| How ADU-Friendly Laws are Fueling a New Movement |
| Want to turn a single property into two cash flow machines? Thanks to new legislation, investors are pairing the classic BRRRR method with Accessory Dwelling Unit (ADU) construction to maximize returns. Here’s how you can do it too… What’s an ADU? An Accessory Dwelling Unit (ADU) is a self-contained home on the same lot as a primary house — think tiny house, granny flat, or rental unit. How the Modern BRRRR Works Buy: Find a property with enough space or zoning flexibility for an ADU. Rehab: Renovate the main home to increase value and appeal. Build & Subdivide: Construct a new ADU on-site. If zoning allows, subdivide the lot to create a separate parcel for the ADU, which you can sell or hold and rent. Rent or Sell: Lease both units for dual income streams or sell one parcel for quick returns. Refinance: Use the increased property value and rental income to secure a stronger refinance. Repeat: Roll your profits into your next project with more leverage and confidence. Legislative Tailwinds Fueling Movement As of the end of 2024, according to a report by Mercatus Center at George Mason University, 14 states have “broadly legalized the construction of accessory dwelling units to expand lower-cost housing options for their residents”. California has long led the ADU charge with recent laws making things more attractive, including laws that: Remove owner-occupancy requirements—so you can build an ADU purely for rental income, even if you don’t live on the property. Mandate that all municipalities adopt pre-approved ADU plans by January 2025—dramatically reducing permitting timelines and design costs. Open doors for ADUs to be sold separately as condominiums, pending local adoption. San Jose became one of the first cities to adopt in 2024. But California isn’t the only state recognizing the benefits of easing ADU restrictions: Cities are approving more ADU permits than everInvestors get duplex-style returns on single-family lots, without the headaches of multifamily zoning and cities get “gentle density” Investors get duplex-style returns on single-family lots, without the headaches of multifamily zoning and cities get “gentle density” Financing: The Key to Making It Work The biggest unlock for the Modern BRRRR isn’t just zoning — it’s finding a lender who understands the strategy. Partner with lenders familiar with ADU laws and timelines Secure funding that covers rehab and ADU construction — simultaneously or in phases Look for underwriting based on projected rental income or resale value Avoid lenders who slow down your project and opportunity window Without flexible, creative capital, even the best deals can stall. With so many moving parts — zoning, construction, resale strategy — financing can make or break the deal. If you’re in an ADU-friendly market and exploring a Modern BRRRR, we’re happy to help you think through the financing side. You can schedule a call with our team or submit a deal below. |