How to Invest In a Bay Area Backyard Home

You may have heard that cities are relaxing restrictions for adding backyard homes. Maybe it’s time to build one on your own property. But, do the benefits of an ADU outweigh the investment? Can you make money from an in-law unit? Knowing the answers to these questions can help you decide for sure whether this type of home improvement is right for your situation, and if so, what goals to set for your ADU construction. Here’s what you need to know. 

Benefits of a Bay Area Backyard Home

Backyard homes are multi-purpose fixtures that can improve the value of your property, make your home easier to sell, and provide a continuous source of income. A well-designed backyard home can also become a safe, affordable living space for other members of your family, whether that’s a senior relative hoping to live with you or an adult child who needs someplace to live after college graduation.

More benefits:

• A typical rental ADU can pay for itself in about 10 years, and after it’s paid off, profits set in. 
• Installation is relatively fast! It takes about a year to build an ADU, from the first planning of the project to the final stages of construction.
• ADUs are flexible in their application – what is a rental unit today can become a home for your senior parent later. 

The Financials of a Backyard Home

In the San Francisco area, a typical ADU can cost anywhere from about $50,000 to $100,000, depending on the size and features. Construction costs only make up one aspect of the financial component of building an ADU. Permits and design fees are part of the cost of an ADU.

Budget for Your Backyard Home

Budgeting for your ADU is important. Unless you’re planning to pay for your ADU with cash outright, contact lenders to get qualified and determine how much you can borrow. Other expenses to take into consideration when building an ADU include property taxes, rental operating expenses, taxes on rental income, and any limits on rental rates that might be set by your local city.

Shop around for the loan.

Most homeowners are not real estate investors and don’t have the start up capital for an ADU. If you’re getting a loan, shop around to get the lowest interest rate and best deal. 

Backyard Home Profits

Do your homework locally before investing in an ADU. Some counties may put a cap on the rent for your ADU, which can affect your profits. If you are a number’s person, you can create a spreadsheet that will help project how long you’ll take to pay off a backyard home given the maximum amount you can charge in rent. Depending on your location, you might make more renting to vacationers or short-term rentals where you may be able to charge more.

Design Your Ideal Backyard Home

Design and style are a huge consideration for an occupant. If you planning for ROI, having a current design style with an open floorplan and storage consideration will keep your tenants happy.  The longer you can keep your unit rented the less expense you will incur, unless it’s a bad tenant.

ADU styles mimic home styles. Today, spacious plans with high ceilings are common. There are many ways to design your ideal backyard home. The easiest is to start with a plan and make a few architectural design changes to fit your lot and needs.

Starting the Backyard Home Process

Are you ready to start your ADU construction project? Drafting Cafe has a few turn-key plans that can make your build a breeze. And if you one of those homeowners who just wants it done and doesn’t want to be bothered with every little detail, check out our design-to-build backyard home design service. Make an appointment and our professional project managers will be in touch.