Why Smart Investors Should Buy And Rent Out ADUs In Los Angeles Right Now

I’m going to let you in on a little secret that could earn you thousands of dollars more than your friends who are buying single family homes in Los Angeles right now. (Hint: it involves ADUs).

If the following statement is true, then this article should be taken very seriously. If it’s not true, there’s not much value in the rest of this article: Your single-family house isn’t going to increase in value as quickly as an ADU.

With that said, let’s get into why that statement is true and how you can take advantage of it right now.

First, a definition for our uninitiated readers: Airbnb (the company) is short for “Air Bed & Breakfast”. It’s a platform that matches people who have space to spare with people looking for temporary accommodation. This isn’t just your run-of-the-mill couch surfing: it’s specifically aimed at travelers looking for more than just a place to crash.

Think of it like the sharing economy taken to the extreme: a good example is Uber, which matches people who have cars with people who need rides.

Real estate investors are increasingly curious about Airbnb and other services like it.

Why? Because they can earn much more per night renting out their empty property than paying off a mortgage every month. The same house could be worth $100,000 on the market vs $120,000 as an investment property … or $240,000 as an Air BnB!

The obvious upside to investing in this way is the extra income. But there are some other good reasons too: It’s a more hands off approach to real estate investing; it can boost your rental portfolio with less risk and capital than buying single family homes … you get the idea.

It also helps solve the single biggest problem facing real estate investors today: finding good tenants.

A lot of the time, owners are left in a bind when their tenant decides to move out. It could be because they lost their job and got relocated for work, or maybe there was an unplanned family emergency. Whatever the reason, it’s a headache that can completely derail an investor’s cash flow.

That’s not the case with Airbnb: all you’ve lost is your tenant, and because they have a verified profile on the platform it should be easy to find another one in their place.

And that brings us back to our initial point: there are lots of reasons why smart investors should get into the Airbnb game now, but here is my favorite one: if you picked up a single-family home and rented it out right now, the maximum amount of money you could earn per year is around $9,000.

Of course, that would be considered pretty good, considering a lot of areas in Los Angeles are still improving after the recession.

But the same house could be rented out on Airbnb for $250 a night, and that’s just one listing. The sky is the limit!

The easiest way to do this is by becoming an Airbnb host yourself, but unfortunately, it’s not always possible because of zoning codes, landlord-tenant laws and other restrictions from cities.

However, there is another way to make money off Airbnb without being an actual host: buy the houses yourself and then rent them out. This is a strategy that makes sense in certain areas of Los Angeles where zoning codes are lax or non-existent, such as Venice Beach. (And it’s not just LA either. Airbnb has been making waves all over the world!)

So why is this a “golden opportunity” right now? It’s simple: the cost of ADUs in LA has never been cheaper and they are only getting more expensive. That means there has never been a better time to purchase an ADU in Los Angeles , especially if you’re looking to add some more diversity to your rental portfolio.

How can I say that? The cost of ADUs has been steadily increasing for the past couple years, but it’s certainly not an up and to the right graph. In fact, if you look at prices over the past few months or even year, they have either gone down or stayed flat.

While housing prices across the country rise, costs for ADUs have flattened… and a lot of times they’ve dropped. This isn’t always the case in other parts of Los Angeles County, but it’s certainly been true in Venice Beach recently.

This is because ADU prices are incredibly sensitive to supply and demand. ADUs are highly sought after because they provide more density and opportunity for multi-family dwellings … but there aren’t very many of them out there.

So if a developer gets approved to put up 100 units, it’s obviously going to cause ADU prices to go up … but that doesn’t happen very often (if at all). And when that happens, the landlords have to market and advertise their properties more aggressively.

That’s why you’ve seen so many ADUs come on the market over the past couple of months. A lot of them were sold at higher prices than they are listed for now … and some even higher than what they’re currently selling for.

This may not sound like a big “win” if you only invest in single family homes, but it’s huge: you’ll get ADU for sale in Los Angeles for much cheaper than what the owner initially paid for it.

Of course, that’s assuming they are purchased as investment properties. However, there are other reasons why ADUs would make sense from an investment standpoint.

Again, it comes back to diversity. One of the biggest arguments against investing in single family homes is that they are correlated with other types of real estate — particularly commercial properties — meaning their prices move in tandem.

That’s not the case with ADUs, however: they’re very under-the-radar and aren’t really correlated with any other asset. They have their own very specific pockets of demand. And that demand won’t disappear anytime soon either.

The main ADU demand drivers in Los Angeles are people wanting to live closer to the beach, younger generations not wanting to leave their parents’ homes and strict zoning codes that make it difficult for developers to build more single-family homes.

These factors won’t be going away anytime soon, so you can expect a consistent flow of renters looking to rent your ADU.

And since ADUs are such an attractive option for renters, they will continue to get more expensive as well. So, when you buy at today’s prices, your potential cash flow from renting them out should increase over time… And that’s not even talking about capital appreciation.

So, there are a lot of benefits to investing in ADUs. Those that would consider themselves smart investors should consider it a good idea to buy and rent out ADUs in LA right now as this article has proven that now is the time to do so. 

360Builders is a Los Angeles based construction company specializing in new construction and multi-family ADUs. We pride ourselves on providing safe, cost-effective solutions to all our customers’ construction needs.


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