Q: How Can I Get an ADU If I Don’t Have the Cash?

Today I’m explaining how to get an ADU even if you don’t have the cash. 

This is my first week back to work in my regular office after more than three months of lockdown! In my last video, I discussed ADUs (accessory dwelling units) and received a ton of feedback from people who are telling me they’re interested but don’t have the cash and want to know how they can pull it off. Today I’m going to be sharing all the information about the Fannie Mae program that can assist with this. I’ve helped clients use this program before with great success. This program can also help you refinance, too. To learn more about this excellent program, watch my latest video above.

Q: How Can You Build $330,000 in Equity Quickly?

Here’s how to build wealth quickly via real estate with one simple plan.

As mentioned in Part I of my series about how to retire and build wealth in real estate, my case study focused on an Accessory Dwelling Unit (additional unit) in the city of Burbank, California.

Now, I’m using data from Burbank for houses between 1,100 and 1,500 square feet that have sold within the last six months; that makes my average 1,300 square feet, valued at around $511 per square foot and totaling $664,000 (approximately). This will be my baseline for the home on which you could add an ADU that’s 1,200 square feet in size.

In the end, your property’s total square footage will equal 2,500. The building cost for an ADU like that will be roughly $150 per square foot, totaling $180,000. So, when factoring in everything, let’s say you’re looking at a total cost of $850,000 (the initial home purchase of $664,000 plus the $150,000 ADU building cost). How much value will this ADU give you? I used homes of 2,000 to 2,500 square feet in the same neighborhood as my comps. Those homes averaged out to be $1,178,000. This means you will build roughly $330,000 in equity immediately upon completion of the ADU.

ADUs are truly a great strategy to employ when seeking to build wealth quickly through real estate.

Keep in mind that this example is based solely on square footage. You may ask, “What is a duplex going for in Burbank right now?” Here’s the data I pulled for duplexes: They’re currently going for somewhere between $575,000 to $600,000 per unit. So, if you times that by two, you’re at $1.2 million—right on the money for our ADU example.

What is the time frame for the ADU approach? After studying up, I feel confident in saying that purchasing a home for $664,000, building an ADU, renting it out, and then refinancing to get your cash out can take as little as 18 months. In my next video, I will explain the duration of the process in more detail, but 18 months is plenty of time; when an ADU plan is submitted to the city for approval, it has to be addressed within 60 days. Let’s say the architect and the structural engineer are both very busy, so they give an estimation of two to three months to get the plan ready for submission, two more months for the approval, and then six to eight months for construction. Afterward, renting it out and refinancing will take much less time.

ADUs are truly a great strategy to employ when seeking to build wealth quickly through real estate. As always, reach out to me via phone or email if you have any questions about this or other real estate topics. I’m here to be a resource for you!

Your May Market Update

Here’s why ours is still a strong seller’s market with multiple offers.

Are we headed for a housing market crash? Today I’ll share the latest market data from April to draw contrasts between the calamity of 2008 and our current crisis. Believe it or not, we’re still currently experiencing a strong seller’s market, and prices are stable. Though total sales were down significantly year over year for April (1,087 compared to 1,683), the average sale price this year was much higher, and inventory remains low.

To clarify, the data that I’ve compiled describes communities that fall within this perimeter: the western limit is along the 710 freeway (Pasadena down toward Montebello and Monterey Park); the northern limit would be the 210 freeway; the southern limit is the 60; and the eastern limit is along the 15 (Rancho Cucamonga, Ontario, and a small portion of Eastvale).

Cited below for your convenience are timestamps that will direct you to various points in the video. Feel free to watch it in its entirety, or use these timestamps to browse specific points at your leisure:

0:46 - Total sales, average sale price, and average price per square foot for April

1:41 - Comparing April 2020 to April 2019

2:26 - How the strong market of early 2020 (January through March) outpaced early 2019

3:40 - Using our low inventory to explain how the current crisis differs from the 2008 crash

4:53 - Offers subject to inspection in our marketplace

6:08 - Low rates are keeping employed buyers motivated

7:00 - My final thoughts on whether or not we’ll experience another housing crash

As always, I welcome your comments. If you have any questions about what was discussed in this message, or if you’re interested in buying or selling a home soon but aren’t sure how to proceed in these times, please reach out to me. I’m here to help, and I look forward to hearing from you!