So you've gone down to City Hall and gotten your questions answered, and you've thought about the "Bird in the hand is worth two in the bush" proverb, now what?
Now you need to see if this makes sense from a Cost-Benefit Analysis perspective
What Is a Cost-Benefit Analysis?
A cost-benefit analysis is a process businesses use to analyze decisions. The business or analyst sums the benefits of a situation or action and then subtracts the costs associated with taking that action. Some consultants or analysts also build models to assign a dollar value on intangible items, such as the benefits and costs associated with living in a certain town.
When it comes to your ADU you have to come to terms with not only the financial cost and benefits but also the personal benefits and cost with having a backyard home.
We'll begin with doing a simple Return On Investment (ROI) to see what the payback is from strictly an investment perspective.
I found an ADU Investment Proforma worksheet at Propel Studio, an architectural design firm with some really stunning designs. Here's the link to worksheet:
I plugged in some values and found the payback period to be between 10 and 15 years, depending on how much DIY I can and want to do. If I used DIY pie in the sky numbers I could get the payback down to as little as 7 1/2 years. That would be great and a definite green light on the project, but again am I dreaming?
So let's say the ROI is 10 years. OK, now for the Cost-Benefit Analysis.
The reason I'm looking into building an ADU is for my daughter. There's certainly a benefit to that, not only for her college years at San Jose State University but if she lives in the area post-college it will give her a safe and "cheap" place to live.
Another benefit is if we want to move we can rent the house while our daughter lives in the ADU. If our daughter moves, we will most certainly move and can rent the house and ADU.
Property appreciation. Given the housing shortage, we live in an urban environment that appeals to singles and with the planned addition of the Google Plex north of downtown, the price of housing isn't going to take a huge hit, if anything the property in our immediate area is going to go up.
So those are the pluses. Now the minuses.
Cost and really how much is this going to cost? You can get an idea but the exact number is not black and white or even grey, more opaque in a big city government sort of way.
Will my daughter live in the ADU till she's so dependent on us she never leaves?
And if/when my daughter leaves do we really want to have a stranger living in our backyard?
Do we really want to be landlords?
Something to think about!
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