Retrofit Your Building, Generate New Profit

By increasing the safety of your building you also earn a chance to increase your profits by constructing city-approved “Accessory Dwelling Units” in previous unused space. It’s a money-making move that not only generates new flow but it increases the value of the building. Here’s how:

Example, pre-ADU project:

• 10 units renting at $3K each/month = $360K gross rents/year x Gross Rent Multiplier (GRM) of 15* = $5,400,000 building value

Example, post-ADU project:

• 10 units renting at $3K each/month = $360K gross rents
• 2 units renting at $4K** each/month = $96,000
• Total of $360K + $96K = $456K gross rents/year x GRM of 15 = $6,840,000
• Building value is increased by $1,440,000 (27%)

The example above assumes an ADU construction cost of $320K/unit. Total cost of two ADUs is $640K. The increased value of the building is $1,440,000, so upside for owner is $800,000.

ADU Construction/Amortization/Owner Return

• Construction loan of $640K (for two ADUs) @ 5.25% interest
• Monthly payment on loan is $3,534
• Additional rents/month for two ADUs = $8,000/month
• Net new cash flow/month is $4,466 (gross rent less loan payment)

*The GRM in San Francisco currently ranges from 15-17; this exercise uses the more conservative number.
**The new units will go on the market at current market rate.