Are you interested in multifamily investing but overwhelmed by the prospect of buying an entire apartment building?
What if you could dip your toe in the water with accessory dwelling units or ADUs?
The ADU strategy involves either converting a SFH into multiple units or building standalone, detached units on a single family lot.
After several years of building ADUs for clients and friends, Derek Sherrell decided to leverage those skills into developing projects that would help him gain financial independence.
Two decades later, Derek is the real estate investor behind That ADU Guy. His platform teaches the strategy to help others earn passive income and address the affordable housing crisis at the same time.
On this episode of Financial Freedom with Real Estate Investing, Derek joins me to discuss the different categories of accessory dwelling units you might consider, convertible ADUs versus standalone, detached units.
Derek walks us through the process for getting permission to build accessory dwelling units, explaining why everyone should consider building an ADU at their primary residence and how to get financing for such a project.
Listen in for Derek’s insight on the profitability of building accessory dwelling units and find out if ADUs are the right steppingstone into YOUR multifamily investing career!
Key Takeaways
What’s behind the popularity of accessory dwelling units or ADUs
- States breaking down single family zoning to address affordable housing
- Allows us to convert SFH or build standalone, detached units on lot
Derek’s insight on the different categories of accessory dwelling units
- Convertible ADUs (basement/attic conversion or add-on)
- Standalone, detached units
The process for getting permission to build an accessory dwelling unit
- Become expert in local zoning code
- Really simple in some states, more challenging in others
Why everyone should consider building ADUs at their primary residence
- Potential to become multimillionaire in 10 years (if you move annually)
- Addresses affordable housing crisis, capitalism with compassion
How a real estate investor might scale Derek’s ADU strategy
- Buy SFHs with infill development potential, turn into multiple tax lots
- Buy modular units and turn single family lots into multifamily ones
What Derek looks for in buying a house for accessory dwelling units
- Flat lots with alley access
- Good utilities and newer infrastructure
The cost vs. profitability of building accessory dwelling units or ADUs
- $100 to $225/square foot to build ADUs
- Very high ROI, expect 1% rule at minimum
Strategies for getting financing to build an accessory dwelling unit
- Build with cash or equity if possible
- Use company like RenoFi (lends 100% of appraised value before build)
How standalone, detached ADUs impact the value of a property
- Build ADU with same quality as primary house/neighborhood standard
- Should be able to capture 75% of value on Day 1
What Derek loves about the ADU strategy
- Grew up poor with single mom and never had own home
- Knows he can make difference with niche
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Connect with Derek Sherrell
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Resources
Take Michael’s Free Apartments 101 Masterclass
Join the Nighthawk Equity Investor Club
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Financial Freedom with Real Estate Investing by Michael Blank