High Cost City - ADU

[slugsworth]

I know that we have a lot of people from the Seattle metro as well as other high cost areas where the 1% rule does not work out very well. . . however at least in Seattle and many of the surrounding cities, they allow Accessory Dwelling Units, AKA granny flats. I think that this could be something that actually meets the 1% rule, with a lot of caveats.  For those that aren't familiar an owner occupied house in a single family zone in Seattle can build up to an 800sqft 2nd house as long as the owner resides in one of the two structures.  The minimum lot size is 4,000sqft.

I'm curious what if anyone has taken a hard look at this, I think that it wouldn't be hard to build for under $150/sqft all-in if you used a stock plan or put in sweat equity. I think that the 50% rule could be bent since the unit would be new construction.

Obviously some people would not be willing to make the tradeoff in privacy, smaller yard, etc. 

[mjs111]

Sorry that I can't answer your question but your referral to the "50% Rule" was a new one to me.  What's the 50% Rule?

Thanks,

Mike

[arebelspy]

Sorry that I can't answer your question but your referral to the "50% Rule" was a new one to me.  What's the 50% Rule?

Long term, approximately 50% of gross rents will go to expenses (vacancy, management, taxes, insurance, turnover costs, repairs, capital expenses, etc. etc.).  The other half will service the mortgage and/or be profits.

There are areas outside of Seattle that have a bit better yield, but at that point I don't see why not invest long distance (i.e. you're the same amount of time away from a property if you have to drive a few hours to see it or if you have to fly a few hours to see it - either way the goal is to not visit your properties, but have them self sufficient).

[mjs111]

Thanks, arebelspy!

Mike

[NinetyFour]

Mike--sorry, I can't answer your question either, but I am interested in this topic as well.  I live in a CO town with high housing prices, and having an ADU has helped me immensely.  When I bought my house 7 years ago, there was a shack on the back of the property.  I put LOTS of money into renovating it, and now it's paying off.  It was risky, because it wasn't exactly legal until just a few months ago!  But now that it is, it's a little gold mine in my backyard.  (Actually, I live in the ADU and I rent the main house.)

[Johnny Aloha]

it's a little gold mine in my backyard. 

This.

ADU's are very common in my area.  Aside from offsetting the monthly costs, they actually ADD significant value to the property because everyone wants one (unless you are in the $2M+ price range).  In many cases, ADUs are the first renovation project when someone buys a house - myself included.

If you do the reno, I highly recommend you get everything permitted.  Unpermitted spaces don't add value, but also open you up to liability if there is an injury.

I also like the flexibility of them - you can rent them as short term rentals, long term, use it for family, office space, etc.

[the fixer]

Having been shopping for multifamilies in Seattle, I can contribute something here.

The big difference between a single family with an ADU and a duplex is that the ADU can only have one lease for the entire property at any time. It is illegal to rent the main dwelling and the ADU to different tenants. The idea is that you're supposed to be living in one of them. Some landlords will get around this by putting both tenants on a single lease, but this is just a way to avoid getting caught and I'm not sure if I was the tenant I'd be comfortable with that. If the other tenant fails to pay rent I think the landlord could come after me.

Duplexes are much better if you ever want to rent out both units.

[slugsworth]

Fixer, you are 100% correct, assuming you are in a single family zone (different rules if you are in an 'L' zone), and in fact if the property stopped being your primary residence, you are supposed to remove or somehow get rid of the ADU. . . which is a tall order unless it was planned out very well in advance. I have a friend whose basement apartment had the stove removed for 2 days while the city inspectors came to confirm it was no longer an apartment. The city is in the process of starting a rental inspection program and I think that a lot of these units will be caught.

Arebelspy, we'll have to talk about the long distance rentals at the camp mustache event. How long exactly have you been acting as the long distance landlord?

[arebelspy]

Arebelspy, we'll have to talk about the long distance rentals at the camp mustache event. How long exactly have you been acting as the long distance landlord?

I don't do long distance landlording.  Some do, I don't.

I manage my local properties, and have a property manager for my out of state ones.

I am considering doing a long distance landlord thing for my current ones when I FIRE, move out of state, and start full time travel, since I have everything running pretty smoothly and management takes no time or effort.  Turnover is the tough part. I have a few thoughts on it all.

I'm glad to chat about real estate any time.  :)

I'm guessing you thought I long distance landlord because of this comment:

There are areas outside of Seattle that have a bit better yield, but at that point I don't see why not invest long distance (i.e. you're the same amount of time away from a property if you have to drive a few hours to see it or if you have to fly a few hours to see it - either way the goal is to not visit your properties, but have them self sufficient).

My point was not that you need to visit the property, just that if you think one a few hours away is manageable, most places are a few hours away via plane.  I'd just go long distance and get aPM though - factor in the cost, like you would anything else, and see if the numbers make sense.

[madler]

arebelspy

I manage my local properties, and have a property manager for my out of state ones.

Isn't this long distance landlording?

How did you find your out of state properties and property managers?

[arebelspy]

arebelspy

I manage my local properties, and have a property manager for my out of state ones.

Isn't this long distance landlording?

Yeah, depending on your use of the phrase.  I view long distance landlording as managing the property yourself, without a property manager.  But it could also mean "owning long term buy and holds not near you," even if you don't necessarily manage them yourself.

But people do manage their own, long distance.  I just don't.

How did you find your out of state properties and property managers?

Networking. Referrals.