As a real estate investor, Lin Merage has viewed countless properties that can operate as an ideal rentals for financial goals. The importance lies in a property's ability to cash flow or generate a passive flow of income. Some properties are perfect as they are and can be immediately turned around for rental purposes. Others might require some renovation or remodeling. A new trend that has been going strong for the last couple of years here in Denver, is adding an entirely new detached unit on a property’s lot. An Accessory Dwelling Unit or ADU, has been on the rise for many homeowners and real estate investors. The main appeal for these projects comes from their ability to be completely separate homes that literally step away from the main house on a property. The natural privacy of an ADU makes these types of properties sought after as a rental units for both short-term and long. But as Denver’s interest in ADU construction continues, realties start to reveal the challenges with building one.
Building an ADU requires an extensive amount of time to navigate the design, permitting, and construction. These factors should be considered for real estate investors and homeowners as it significantly delays the potential cash flow. Lin Merage says property owners looking for an immediate rental unit to cash flow on or are looking to start a rental portfolio to seek other options besides an ADU.
Why is Cash Flow important for a rental unit?
Cash flow is the amount of profit a rental property owner earns when collecting a tenant's payment and paying off operating expenses. When looking at a real estate investment property, the ideal property will have a positive cash flow (although it is possible to have a healthy rental with a negative cash flow). This ensures that the rental unit is not only contributing to its equity but also generating a passive income that can help build wealth for a homeowner or rental owner.
Traditionally, those who are buying or preparing a rental unit have a short time before its cash flow resumes (ie. being occupied by a tenant). However, an ADU creates a series of phases before it can be brought to the rental market. Thus, an ADU takes a significantly longer time to start cash flowing and the owner will be making payments for a construction loan and other costs until then.
Lin Merage says ADU rental projects are not beginner-friendly projects to start a rental portfolio. Other rental properties and homes are available that can be quickly turned into profitable units.
Lin Merage says an ADU will add two years to your strategy
An ADU is considered a major residential construction project here in the city of Denver. According to many sources, the city’s Planning and Development Department has been swamped with reviewing project plans for building permits. So much so, that the average time until permit approval is approximately around 252 days! If one were to factor in the time needed to draft and finalize architectural and engineering plans to submit initially, one could easily see almost a year in wait time for permit approvals!
Finally, once permit approval is given the actual construction can take place. Depending on the general contractor or design-build company, one could expect such a large new construction job to take most of another year. Putting these two phases together, real estate investors and homeowners can safely assume almost 1.5 - 2 years before their ADU project is completed and move-in ready.
Real Estate Investment Properties come in many varieties
Lin Merage is a seasoned professional when it comes to real estate investment strategies. Her experience can divine sensible solutions and projects. If you are interested in more information about real estate investing or are interested in working with a seasoned professional, take some time to view SSRE Sustainable Real Estate of Lin Merage.