ADU’s Can Be Very Helpful

I was talking with a client yesterday who is going through a divorce, and it reminded me of something I think more real estate agents should be paying attention to. The client owns a property in the San Fernando Valley worth a little over $1 million. They owe about $200,000 on it. There is a front house and an ADU in the back. She is in her early 70s, has limited income, and is concerned about her financial future. As part of the divorce, she has to pay her ex-husband roughly $400,000 to equalize the estate.

Her first thought was to sell, take her money, and buy a condo. But the condo she was looking at was about the same size as the ADU she already owns. Instead of selling the property, we discussed her living in the ADU and renting out the main house. She will be able to rent the front house for about $4,500 per month. That changes the entire conversation. Now she has income coming in, she keeps the property, the tax write-off, the long-term appreciation, and she is not stuck paying HOA dues, property taxes, and Insurance on a condo that is not much bigger than what she already has in her backyard.

They had been renting the ADU for about $2,000 per month, which was helpful. But being able to move into the ADU and rent the main house for $4,500 gives her a completely different financial future.

Here is the comparison we discussed. Her PITI payment on her house after she pays the ex is $4635; she will rent it for $4500 and pay over $550 monthly.

If she buys a condo putting $400K down with a $500 HOA, $ 100 Insurance, and property taxes, she is paying $1017 for a property at $400K, $1752 at $500K, or $1989 at $600K.

We all know ADUs are popular. We talk about rental income, multigenerational housing, and property value. But this was a real-life example of how an ADU can protect someone financially when life changes. Finding the house where you can add an ADU for someone in the same situation.

Divorce happens. A spouse passes away. Parents age. Adult children move back home. Families need flexibility. A property with an ADU is not just a property with extra square footage. It can be a financial safety net. It can allow someone to keep a home they otherwise might have been forced to sell. It can create income. It can allow family to stay close. It can give an older homeowner dignity, independence, and options.

And for real estate agents, I think this is important.

When you walk into a property with an ADU, or even room to build an ADU, do not just think about the listing price. Think about the life situations that property can solve.

Even take what we did above and say a client has 500K in equity and they can build an ADU for $300K, live in the main house until they don’t need it anymore, and then move to the ADU when one passes!

I am not saying this to take listings away from real estate agents. I am saying it because sometimes we need to open our eyes and help our clients see the vision when we are trying to sell them a property!

This was a refinance all the way, but it could easily have been a client looking to purchase a condo. They could buy this house with the ADU for 1 Mil instead of that $600K condo, save a ton, build equity, and live happily ever after!

Interest Rates

Worst levels since May 19! Iran is trying to delay a deal, while the US is trying to force one and threatening another attack. Fun stuff! or Not!

Loan Programs Snapshot

Government loans (FHA/VA/USDA): in the 5s and now low 6’s
Conventional (≤ $832,750): low to mid 6s
High-balance: mid to high 6s
Jumbo: Mid to high 6s
Bridge Loans 7.75-7.99
Additional options:

Bank statement loans (10% down+)
P&L loans (20% down, no bank statements)
0% down options (620+ score)
DSCR loans (15% down)
Bridge loans (~7.99%)
Buydowns (3/2/1, 2/1, 1/0)
Private Money loans – Hard Money
Construction Loans
203K loans
Fix and Flip Loans
Rates subject to change without notice.

Condo Update

Good news: None today
Bad news:
Tres Robles III – Critical repairs – deferred Maintenance
Warner Center Condos – Litigation – Non Minor, Insurance Coverage
Princessa Estates – Outstanding Critical repairs 18121 Erik Court – Could affect the whole complex

We love your Non-Warrantable Condo loans!!

Need help checking a condo? Call me, and we can look it up in real time.

Also:

Full California "naughty list" available here:
https://mikemeena.com/non-warrantable-condos/ 

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If you or your clients, friends, or family need guidance, I'm here.

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📧 Mike@AugustaFinancial.com

Sincerely,