I have bought SFH rentals in Austin based on expected improving fundamentals, turn out pretty well, much better than I thought. From the time when I started purchasing, annualized price appreciation shot up from 2-4% to 15-20% (yoy today is 40-60%). Thinking about fundamental drivers is more relevant than historical trend. That say, I need to keep monitoring fundamentals, it can turn unfavorable too
What happen if TSLA closed down Fremont factory and FB starts to decline? Hopefully, city of Fremont is smart enough to exploit current boom to build a diversified local economy that doesn’t depend too much on anchor businesses… Austin did that after suffering from the ups and downs of Dell and I think oil (Austin is capital of Texas).
Not entirely sure what’s driving 94087, 95014 and 94040 prices higher, apart from the broader themes like:
need more space to work from home
low interest rates
Nasdaq companies high stock prices
But at any rate, here is yet another 1470 sq ft Sunnyvale house sold for $2.65M - that’s $1800 per sq ft for a 60+ year old house (though admittedly much of the value is probably in the land)
Whoever bought this conceivably put $1M down and yet has to take a loan of 1.65M. That would cost $7k a month @ 3% mortgage + 2.5k per month in property taxes - almost $10k per month just in home related payments. That’s an entire 6 figure salary - or maybe these types of buyers make $250k+ each for coupled household income in excess of $500k… Crazy
Easy money leads to price rise. No money, No bubble. Where are these buyers getting money from?
Have companies started paying more? Foreign buyers ? Are too many people getting lot of RSUs/options? Corporate buyers? Or the buyers selling stock and purchasing RE in the anticipation of upcoming market downturn? [Not be a good idea to buy inflated RE by selling stock]
Could be some combination of all of the above. There are lots of foreign-born, but US educated high income techies/software engineers/MBAs in Silicon Valley. They may be getting paid heavily by the Googles and Apples of the Valley, get lots of RSUs which have appreciated in past year, and their rich parents back home are happy to co-invest, say 500k, to match their children’s 500k, thus making 1M in down payment.
I wonder if many of these rich buyers will take advantage of the newly loosened CA housing laws, and build ADUs on their properties. Easy to build a 500 sq ft ADU either attached or detached to these 1500 sq ft houses.
Wonder what would be the added premium a techie buyer with rich foreign parents would be willing to pay for a 1500 sq ft house + 500 sq ft ADU? That way the parents have their own pad to stay in when they visit their kiddos. Would the house that sold for 2.65M have gone above 3M if it had an ADU?
ADUs don’t make sense for anyone. The entitlement costs outrageous. Construction costs are out of sight. The government gives ridiculous rights to a stranger on your property including rent control. An ADU adds no value to your property especially if you have a $3m dollar house. Adding sf to your existing home adds value. An ADU actually subtracts value. Kind of like a pool. Very few people want one in their yard. Figure $400/sf to build including all the fees. $200k for 500sf.
I built one for $75k in 2003. Final rent was $2500/m. Buyers placed no value on it. Even though I collected $300k in rent over 12 years. Most did not want one in their yard. I called it a pool house.
Buyer put his maid in there
Agree with you that an ADU is not desirable from standpoint of renting it out for income. I don’t think many people would want to have an unknown tenant living in their front/back yard. And rent control in CA complicates matters.
But, an ADU can be very useful in other situations, such:
Housing for a caregiver or domestic help (as your buyer did)
Housing for an aging elderly parent
Housing for a young adult child in Silicon Valley, where apt rents are so high
Use as a guest house for visitors from out of town or abroad, who will be making short stays.
Use as a private home office
I would think that because of all these versatile use cases, an ADU should add value to a property, especially for rich buyers willing to drop nearly $3M on a house.
Pool house make sense. Party place and guest quarters. But it adds little value at resale. You are much better off adding 500sf for your guests and in laws to your existing 1500sf house. That sf will add $2000/sf to the main house in prime Peninsula cities. The 500sf ADU adds little value at resale. The 500 sf addition can be designed as a separate space. But could be converted back to be part of the house fir a future buyer. Traditionally guest houses were needed for much larger homes. Say 3000sf and above. In reality it is really hard to add 500sf to a one story 1500sf house on small 6000 and less lots
ADU’s are output of mind of the people in control of a declining state. They forget why the state is on decline in the first place.
Why would who can afford a single family home in the bay area will want a renter to live in the backyard, unless the owner inherited the property and now living hand to mouth and wants some extra income. What will such units to do the neighborhood.
So, basically you are saying that a so-called Junior ADU, which is attached to the main house, and accessible from within, would add to re-sale value while also being versatile for use as a separate space with privacy. Basically a big attached suite, which has a kitchenette and a bathroom.
Arizona sells such attachments as you have described as in-laws’ room. A sub-unit within the walls of main house. In law rooms are generally at the corner diagonally across the master bedroom.
Could be a family room latter. Most 1500sf houses don’t even have a family room.
I grew up with an ADU in the backyard, 300sf studio cottage, and an FADU in the house. Berkeley is full of them. Been there forever. Many are not legal like like in DC and SF. Very few lots actually have enough room for a separate 500sf structure. Has to be 20’ from the house and 20’ from the rear fence. ADUS are pushed by math challenged politicians that have never designed a house.
Agree that is hard to add a completely detached 500 sq ft ADU to a 1500 sq ft + 2 car garage ranch home in a 6000 sq ft lot, because of the setback requirements.
But in most cases, it is rather easy to add 500 sq ft attached structure or extension to a 1500 sq ft main house, whether one designs it to be a family room (just a room), or an in-law suite (bedroom + bath), or a Junior ADU (bedroom + bath + kitchenette).
Again, you are only thinking about using a 2nd unit to generate rental income. I very much doubt that the buyers who are paying almost 3M for a 1500 sq ft home in Mtn View or Sunnyvale need to generate extra rental income to pay for the house. These are probably busy and ambitious professionals, probably a dual career couple working in Apple or Google or NVIDIA, pulling in well over 500k in annual household income.
They are the modern day kings and queens (or at least princes). They maybe have a couple of young kids, and having a 2nd unit where they can house a live-in nanny or household help or kids grandparents may be very valuable to them.
But, that is not how ADU are being sold to public and cities across California. ADUs are being sold as a tool to solve a housing crisis (none of which actually exist) in California. California has no housing crisis. There are enough homes. Expensive home is not a housing crisis. Who are behind this narrative? I do not know. Somehow gasoline selling nearly twice the national average is not a crisis, but homes renting twice the national average is a housing crisis. California Logic ? if you will. Will ADU make homes affordable to those who cannot rent? Will a person who owns a home for 3 M give the ADU to a person who cannot afford?
Easy theoretically. Difficult in reality. Figure over $500/sf. One year nightmare at best. Neighborhood opposition Bureaucracy hell and living on a construction site. Costs even more if on the second floor.
They are not being built fir a reason.
I actually have a Junior ADU on my farm. Not permitted. Don’t have any idea what it would cost to get legal. Don’t want to be bothered.
If the government wants these things they should just get out of the way. Then they will happen. Otherwise not many will be built
