Q: Is This a Good Market to Build Wealth in Real Estate?

Here’s what the market looks like for homeowners who want to build an ADU.

Continuing my series about how to create wealth through real estate via an ADU, I’m going to shift my focus to the market and how it is right now for investors. I’ll take a look at the second quarter numbers of 2020 and compare them to the second quarter numbers of 2019.

In April of 2019, we had 2,500 new listings come on the market, and 1,787 homes went under contract. That means 71% of the listings were going to escrow each month, and that gave us 1.4 months of inventory. These figures were pretty steady throughout May and June 2019 as well.

In 2020, we saw a big drop in homes under contract in April. There were 1,344 homes listed in April and 869 of them went under contract. That’s a 65% drop.

However, since then, we have seen a recovery. In May 2020, we had 1,828 new listings and 1,435 homes that went under contract. That was a 65% jump from April, which is great news.

You can benefit from adding an ADU because demand for housing is so strong.

In June, we saw a 6% increase in the number of listings from what we saw in June 2019. That’s a great sign for the future of our market. This is a result of pent-up demand being released as stay-at-home restrictions slowly lifted.

How’s pricing? In June 2019, the average price per square foot was around $378. Right now, we have an average price per square foot of $387. We haven’t seen a big jump, but we’ve seen a healthy increase, which is a good sign.

If you ask me, it’s a great time to invest in building an ADU for your home. Many sellers aren’t selling, so you can benefit from adding housing to your home because there is demand for it.

If you have any questions about the market, investing, or real estate in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you.

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!