Because of the housing shortage in Utah over the past several years, the state passed a bill allowing homeowners to put an Accessory Dwelling Unit or ADU in their single-family home. This essentially allows an apartment within any single-family home regardless of the zoning. The rental market is quite strong because of the housing shortage, making an ADU easy to rent for a top price.
This can be very helpful in making the payment on a new home, given the price and interest rate increases over the past few years. For example, principle and interest on a 30 year loan for $500,000 at 3.5% is $2,245.22 and at 6% it is$2,997.75. The mortgage payment in this scenario has increased $752.53. To combat this, Updwell Homes will finish a new home they build with an ADU you can rent for extra income that will more than make up for the higher house payment caused by rising interest rates. The nicest way to do this is with a separate outside entrance, kitchen, furnace, and washer/dryer hookups. The average cost for this is $75,000 which, if financed, increases your mortgage payment by close to $500, and it would rent for $1,200 to $1,800 depending on the location. That gives you a $700 to $1,300 positive cash flow.
WOW – this is unheard of in the world of rental investing. To purchase a rental unit requires 20-30% down and a higher interest rate. Even with the large down payment it is hard to find a rental property with much or any positive cash flow. With the ADU, you only need to put 3-5% down, you get the lower rates offered to owner occupied properties, and a very strong cash flow. More wealth is created in real estate than probably any other source.
Nowhere is there a better and easier opportunity to start doing this than with an ADU. Here is a list of the great advantages related to an ADU.
- The strong positive cash flow we have shown above
- Getting your basement finished and paid your by your renter.
- Talk to your accountant about tax saving advantages such as interest deduction, depreciation, writing off expenses such as utilities, landscaping, landscape maintenance, and home improvements.
- As your family ages the ADU could become a mother-in-law apartment or home for a married child while going to college or saving to buy their own home.
There is no guarantee how long this opportunity will last. NOW is the time to have someone else make up to 30% of your house payment and start building wealth in real estate!