The Professionalist Real Estate Investing Podcast
The Professionalist Real Estate Investing Podcast will help individuals get into investing in real estate and provide you with the knowledge and skills to accomplish your goals. We will be discussing all different aspects of investing, such as tools and tips to guide you through the steps. We will be having experts in the real estate field, syndicators and people with an abundance of knowledge who have succeeded in investing. Be sure to subscribe so you never miss an episode.
The Professionalist Real Estate Investing Podcast
Maximizing Property Value through ADUs
Can Accessory Dwelling Units (ADUs) be the solution to the housing shortage crisis? Join us in this episode of the Professionalist Real Estate Investing Podcast as we explore the transformative potential of ADUs in states like California, Oregon, and New York. Learn about the different types of ADUs—detached units, attached units, garage conversions, and basement apartments—and how they provide affordable housing options amidst rising home prices driven by big companies and affluent buyers turning homes into rentals.
Discover the myriad benefits of constructing ADUs, from generating additional income to creating independent living spaces for aging relatives and even utilizing these units as home offices or guest houses. We'll break down the financial perks, including potential tax deductions and increased property value, while also addressing the regulatory hurdles, such as zoning laws and short-term rental restrictions. Don't miss our discussion on California's Assembly Bill 1033, designed to streamline the ADU development process for homeowners.
Lastly, we delve into the specifics of a $40,000 government grant aimed at assisting with pre-construction costs for ADUs. Find out how this grant can help cover expenses like land surveying, closing costs, and permits, and why it's crucial to consult with a financial advisor to navigate state regulations. We also touch on broader market challenges, including high interest rates and inflated home prices, and emphasize the cyclical nature of the real estate market. Tune in for valuable insights and celebrate our 20th episode milestone with us as we look ahead to an exciting future!
Podcast Intro
Welcome everybody to the Professionalist Real Estate Investing Podcast. I'm with my guy who Yo, it's me Rocky. Hey, Mr Rocky, how you doing today bro.
Speaker 2:Doing good, that's good.
Speaker 1:That's good. Thank you for coming on to the 20th episode of the Professionalist Real Estate Investing Podcast. I can't believe it's already been 20 episodes, yeah, yeah, I was just looking over today and I was like we've already done 20. So I want to say thank you to everyone who's listened to it, who's watched the shorts, who's watched the videos, and I have more content coming out. Just gone for a little recess break, moving to a better facilities to get this thing done and put out some more content for everybody to listen to and watch.
Speaker 1:So today we're here and we're going to be talking about what is an ADU in real estate and why is it so important? So an ADU, the acronym of ADU, is an accessory dwelling unit. The thing about ADUs is, before I get into it, adus are not in all states. They're actually in eight states and, of course, the state in California that we live in, it's here Oregon, washington, massachusetts, florida, colorado, and they're considered friendly states in Connecticut, maine and New York. So basically, in a way, to tell you what a uh adu is um, you have your house on a property but say, like, in the very back there's like a small little area, um, that someone can live in like a kind of like a uh, mother-in-law yeah, the quarters like that yeah, that's, that's how it's done with the adus, and I got a little nugget to tell you more about that too.
Speaker 1:But that's what an ADU is, and the reason why that the government in these states are looking at ADUs is to help out with the housing shortage, because probably the beginning of this year it was estimated between three to 5 million was the housing shortage. Now it's up between seven to nine million. Yeah, so this it's a real, real problem. What's going on right now with the, the housing shortage?
Speaker 2:yes, like they said, they're saying it would all be uh, renters, renters. All these big companies are yeah, the blockchain yeah, the big chains are buying out these homes. You know cash, and then there's leasing them out. So no one's able to buy these houses out because it's getting overpriced, overpriced yeah. And just you know people paying them cash.
Speaker 1:And, like these companies, they're putting everything and everybody in a chokehold, because if they buy all these, you know they own all the yeah they're monopolizing that thing exactly. Yeah, that's what they're doing I met some.
Speaker 2:I met some uh neighbors that uh are from san francisco and they make really good money. They came here like the house is so cheap here, like we bought two of them.
Speaker 2:We bought two of them oh, good for you but they bought those cash lived, though, lived in in san francisco and and rented them here, and that's just. They're not multi-million dollar billionaire company, they're just people that have good money and that's what anyone could do it. That's what I'm saying. Like you get these multi-million dollar companies and there's this random person makes decent money, they can do it too, but what it hurts? The random, the, the middle class, the lower class, you know, whatever class you're in, try to buy a house. You can't, because these people are like, if you ever bought a house in that bidding war, they want 300K, but someone's like I'm going to give them 305. Right, exactly, of course the seller's going to be like, yeah, I'll take that guy.
Speaker 2:And the other guy's like I scrapped up all this money for 300K. I'll never buy it and they'll never buy it.
Speaker 1:Right, exactly, it's like we're renting baby, right? Yeah, so that's what's going on now, especially with our housing economy right now. So, with the ADUs, as I said, it's accessory dwelling unit, but there's different types of ADUs, so there's a detached ADU and that's the one we was talking about. It's separate structure. It's located on the same property as the house is.
Speaker 2:Yeah.
Speaker 1:So it's its own section.
Speaker 2:Yeah, those are those Home Depot shed houses, oh yeah the mini homes yeah, they're buying those, slapping them in the backyard. The mini homes yeah exactly.
Speaker 1:The next one is the attached ADUs and those are additions to the main house, either on the side or the back. Now those like me and you was talking about before, they're actually that's what people are doing nowadays when there's when they redoing their house, their action, they're actually, uh, adding an additional part to that also yep and then the next one I've actually seen this here is uh, the garage conversions, converting to uh into existing garage, into a living space.
Speaker 1:That is huge. I know definitely over in the hilltop section there's a lot of places like that they're using it.
Speaker 2:They're using it for rooms yeah, if you drive by neighborhoods and you look at houses that you're like hey man, that's a nice driveway. Why is it not in the garage use? The garage door is not there, no more. It was like either a walk-in door or a window. They just converted it which is which is it's awesome if you need the extra room, but at the same time, you just lost yourself a garage for, like you know, parking your car.
Speaker 1:Working on working on your car, tools and stuff like that Because usually they they'll seal that garage door and make it confined into a room. And then the next one well, we don't hear much about because we don't have a lot of structures like that here in California. It's a basement apartment, so creating a separate living quarters within the basement of the main house, and then, last but not least, the internal ADUs, that's repurposing part of the main house, like say, for a large attic, into a separate unit, that's actually kind of smart right there.
Speaker 2:Yeah, I've seen that. I was like I wish I had an attic or something extra to do that, because you always see it on TikTok now Everybody you know how the algorithms you start looking up some and that's all you see. So now I'm looking at like home improves and stuff and everyone's doing the garages and addicts and everything stuff like that. I'm like oh man, wish I had that I don't have that though you have no basements over around here right, some places the older ones.
Speaker 1:But uh, but addicts if you have the room for it yeah, majority of the ones that do have basements, like geographical wise, would be definitely in the midwest midwest yeah and I would say definitely midwestern reason why because of tornadoes yeah, I'll say tornadoes is what?
Speaker 2:because I got a friend that moved from maine. He's like there's not one house that does not have a basement or like a space we can get into.
Speaker 1:That's true. That's that's true.
Speaker 2:Because like, yeah, tornadoes, they're like. Exactly, they're the ones that have those shutters outside the house. You know you open them up and you crawl into the basement and then you shut them. I was like, ah, you don't want to see that in movies. But yeah, you're right and I will say that.
Speaker 1:So I was telling you house. So when I was driving there, um, the house looked just normal. But then I started looking more and more. So I went into the driveway and everything I'm like okay, it's like two parts to it. And I looked at it and then I walked inside the garage. So, um, my mentor he's mean when I say I call him mentor, but he, he told me to go into the garage. So I go into the garage and I make an immediate left and what it is? It's basically an ADU. It has everything in it.
Speaker 2:Oh, I saw that in that picture.
Speaker 1:Yeah, it has a bathroom, it has a room, it has a kitchen, it has a stove, it has a dishwasher and an AC unit. And I was like this is crazy. So then if you go into the other side of the garage, it's another room that they were building for another room. Oh wow, meanwhile that garage right there. It could fit no more than two to three cars in that garage, yeah. And then when you go into the house, there's actually an addition part that they added on, basically like an ADU for the house also.
Speaker 1:And then how you was talk about the shutters yeah there's actually one there at that house also oh yeah yeah, all concrete underneath it, underneath there too. So I was just like this house right here. It's like adu definitely in this place, right here so I was next.
Speaker 2:You saw, when you sent me the picture of the house, I was looking it up, I was trying to figure out the layout. I was thinking about the layout. I was like how the heck is this that that makes more sense. So there, yes, because it was like the price was was high for the visual outside.
Speaker 1:Look at it yes, the visual, the visual by going to all the rooms and stuff. I was like, okay, I can see that the visual, the visual of the house, compared to going there. It's like two different stories, because you can look at it you're like, because if you look at it you're like what? And then you look at the price, I'm like, but you actually can that ADU in the back. And then in that backyard there was an acre to an acre and a half in the backyard with a gazebo that was perfect.
Speaker 2:It was a huge property.
Speaker 1:Yeah. So ADUs is definitely a thing that's going to help change the housing market. I don't know how much, but it's out there and people are using it to the fullest.
Speaker 2:Yeah, it's always been out there. It's always been out there. I think, with this now, with the economy and everything, people are going to utilize it more, because I just built a shed in my backyard and, looking into these ADUs, I like I can, I can throw a kitchen in there, and I was, and some plumbing. That's right, because the only thing you need for adu right, you need, you need plumbing, so a bathroom and you need kitchen in the living space. It could be, it could be like a loft. It could be um, not loft, but um, yeah, loft.
Speaker 1:Right, yeah, uh, yeah a studio, studio, studio together yes, the bathroom, yes it's basically that, but you need a kitchen to cook.
Speaker 1:It's basically a living area, so studio yes, it's the bare minimum, basically like a studio, yeah, yeah. So the importance of adus increase housing supply. As I said before, it's going to help out the economy, especially with the housing market, because, like I said before, seven to nine million that we're down with help that needs to be helped in the housing market is crazy, like it's just crazy. Something has to be done, especially nowadays.
Speaker 1:The affordable housing options. I'll talk about that a little bit later because I told you I got a gem for you when it comes about that. Another good one is income generation for homeowners. So homeowners can rent that ADU to generate extra income, which will help with mortgage payments and property taxes, which is going to help out with what I'm about to tell you, because it's crazy. What? Especially here in the state of California. I know they're waiting for it to do it in California, but it's actually working with Seattle right now. And then efficient land use. So when it comes to efficient land use, at least you want to use that for something you know what.
Speaker 1:I'm saying, like, why not not generate making money from that? Build a structure, make it an ADU, and it's going to help out with everything that comes with it Help out with the housing market, help out with your mortgage, everything that comes with the mortgage, the property tax, homeowners insurance and everything with that. And then the next one was to be support for aging in place so ADUs can serve as a living space for aging relatives, allowing them to remain close to family while maintaining independence. That's definitely good, with us working around the healthcare. That definitely is needed, because a lot of people that's one of the main things when a person gets discharged, they ask them where they're going to stay. That's the number one question. And if you have an ADU, you have property behind the main property. That helps out so much because you actually can. They're right there on the property and you can have eyes on them when needed.
Speaker 2:Yeah, I think that's when people are thinking about like granite houses or ADUs. I think that's the first thing you think of is like okay, I need more room for family.
Speaker 1:Yes, and relatives.
Speaker 2:But like going into like the overall aspect of real estate. It's not just helping out family and friends and stuff, but it's like you said, it can generate some money when you're doing that. It can help with tax deductions. It can add value to your home when you sell it. That it can help with uh tax deductions. It can uh add value to your home when you sell it with the overall value.
Speaker 2:Yes, all kinds of extra little stuff that people don't think about. Like, yeah, I would love to have a grand home for my mom one day if she gets old, something like that. But the same time I'm like I'm like you have, like you said, have a mom, clothes be able to take care of her, be closed, but at the at the same time I'm thinking tax deductions increase in property value. I was like you know what, if she doesn't move in anytime soon, I can use it as an office, as a main office. How much square foot I want to write off this year? Well, let's do a map. You got electricity, plumbing, all that stuff. You got to do a new roof on it.
Speaker 2:Boom, write off, write off, write off yes, yes, that you're already gonna build for your, for your, uh, you know, for the future. So I think, like exactly, I think, about all that yeah, you got and that's the family and the family, but at the same time it's like we're going real estate.
Speaker 1:This is what really helps think about all the options that come with it exactly, and then uh flexibility, adus can serve as various uh purposes time just like you said such as home offices, guest house or rental property, adapting to the changing needs of the homeowner, so you can do whatever you want to with it Whatever you want, especially if it has everything the plumbing, the kitchen, everything it can be anything you need to be on top.
Speaker 2:So it's pretty sweet to have that option.
Speaker 1:I was thinking another thing too, because you know, we know about taxes, when taxes. We don't know everything about tax, but we know some things we don't have to get in trouble, right exactly, and I was thinking it too. You have shoot this right here, these adus, you can use the augusta rule with it you can't.
Speaker 2:So I was looking at that, I was looking at the. I don't know, it's California. I have to be pretty sure it's California. If you have an ADU, you're not able to Airbnb it or short-term oh wow, it's more of a long-term thing. I don't know what short-term means Less than a couple weeks, couple months, something like that, because there's different variations of short-term renting. Airbnb right, you know, for the weekend for a week or two or something like that.
Speaker 2:But, uh, I think there's, there's, uh, I think you know, I think we have it on here for the next um segment. But, uh, zoning some zones, don't let you have them. Uh, because you know I don't know what regulations the city has. Uh, uh, you know I don't know what regulations the city has, because there's a big push on Airbnbs too. There's some places that won't let you do that.
Speaker 2:Huge, so same thing with ADUs, but the biggest, safest way is to, if you're living there I mean, you're not, obviously you're not um generating money but like, I think, long term is the safest route if you're gonna make money off of it, yes, I think so. Yeah, I might be wrong, but that's what I was reading on. I was like, oh, because, because, oh, yeah, airbnb and stuff like that. But it's like there's there's, depending on where you're at, there's regulations on that. So that's something to think about. When you're like, oh, I'm going to buy like a lake house and build something in the back and Airbnb every once in a while, it's like, ooh, just make sure that you're able to build that ADU and use it as that type of property.
Speaker 1:Yes, so I'll get into the gym. So I was watching, I've actually watched the episodeskirts of Seattle and so basically, california adopted a bill and it basically is signed. They're actually working on their, their regular date regulations and everything in all the districts here in California and it's a assembly bill 1033. In California and it's Assembly Bill 1033. So what 1033 does is with the ADUs. Is it basically after everything is done? You know, all the I's dot and the T's are crossed, that ADU is going to be a living space, as we know. But the part about that ADU is it's it's going to be broken down to another parcel. Yeah, and when it breaks down to another parcel you're like, oh okay, you're helping out the economy and everything and the housing industry, but the government's going to get there because they're going to tax you because it's a different parcel number than the house.
Speaker 1:Yes, and I was like, wow, that's crazy, you're helping it out, but still, the government's still going to get their money.
Speaker 2:Oh yeah, speaking about the government, a lot of people think, oh, I'm going to build an ADU onto my house, a granite house. What happens to my property value? The overall property value is going to go up. But I believe when you build an ADU, it's its own, like you say, say, its own parcel, so it's taxed separately from your house. Yes, so they're both gonna get taxed, like?
Speaker 2:the government's gonna get their money, yes, but you're not gonna say your house is worth 300k. You, you build this adu. Now, overall, your whole property is worth like 400k. You're not gonna get taxed on 400k. You're gonna get taxed on 300k at this house and 100k there, which is, you know, I'd rather get taxed on little sections versus the overall value. Um, but yeah, that's, that's another thing to think about too when you're doing your taxes. But because they're two separate parcels, you got two separate, two separate um. If you're making money off your edu, you have deductions on that, and you had deductions on your house if you have a business, if you're if you don't have a business or are using that house as a property, a rental property or something like that, you know you might be.
Speaker 2:You might be losing money, I think.
Speaker 1:Yeah, and I view it like you know. The government was going to, you know, put their hands in and like oh this, but this is going to happen too.
Speaker 2:Yeah, there's a grant too. You see, you hear about the grant. No, I did. The grant is a forty thousand dollar grant. It helps to help with the housing market and stuff. A forty thousand dollar grant to help. Um, it doesn't help you build an adu, uh, you know a unit, but it helps, uh with like pre-cost. So like, uh, if you need a land surveyor to put property down, they'll help pay for that, um closing costs, fees, um permits, uh things of that nature. But the actual like building material costs and stuff like that, you, that's out of your pocket. Oh, but yes, for it's 40k. It's a grant, you have to apply for it. There's a lot of uh things you have to get checked off, just like buying a house, you know, you got your inspections done.
Speaker 2:You gotta get all this done, um. But once it's, you apply for it, it's basically like um, it's up to 40k so you might get things help help pay for it now. But it's what helps with the uh, the housing crack, uh, the market right now. That's what the grant's for. It's like oh, we want to incentivize it so you can get up to 40k or something like that. Yeah, I got. Yeah, I looked it up and I'm like oh, that's pretty that's legit right there.
Speaker 1:So if anybody who wants to get an adu, and especially in the state eight states I was talking about, yes, talk to a financial advisor and see what it is because, like I said, because each state is different, with the regulations and grants and stuff and then and the gentleman said that in about well, I watched about a month, month and a half ago and probably in about 10 months, the, especially here in a month, month and a half ago, and probably in about 10 months, the, especially here in California they're going to structure it for the, for the parcel number. So they're, they're getting everything in order. So when, if people want to um, I think further out or I don't know if they would have to backtrack, but they're going to have it where those ADUs, those are parcels too. So that's good to know, because you don't want to think that, oh, I'm going to make this and I'm just going to make all this capital right here. No, the government's going to get their money too, they're going to get their money.
Speaker 2:Yeah, they're going to get their money too you just got to know how to structure it to where you're going to get the maximum income benefits for you with tax deductions and stuff like that, because they're going to get their money. Whatever money you want to make, they're going to make too. So, yeah, all right.
Speaker 1:For sure there's like yeah, we, if we're going to do this, we need to get a certain piece of that pie also.
Speaker 2:Especially if they have grants and stuff to help you.
Speaker 1:Yes.
Speaker 2:You know, uh, yeah, going to help us for sure.
Speaker 1:I'm glad you said it, because knowledge is power. Probably a lot of people don't know about the grants.
Speaker 2:Yeah, it's crazy, because I started looking up, going to his podcast, I was like, oh yeah, what's an ADU? And then I was like, what is it? Okay, I know what it is now All right. First question. I was like all right what tax?
Speaker 2:benefits Exactly. What benefits do I get out of taxes? Yeah, and then how do you go about doing it? And they'll start popping up like you benefit just like a rental property. No way. So not only do you have the benefits of a rental property depreciation, construction materials, all that good stuff, it's right there in your backyard. It's pretty nice, I mean, especially if only if you're, I guess you rent someone that you want clothes like that you rent someone that you want close, like that, but yes, so yeah, those.
Speaker 1:That's what adu is and I hope that it does help out with our housing economy because, man, it right now it's just, it's just going bad right now. It's going really bad right now because you gotta think um interest rate. Interest rate, they say that it's. It was supposed to go down four times this year.
Speaker 2:Yeah.
Speaker 1:It hasn't gone down once, and they projected that it's going to go down in September, but that's neither here nor there. We don't even know.
Speaker 2:The last interview they asked him straight up like so is it going to go down? Is the interest going to go down? Obviously they never do. The government was like we are looking at the numbers.
Speaker 1:Like we all know what that means exactly.
Speaker 2:You look at, it's not going nowhere, yeah but even then, right, even then, even if the market goes down, if the uh interest rates go down, your house, your house prices right now are all jacked at like 23. So your 300k house right now there's no one selling a 300k house right now that their house weren't worth like 250 or something, or 250, 275 a couple years ago. Now they're like 300k. It's like dude, that's like a 275 000 max house. Now you're at 300k. So if your house is all right, 300k and that's over what I think is you know, know, houses already cost. When interest rates go down, that house price is going to jack up again. Yeah, like it always has. If interest goes down, house prices go up.
Speaker 1:House prices go down, interest rates go up.
Speaker 2:I mean, it's just a roller coaster when it comes to all that, yeah, and we'll always say I should make a shirt that says if you can afford it, go get it.
Speaker 1:Exactly right.
Speaker 2:If you can do the numbers and it works for you, just go get it. Like, if you can afford it, go get it yeah. Man, if you can buy a house right now and you lock in a good price or decent price and the interest rates do go down or eventually go down, hopefully then you can refi and put your money back out. If you depend on how much equity you have into it and you know.
Speaker 1:You know all the change because, like man, shoot when we was, when we was younger, shoot they used to say, oh yeah, it was great when interest rates was 16, 17 percent. We're looking at them sideways like what?
Speaker 2:yeah, the houses were like 25 or 25, 50k. Yeah, for a super nice brand new house 50, 60k yeah of course it was up 16 something K like right now, but the medium income, right Like back in the days versus now, you know, I think now the medium income for an average person is anywhere from like 30 to 50K, right. So how can you afford a 300 plus thousand dollar house? Versus back in the day the income was like $10,000 to $20,000 a year.
Speaker 2:So, of course the numbers are inflated. We have inflation in the market. Covid really swung a Changed up.
Speaker 1:Yeah changed up things right there, changed the world on everything.
Speaker 2:So yeah, that argument, I think it's been debunked.
Speaker 1:Like oh yeah 16, whatever.
Speaker 2:I have a 3% interest rate, but my house is worth it. Yeah, I got a 3% interest rate, but I still had to pay the money to get the house. It was over budget when I bought my house. But yeah, I got 3%. So yeah, but I would always take lower interest rate with a high house price because interest rates is going to kill you. Yes, because you buy a house for $100K or $50K a $50K house with a 25% interest rate. Oh, my goodness, you're paying interest for the first 20 years.
Speaker 2:Yeah, yeah, you haven't even touched the principle yet, yeah so yeah, but yeah, depending on how you want to do it. If you want to pay your house off soon, then uh, high or low interest. High interest rate would be better because your parents gonna be lower versus uh. If you want to pay house off way, way later, then you want a lower interest rate and then um pay up high up front of the house price yeah that's exactly right, yeah, so yeah, that's what it is with the ADUs.
Speaker 1:I hope it works out for the best, especially for our country when it comes to this. So to get this housing, this housing industry, in check, because right now it just it's just going wild right now.
Speaker 2:Oh yeah.
Speaker 1:So yeah, thank you, bro, for coming on the 20th episode.
Speaker 2:Yeah, man.
Speaker 1:Can't wait till I get to the 200th episode. And if anybody wants to join the Professor's Real Estate Podcast, right now I'm. I'm. I'm redoing my website, so that's down temporarily, but you can email me at real estate investing, at the professionalistinfo, and then I'll. I'll respond to your emails and everything. Yeah, rather than that, it was a good one. Thanks for coming on, bro.
Speaker 2:Yeah, man.
Speaker 1:All right, you have a good one.