrades to enhance the ADU’s appeal. Implementing effective marketing strategies will help attract potential buyers or users. Additionally, understanding local regulations and exploring management options can further increase your investment’s profitability.
Introduction to ADU Investments in Maywood
Why are ADUs popular in California?
ADUs, often called granny flats, have become a popular option in California as a way to address the housing shortage. With the rising cost of homes and limited availability, building an ADU gives homeowners the chance to add more space without having to buy additional land. These units are flexible—they can be rented out for extra income or serve as affordable housing for family members, such as elderly parents or adult children.
How can an ADU increase property value?
Building an ADU can boost a home’s value by providing extra usable space. Whether it’s rented out, used by family members, or turned into a home office, this added functionality makes the property more appealing to potential buyers. In California, homes with ADUs tend to attract more interest because they offer more living options, which can increase the property’s market value.
Is it possible to sell an ADU in Maywood?
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 Maywood, 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 Maywood
We analyzed multiple projects, and we determined that on average you should expect a 37% ROI for an ADU project in Maywood. 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 Maywood 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 Maywood
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 $51,493, covering essential aspects of the project's development and approval process.
The total project cost, including hard and soft costs, is $394,393. 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 Maywood is estimated at $600. 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 $540,000 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 $686,454 or 37% 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 Maywood comes with a total cost of $394,393. Financing with a 6.5% interest rate loan results in a monthly payment of $2,493 or $29,916/year. Ideally, renting out the main house could cover this payment, while the ADU serves as a source of additional income. Renting out a 2 bedroom, 1 bath ADU long-term could generate approximately $51,600 per year. At this rental income, which gives you only $21,684 possible profit per year, you probably look at paying off the loan by simply renting the ADU.
The city rules state that rentals should last at least 30 days, so short-term rentals are prohibited. While services like Airbnb might bring in more money during busy seasons (for example, $600 for a five-night stay), long-term rentals offer steadier, more predictable income. With long-term rentals, you don't have to worry about finding new tenants all the time, cleaning between guests, or re-listing the property, which leads to more consistent earnings and less maintenance.
Check if the market value of your ADU covers the construction costs.
Is there financial assistance for building ADUs?
California homeowners have access to the CalHFA ADU Grant Program, which can provide up to $40,000 to assist with costs like permits, design work, and site assessments for single-family homes. This program has been available since 2021.
Building Your Team for the ADU Project
Successfully building an ADU means gathering a trusted group of professionals. After securing funding, ensure your property meets local zoning and size requirements. If you intend to rent or sell the ADU, hiring experienced architects and contractors can help keep the project organized and on schedule. Working with local ADU experts can also streamline the process and prevent potential delays.
What are some other financing options for building an ADU?
There are a variety of ways to finance your ADU project:
(1) HELOC: Borrow money by using the value of your home.
(2) Home Equity Loan: Receive a one-time lump sum and repay it in set amounts over time.
(3) Cash-Out Refinance: Adjust your existing mortgage to unlock additional funds.
(4) Renovation Loans: These are loans specifically for funding construction or renovation projects.
(5) Private Lenders: These lenders may offer more flexible repayment options compared to traditional banks.
Potential Challenges and Solutions
Can an HOA prevent the construction of an ADU?
No, homeowner associations cannot stop you from building an ADU. California laws like AB 670 and AB 3182 guarantee your right to build one. If an HOA tries to prevent it, they could face legal issues.
Maximizing Profitability in Maywood
Marketing Strategies to Increase ADU Investment Returns
To maximize the potential of your ADU, consider these marketing ideas:
- Work with local real estate agents to create appealing listings for your property.
- Offer virtual tours to make it easier for potential renters or buyers to check out the space.
- Use social media platforms like Instagram and Facebook to reach a larger audience and attract more interest.
Get the ADU Analysis to attract buyers and close quickly. It's 10x cheaper.
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