Discover the profit potential of rental Accessory Dwelling Units (ADUs) and how they can enhance your investment portfolio and financial returns....
The below article is transcribed from The Accidental Landlord Podcast. To listen to the full episode, follow the link.
Peter McKenzie: Welcome to another episode of The Accidental Landlord. Today, we have with us Christy Silva, the owner of Little Home Builder, who primarily deals with ADUs. She's a certified AD specialist. So, welcome to the show, Christy.
Christy Silva: Thank you, Peter. Excited to be here. Hello, everyone.
Peter: Yeah, us too. So, ADUs—obviously, this is a popular, I don't know what you want to call it, like a subclass of housing, I guess. I don't know what the technical term is, but I think at this point, everybody knows what an ADU is. In our market, they keep getting, I don't want to say better and better, but they keep passing laws that make it easier and easier. And that's kind of the gist of what we want to talk about. So, new year.
I know a bunch—I don't know about a bunch, but a handful of laws passed that affect our potential listeners. And so I wanted to kind of get into that. But before we do that, why don't you take a minute and introduce yourself, tell us a little bit about you and share with the listeners, yeah, a little bit about you.
Christy Silva: Thank you. I'm Christy Silva, owner and founder of Little Home Builder, as you mentioned. We specialize in ADUs, and ADUs mean a lot of things—attached, detached, internal. Now, junior ADUs are the concept recognized in California. So those are kind of the internal build to the existing primary dwelling where you're maybe finishing an attic or a basement or another bedroom and creating kind of a private living quarters within that existing house. So excited to be here. We've got some nice plans that are pretty standard to fit a lot of lots and zoning requirements. So that's where we try to specialize to make it easy and streamlined. A lot of cities are doing the same and have pre-approved plans for ADUs. So that's just one of the flexibilities that has improved.
Peter: How did you guys get into ADUs? I assumed you didn't do ADUs from the beginning or what does that look like?
Christy Silva: You know, I am leaning a lot on my dad. He's been in construction for basically his entire adult life, and we bring kind of a marketing and sales background. So it's a perfect combo of being able to reach a lot of folks with an offering that we feel is high quality and affordable and just helps add to additional flexible housing options.
Peter: Gotcha, but we weren't building ADUs 20 years ago, right? Your dad wasn't...
Christy Silva: Well, I mean, sort of. Yeah, I mean, ADUs have been around for a long time in a lot of cities and not necessarily recognized. So it was the shed in the backyard or just a secondary living structure. So they have been around a while, went away with a lot of the zoning restrictions and now are back. But certainly, you're right. My dad has focused mainly on custom homes, remodels, those types of things. And I think you see a lot of contractors have done a lot of things and have moved toward ADUs. Compared to a big custom home, it's a little bit simpler to build a smaller structure that's typically around 7, 800 square feet.
Peter: Let's talk a little bit before we get into the laws, a little bit about, because in our area there's a handful of people that are doing this. Either you have some family needs like aging parents or disabled somebody that you want close by but they don't want to be in the house. We've seen a lot of family creation building ADUs. You also have real estate investors building ADUs because they recognize that they can boost the rental income of the house they're living in by creating an ADU in the back. So what are you, let's talk a little bit about cost. I think a lot of people in their mind go, oh, ADU, it's a little mini house. It's gotta be way cheaper than building a big house. Is that accurate or why don't you share with us a little bit about the cost side of this?
Christy Silva: To be honest, when I got into the industry, it was my biggest surprise. A little bit of sticker shock, right? Because I think in my mind, oh, this is a $50,000 tiny home. Everyone should have one of these. It's not quite that simple and it's not quite that expensive. So I think a good rule of thumb is to kind of take the midpoint of your existing property. So if your house is worth $800,000 and you're going to build something that's 50%, 40% the size of that house, you're gonna pay 40 to 50% of the value of that home. So you are looking closer to the 400 to 500K price range, in some places a little lower, but it's certainly not the $50,000 sticker price that you might have in mind. And I kinda had that in mind myself.
Peter: What's the reason for that? Is it, I mean, I kind of have an idea in my head, but interested in your opinion, why?
Christy Silva: Because you have the expensive spaces that you have in a large dwelling. And those are the kitchen and the bathroom. Those are your most expensive parts of a home to finish. And everything else, bedrooms, hallways, those are just open square boxes where you don't have appliances and you don't have backsplashes, sinks, and expensive things, a bathtub, a shower, all of those things that go into kitchens and bathrooms. Those are expensive areas of a home to finish and so you're still squeezing those into your 500 square foot or 800 square foot ADU. You don't have as much of the open space bedrooms and hallways and dining rooms that really just involve finishing four walls and a floor.
Peter: Yeah, I think the way I'd like to explain it too is all the same people have to show up there. Every, all the same subcontract subs are coming. They're just doing, you know, little things in little areas, but they all still have to come. It's the permit. All of the stuff is the same, which is why those they're so expensive. It's not like your four walls and a roof and that's it. Like there's, it's basically a house just in a small area. So, which makes sense. But, okay. Let's.
Christy Silva: Yes. I like to break into four typical steps that when you're building an ADU, you're thinking about the pre-work, the permitting, the inspections, the soils, all of that, the foundation and site work. So you have to secure the thing to the ground in some way. Then you've got materials and labor. And those are really your four big costs on any build. And so those all apply to an ADU.
Peter: Are you guys doing from the ground up, or are you doing any modular type stuff? I know Boxable is one that's popular and getting a lot of press, but how do you guys do it?
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