CLIENT INSIGHTS: SUCCESSFULLY MAXIMIZING YOUR ROI WITH AN ADU
Updated: Aug 18
Q&A with our past client, Brennan, on the success of his ADU project that Build Forward designed and built.
Brennan is a part time real estate investor with eight years of experience in the Portland metro area. Brennan got his start in 2015 when he moved to Portland and purchased a small 1000sqft bungalow in NE Portland, less than 6 months later his first ADU project was underway. In his free time, Brennan enjoys biking, yoga & a deep passion for travel, the more difficult the location the better.
In the realm of real estate investing, the allure of Accessory Dwelling Units (ADUs) has been steadily gaining ground. These secondary living spaces, also known as granny flats or backyard cottages, offer the potential for both supplemental income and increased property value. To shed light on the realities of such investments, we sat down with a beloved past client, Brennan, who has been reaping the rewards of completing an ADU project over the last few years. In this Q&A, we delve into his experience, from ROI considerations to design elements that contributed to rental success, and even challenges encountered along the way.
Q: How has your ADU performed in terms of return on investment (ROI)? Has it met, exceeded, or fallen slightly below your initial expectations?
A: When we initiated this project, the world was yet to grapple with the impact of COVID-19. Initially, I was aiming for an all-in cost of around a quarter million dollars, while Build Forward's initial bid was hovering around 200K, contingent on finish choices. The unexpected surge in rent prices due to the pandemic boosted my revenue beyond expectations. Originally, I anticipated renting it out for $2200-2400 per month. However, the ADU was eventually leased for $2750, comfortably exceeding my highest projections.
Q: As an investor, what specific features or design elements of the ADU do you believe have contributed the most to its rental success and positive financial outcomes?
A: Several factors have played a pivotal role in the ADU's rental success. The abundance of natural light, an open and modern floor plan, and contemporary finishes were key considerations. Additionally, the site's advantageous positioning – with ample sunlight and a view – has proven to be a major draw. The potential for indoor plants and an outdoor garden resonated with tenants. The provision of functional spaces, like an office desk on the upstairs deck, has proven popular with those who are riding the digital nomad wave. An ensuite master bath was another sought-after feature. The overall value proposition, including private space and parking, outweighed the alternatives offered by larger apartment buildings in the area.
Q: How was your overall experience working with Build Forward, from the initial design phase to the final construction and completion of the ADU? Were there any particular aspects of the collaboration that stood out to you?
A: Working with Build Forward was definitely a positive experience overall. One standout team member was Octavio (Build Forward's Head Carpenter), who consistently impressed with his dedication and professionalism. There were challenges, particularly towards the project's conclusion, which were more related to budget constraints rather than Build Forward's performance. In terms of funding, COVID-19 related pricing surges prompted a renegotiation of the loan terms to ensure we had the necessary resources to complete the project. This period was stressful, but the key was to adapt and find solutions, ultimately enabling the project's success.
Q: Since the completion of the ADU, have you encountered any challenges or maintenance issues? How were they addressed?
A: The only maintenance issue that arose was related to the exhaust vents for the bathroom fans, the dryer, and the kitchen range. The vents were fitted with fine window screen mesh, and the dryer vent became blocked. To resolve the problem, I took matters into my own hands and made necessary modifications (cut the screen out). While a minor issue, it's a reminder that addressing even the smallest concerns promptly is essential for a well-functioning property.
Q: Given the success of this project, do you plan to pursue further real estate investments or work with a design build company again?
A: Definitely. However, given current construction cost trends, the purely investment-driven decision to build a standalone ADU might not be as financially prudent. Duplexes appear to offer a more appealing investment avenue. A duplex ADU can yield two units and potentially higher cash flow. Had I foreseen the impact of COVID-19 on costs, I would have pursued such an approach earlier. While construction investments carry risks, thinking long term and being prepared to weather challenges is key to realizing their potential.
In the ever-evolving landscape of real estate investments, ADUs continue to carve out a niche as lucrative opportunities for savvy investors. Through the lens of a past client and successful investor, we've explored the journey from initial cost estimates to unexpected revenue gains, design elements driving rental success, challenges faced during collaboration, and the valuable lessons learned. It's evident that while the path may not always be smooth, well-informed decisions and a long-term perspective can lead to substantial returns and a solid foundation for financial success.
Stay tuned for part two of this interview, where we delve more into the specifics of financing a project like this. In the meantime, you can reach out to us here or email us at email@example.com to discuss the possibilities to financially benefit from your next project!