Why YOU Might Build an ADU (Granny Flat)

SHI-Why Build an ADU (Granny Flat)

In our last article, we discussed the broad strokes of building a granny flat in California. Due to a severe shortage in affordable housing, along with mandated housing requirements, building ADUs — also called Granny Flats — provides additional housing more quickly and more affordably than almost any other means.

As an ADU building specialist in San Diego who specializes in understanding each of our clients’ needs and ensuring their projects are unique, we get questions every day from clients, homeowners, and property owners about the advantages and disadvantages of building an ADU on their property.

Let’s see if we can shed a little light on the subject.

We have found that our ADU and granny-flat clients usually build for three reasons, not all mutually exclusive.

Building for Investment

The primary reason we are hearing these days is for investment purposes. One of our clients handles personal finances as his business, so numbers are what he does for a living. He disclosed during our recent consultation that, if he were to sell his rental condo, to flip that money into building a new, freestanding ADU on a property he owns outright, he will be able to rent at a higher rate and realize a more unencumbered cash flow, while greatly improving his property value.

Another client just realized a windfall from an inheritance. Rather than sink it into a fluctuating stock market, he’s decided to invest it into building a second rental on a property he already owns. This is another case where the land is paid for and sitting empty anyway.

By building the second unit, he realizes the additional regular flow of income and the appreciation of the building and property over time, maximizing his investment in a way that few stock plays can — with much lower risk.

Building for Rental Income

Of course, that brings us to reason number two that clients choose to build an ADU. Rental income. There are two sides to that coin. The first and most obvious is that, yes, you’ll have “strangers” living on your property if you’re thinking of building an ADU at your primary residence. This brings with it a unique set of challenges for those who have never owned rental property before.

However, due to the relaxed restrictions on parking requirements, setbacks, and other planning issues, our clients who understand renting and renters now have an opportunity that was very difficult to achieve in the past, as building rentals in residential neighborhoods was historically frowned upon in most municipalities.

Building an attached or detached ADU, or even converting a garage, on a property that you already own is certainly a more attractive rental investment than having to buy, build and maintain the whole shebang at a different location, land included.

Building for Family

Funny enough, even with a moniker like “Granny Flat,” the least frequent reason we hear from our clients about why they want to build an ADU — although we still hear it a lot — is it’s to be a residence for a family member or relative.

Generally, though, when a granny flat is built to house a family member, it’s often a joint venture, between an aging mother or father and the children who own the home and property. By pooling their resources, they can build an affordable, independent-living unit, where family and assistance, if needed, are a few feet away.

Plus, they’ll have security in knowing that their investment will grow and not just go into the pockets of a senior living facility or other similar entity.

There is also a growing segment of the market where young adult professionals have begun to make strides in their careers, but rather than become house poor in today’s market of highest bidder, they’ve decided to work with their parents to invest a more modest amount into an ADU that, again, will continue to grow and appreciate as an investment, but requires a much smaller amount to get started.

Right for You?

So, why will YOU build an ADU? Give us a call for a complimentary initial consultation, and we can help figure out if an ADU is right for you.