Unlock Your True Property Value with a Cottage ADU
Accessory dwelling units (ADUs) are not a new phenomenon. Savvy homeowners have long used in-law units, granny flats, guest houses, casitas, and other similarly named structures (legal or otherwise) to earn rental income and even pay off the mortgage.
The difference between the second units of old and ADUs of today? The big legislative change was a 2019 law called AB 68 that made the process for permitting and building an ADU significantly easier across the state of California.
Now there is nothing standing in the way of:
Letting Cottage build your ADU from start-to-finish
Financing the ADU with one of Cottage’s preferred lenders that specialize in ADUs
Earning $2,500+ a month in passive rental income
Unlocking hundreds of thousands in property value for a fraction of the cost
What does this mean for you? Now, any property owner can build an ADU in their backyard and rent the ADU and/or the main home for rental income. This unlocks significant ROI for homeowners across the state—and this is where we’ll focus today with a real ADU scenario.
ADUs Create Massive Economic Opportunity
The ADU investment playbook is straightforward:
Analyze: Identify a single-family home, duplex, or other residential property with empty backyard or garage space
Build: Design & construct an ADU that is worth more than the construction cost and optimized for rental income
Rent: Rent the ADU (and/or the main house) for cash flow
Hold or Cash Out: Refinance or sell the home and benefit from the added property value
It’s the same concept as fixing-and-flipping houses—but with much less headache and risk with Cottage. Plus, any homeowner can take advantage of this strategy. Scroll below to see the numbers.
$28,800/year in ADU Rental Income
Let’s look at a real world ADU scenario to show how you can unlock $500,000+ in ADU value and $25,000+ in new annual rental income in year 1 of the ADU.
This 3BR/2BA, 1,108 sq. ft. home in Los Angeles, CA is worth $850,000 as of December 2021, according to PropStream (higher on Zillow). The larger backyard is perfect for a 2 bedroom, 2 bathroom, 750 sq.ft. unit similar to the floor plan below.
According to PropStream and Zillow, an ADU unit of this size can earn at least $2,400 a month in rental income.
That’s $28,800 a year in passive income in the first year of owning the ADU.
In future years, even raising the rental price by 5% a year would push your annual rental income to more than $50,000 in 12 years.
$375,000+ in ADU Value
But how much did it cost to build the ADU unit and how much is it now worth?
With Cottage, you can build your turnkey rental income ADU unit in Los Angeles at 750 sq.ft. for less than $350 per sq.ft. for the design, permits, and build—we’ve actually worked on ADUs where the project cost is significantly less. That’s $262,500 or less for the entire ADU process that’s managed by the Cottage team. We take care of the entire ADU build: eligibility, design, permitting, and construction.
With the main home square footage valued at $772 per square foot, even if the market values discounts ADU square footage at $500 per square foot, the 750 sq.ft. ADU instantly adds $375,000 in property value. And as our research of 2021 home sales with ADUs has shown, the actual value can be much higher.
That’s $375,000+ in property value for $262,500 or less in build cost.
It’s an easy win for any California homeowner. This is even more true when Cottage’s ADU financing partners can help you obtain a cash-out refinance, equity loan, or other financing solution, and then the Cottage team handles your ADU from A-to-Z.
ADU Options for Everyone
If you’re a homeowner with empty space, then adding an ADU unlocks passive rental income to pay off your mortgage (or retirement) while instantly adding future property value.
If you’re a property investor who owns single family homes or duplexes, then adding an ADU increases cash flow and property value on a lot that was previously maxed out.
All scenarios provide financial freedom and flexibility. With your ADU, you can: