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!