Advanced Home Flipping: The New California Goldrush
Permitting illegal ADUs means potentially hundreds of thousands of dollars in profit. Find out how you can take advantage of this before it’s too late.
Home flippers are great at finding clever ways to get their homes to pay for themselves. That's why they’re so excited about ADUs and "In-Law Units" in California.
Legal vs. Illegal ADUs
Home Flippers across California are taking advantage of a critical ADU trend and profiting massively.
Accessory dwelling units (ADUs) are fully legal second housing units permitted on single-family properties. They are standalone units that can be rented out to tenants, and include a kitchen, bathroom, bedroom, and living space. They can also be included in the appraisal value during homesale.
On the other hand, the term In-law unit generally refers to second detached units that have not been permitted (they might as well be called out-laws). Because they aren’t legal, they cannot be included in appraisal value.
The difference between these terms is where the home flipper finds opportunity. The in-law unit has the potential to become an ADU if it is properly permitted. By going through this process, the total home value can explode by as much as $100,000.
Home flippers purchases a property with an in-law unit, remodels the space and engages in proper permitting, and sells the property for a nice profit. Win-win.
Are you looking to permit an in-law unit or illegal ADU? Search your property on Housable.com and order the Property Report.
Keep in mind that in-law units are rampant in California. Hidden value is hiding everywhere.
As more people start to see the value in homes that have an existing illegal ADU or "in-law" unit, awareness and interest has grown in the market from all participants.
Buyers and sellers are finding better deals, and real estate professionals are now better positioned to help. Planning and zoning offices are also improving their systems to make them more automated and friendly to homeowners.
The savvy house flipper knows all of the zoning and permitting requirements of a specific city, so he/she can recognize value and make savvy investments in homes that have a lot of ADU permitting and remodeling potential.
The End of Owner-Occupancy: The Floodgates Opening
Un-permitted secondary in-law units exist on nearly 15% of single family parcels in the East Bay Area and are relatively common throughout California. By California law, millions of single-family homes are eligible to add some form of ADU, whether a detached unit in a large backyard in Fremont or a converted garage by the beach in San Diego. It’s hard to beat the returns a home flipper can generate from an ADU, so why haven’t larger scale developers and investors joined in the market?
One major reason is that until 2020, most cities required that the home or the ADU was owner-occupied. This was intended to protect the character of neighborhoods by shutting out large scale real estate investor/developers, who could buy up whole city blocks at a time and effectively double their housing density, changing the fabric of entire neighborhoods in the process.
Owner occupancy prevented this from happening, and prevented competition from larger players. This left a special niche opportunity for the home flipper.
However, the owner occupancy laws were lifted by the new state laws. This opens the door for larger real estate developers to buy many properties.
Now Is The Time To Act
We are still in the early days of ADUs. However, awareness is growing and institutions are developing better models for home valuation and financing.
Properties with in-law units are currently massively undervalued but that will not last forever. The window will close at some point.
If home flippers want to take advantage of this opportunity, they need to move now.
Owner occupancy is over, and larger players are entering the space.
If you are a home flipper, Housable makes it easier than ever to permit an in-law unit or illegal ADU. For as little as $2000, you can unlock as much as $100,000 in your property.
Get started by searching the property at Housable.com and order the property report.