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Utilizing Your Lot to Earn Extra Rental Income: Accessory Dwelling Units

Updated: Jul 25, 2023


Imagine you have a small home, but a decent-sized lot – the perfect opportunity to generate rental income! Let me guide you through the process of making this a reality. First, calculate your budget. If you have the funds, great! Otherwise, there are loan options available, such as home equity loans or construction loans, which you can discuss with your lender.


The next step is to determine the size of your build. If you have limited space, don't worry, as there are ways to expand an ADU. Just contact us, and we'll send someone to survey the area. Converting existing spaces like a garage might cost slightly less than building a new ADU due to existing structures, but don't be surprised if the cost isn't significantly lower. Sometimes, it's easier to create new framing than to undertake demolition work. ADU conversions typically range from $180,000 to $200,000 per square foot, with a 15x15 conversion costing around $40,000 to $50,000.


If you have space in your backyard, we highly recommend building a new ADU with more than one bedroom, as it can be rented out quickly. The approximate cost for a new ADU is $250,000, and if you took out a loan, the mortgage would be around $1,500 per month. However, you can easily rent out the unit for $3,300 a month, generating an additional $1,800 of income per month. In just 12 years, your ADU will be paid off, leaving you with an extra $3,300 of passive income every month – a substantial amount that could be enough for retirement.


But why stop at one ADU? You can explore adding another JADU, or if your lot is large enough, consider applying for a lot split, taking advantage of the law article SB-9 lot splitting to allow your lot to be split into 4 dwellings. On top of that, you may even add more ADUs. There's also the law SB10, which permits building up to 10 dwellings. The possibilities are endless!


Although it may seem complex, fear not – with the right guidance, this path can be straightforward. All you need is an all-in-one developer to help you put it all together. Money, a builder, and time are essential components of the process. So, what do you think about this opportunity? Is it something that interests you? Let me know in the comments!

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