Hi Team,
Long time reader but it’s been a while since I’ve posted. I’m looking for feedback regarding the construction and rental of an ADU (accessory dwelling unit) on my property. Some current stats below:
Age: 33 MFJ (wife is SAHM with our 3 kids)
Income: 125k-150k (Has been 50-100% higher the last 3 years due to stock grants but don’t want to count on that going forward.)
Assets: 350k retirement, 100k taxable (this will increase by 40k in January with RSU vest), 410k primary residence
Liabilities: 310k mortgage @ 3.375 30yr (just refinanced)
Net Worth: 550k
About Current Property and potential ADU:
Our current lot is 2 acres and we can legally build a 750 sqft ADU. Our house is positioned on the front corner of the lot so there is plenty of space on the other side of the property to build. The unit would have its own entrance and would feel like a separate property completely. We live in a MCOL/MHCOL area (vanilla 3/2 would cost 300k and rent for 2k).
Projected cost for ADU: 100-120k (I’m confident we could be at or under this, my family has been in residential construction in the area for 50 years and has many connections in the industry)
Projected rent: $1,400/month (most 2/1’s at this price point in the area are old and out of date, could potentially get more like $1,600. I’m leaning towards a long term renter vs. Airbnb. Our property is in a small “rural” neighborhood that is surrounded by the rest of the city which makes it a very desirable location. (10 minute walk to all the bars, shopping, restaurants you could want).
A couple specific questions/comments:
- Our county just passed legislation that eases restrictions on ADU’s to address local housing shortage issues, so the property could be legally rented.
- With a typical rental property if you want out, you sell and move on. We consider our current residence our forever home so we could not easily separate from the situation if we wanted. How would this impact your decision?
- Having the rental so close to our current residence should make self-management much easier. Would you see this as a major plus?
- How would you go about paying for this? I wouldn’t be opposed to putting down a large chunk but I don’t want to empty our cash reserves. Ideally we’d put down 25% or so and finance the rest.
I appreciate any advice/feedback. Thank you!