The Beginner's Guide to ADU Investing (Accessory Dwelling Units)

ADUs (accessory dwelling units/attached dwelling units) are becoming more and more popular as housing costs and rents rise. ADUs provide homeowners a way to offset their monthly mortgage cost by renting out a separate property, all without needing to comply with multifamily zoning laws. You’ve probably seen ADUs before, either as garage conversions, attic conversions, walled-off master bedrooms, or small studios in the backyard.

Derek Sherrell, commonly referred to as “That ADU Guy”, has become a major proponent in getting the ADU movement going. He’s bought, built, and rehabbed numerous ADUs and has helped many homeowners more efficiently house hack thanks to this strategy. In this video, Derek gives a quick rundown of the finding, financing, building, buying, and zoning of ADUs, as well as some expert tips he’s learned along the way.

Have you ever bought or built an ADU? If so, how did your experience go, and what means did you use to fund it? Let us know in the comments below, Derek loves to connect with other ADU investors!

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What Exactly Is an Accessory Dwelling Unit?
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Is Building an Accessory Dwelling Unit (ADU) a Worthwhile Investment?
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0:00 The Great ADU Adventure
0:58 What is an ADU (Accessory Dwelling Unit)?
3:05 ADUs are Essential!
3:33 Become a Local ADU Expert
5:53 Single-Family vs. Multifamily Zoning
6:45 Attached vs. Detached Dwelling Units
8:50 How Much Do ADUs Cost?
12:04 How to Finance Your ADU
14:50 Recapping the ADU Essentials

[davinitall]

Biggest tip I can give is check your contractor’s credentials and be active in the development. I’ve seen it too many times; simply walk in to the office and ask questions about ADUs, the permitting process, and code. Then hire a licensed, bonded contractor capable of handling the permitting process. Then ask for an update once to the local building department. Trust but verify. Seen too many people get taken for a drive with little recourse. People promised permits and stopped construction after the local city told them they didn’t have a permit, fake permits (even convincing ones), straight fly-by-night contractors whose voicemails are constantly full as soon as an issue comes up, to combinations of all of them.

Be selective and if it just doesn’t sound right, bail. Your ADU (or construction of any type) was not approved in two hours. Your permit shouldn’t be from a larger city 45 minutes away, the mayor (probably) didn’t personally assign you a permit. I’ve heard a lot of stories about disasters. Everything from fake permit scams (which can be surprisingly elaborate) to massive court battles over pretty blatant misrepresentation of qualifications. This is especially true in smaller municipalities where there is a breed of contractor/builder that prays on people’s ignorance. In the best of times, it is simply their own ignorance. And that is the beginning.

[tracylieu]

I converted detach adu 400sf full kitchen, tile bathroom, separate electric meter and gas meter, upgraded new panel to 200amp with electrical car charger included vanity, quartz counter top, mini split and tankless water heater for $160/sf

[jacobgarcia]

My partner and I built a fully permitted attached garage conversion in San Pablo, CA. 450 sqft. For about $95 a sqft. 75% of the work was self performed. Super excited to start the next one….. first I have to find money to buy another property and fund our deal 😅😂.

Initial Purchase Price: $560, 000

All In: $70, 000 (Main home remodeled as well)

ARV with ADU: $795, 000 - $810, 000

[ThatADUGuy]

Thank you BP viewers for such detailed and insightful questions and comments! I love to see the ADU wheels turning!

[suiteadditions]

Great Video! ADUs are the way of the future!

[sethsamson]

Good tips as always from BP. To the question asked in the video: $150/ Sq foot of 1200 Sq ft detached ADU in San Diego CA. Includes materials and labor paid progressively. Excludes permits. Factor another 20k for permits. Contract signed September 2021. Expected to complete in September 2022. Best of luck to everyone in the same journey. Also, see u all at BP CON 2022 in San Diego!

[raineyjayy]

Honestly if you are homeowner it's awesome for equity

[carrieveatch]

Thank you!! Excited to hear you speak at the Rocky Mountain Women Invest event next week. My neighborhood is in the works to get re-zoned for ADU’s so this is very exciting!

[munnerator]

I think Boxabl is the first company making a manufactured 600 Sq Ft home, which can be utilized as an ADU, starting at $50, 000. Which translates to approximately $84 per Sq Ft.

[jodykurt]

Cheapest path in unincorporated san diego County is adu detached manufactured home. Working on this right now with 3 bed/ 2 bath adu, home cost 99K. Bur we have a lot of space, half an acre. Renting for 3500 per month when completed, loan payment is 1700 per month

[hardknocklifeentertainment]

This is FANTASTIC information!!! Thank you so much ☀️

[noellepore]

I've been waiting for this! Genius!!

[RobertNavarro-qw]

First of thank you ;
I would like to build an Adu on my property.
I have an attached 2 car garage i want to convert although after listening to your suggestions of the master bedroom conversion seems less expensive and more convenient

[gabisrael]

Here in Florida looking to buy a some land to put an ADU on it. This video was very helpful with the steps I need to take. Thanks

[motley]

So much good information here! Thanks Derek!

[edwinsontay]

This what I did when I bought my house back on September 2021, regular lender could not loan me for the house because it had an existing detached ADU, went into the country and since it was existing was allowed to be there, I love Biggerpockets

[screammachineman]

Pricing: We are building a 1, 000 sf detached ADU on flat land in Brea CA (Orange County). It'll be almost 400k in construction costs.

[shanepollin]

Thank you for the content. Can you please explain WHY you would advise against adding an ADU to a lot in a multi-family zone which would allow an additional detached structure on the same lot? Thanks

[carlosvillalta]

Is building an ADU better then buying another home as a rental?

[JCC]

Attached adu sounds great for my situation converting my master bedroom.