Investing in an ADU to maximize property value—the PRADU option When looking to generate rental income from an ADU, there is a beneficial “pitfall” you should be aware of. It is one of the many benefits of an ADU and particularly a PRADU, and it can totally change the way you look to maximise any investment you make. Let’s do the math: You have a certain amount of savings, and that money will allow you to build an ADU of a certain size. That ADU will bring in a rental income which, based on the investment, looks like a good rate of return at, say, 10% over the first year (US$15,000 in rent for a US$150,000 investment). However, that rate of return is based on the money you invested, not the value of the unit itself. Depending on where you live and the local housing supply, and because ADUs and PRADUs make such sound financial sense, there is one final financial aspect to consider: the overall value of the entire property (i.e., the original dwelling and any new ADU(s) on the plot. Depending on property values in your area, you could substantially increase the overall value of the entire property by much more than 10%. For example, say the original property is valued at US$700,000 and the addition of an ADU costing $150,000 pushes the overall property value up to US$950,000, then while the rent would still be the same for the ADU, the return would, in reality, be much lower, as the ADU would have a value of US$250,000 and $15,000 in rent would be only a 6% annual return, which is not so good. But here’s the whole point, especially where PRADUs are concerned. If you simply want to maximize the value of your property before selling it, and building one or two ADUs could help you achieve that, do you really want to wait six to nine months before you can start building while you go through the rigmarole of obtaining all the necessary permits? Similarly, if you have money in the bank earning next to nothing, you want to get that money working for you as quickly as you can, and a six- or nine-month delay while all your savings are tied up makes little sense. In both instances, opting for a PRADU design solves the problem and helps you maximise your investment.
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