Another gold rush. Across California, homeowners are sitting on more than just their homes and yards—they are sitting on potential gold-mines / income opportunities. With the state’s housing crisis demanding innovative solutions, two key options have emerged: building an Accessory Dwelling Unit (ADU) or utilizing the new California law, SB-9, also known as the HOME Act, to sell a portion of your backyard. Both methods promise to turn unused yard space into cash or income, but which is the superior choice for you?
The Pros and Cons of Building an ADU
An ADU is an additional living space on your property, separate from your primary residence. Building one sounds fantastic, offering monthly rental income and an increase in property value. Plus, you retain full control over the design, management, and use of the ADU. But of course, there are pros and cons to everything. Let’s review whether building an AUD makes sense for you:Pros of Building an ADU:
- Monthly Income: By renting out the ADU, you generate a monthly stream of income you can use to supplement your job/lifestyle.
- Increased Property Value: An ADU can raise your property’s market value.
- Full Control: When you build an ADU, you become the “Project Manager” – and even if you hire a GC to run the day-to-day, you’re responsible for every key decision, from design to budget, to eventual tenant selection.
ADU Construction Cons:
- High Initial Costs: Building an ADU can cost upwards of $250,000.
- Expensive Financing: With today’s high interest rates, borrowing costs significantly reduce your rental income.
- With first mortgage rates around 7-8%, and HELOC rates around 10%+, financing is expensive today. That means that even under a best-case scenario (an interest-only 10% HELOC), you’d pay almost $2,100/month in just interest to finance your $250,000 ADU – and would still owe the full $250k principal payment at the end of the term. So if you rent your ADU for $2,500/month, you’re only netting $400/month. Plus you have maintenance, vacancy, taxes, etc. It’s probably a wash – at best.
- Construction Management: Managing a construction project, even when you have a GC and architect behind you, can feel like a full-time job.
- Property Management: Once built, you take on the role of a landlord, with all the associated responsibilities. Finding tenants? That’s on you. Clogged drain? You’re calling a handyman or bringing out your plunger. Even with a Property Manager, you’re still answering questions all the time, authorizing projects/purchases, and paying up to a 10% monthly fee on top of that (there goes that profit!).
- Additional Expenses: Expect higher property taxes and increased utility costs.
The Yardsworth Alternative
Yardsworth offers a groundbreaking alternative: selling a portion of your backyard for an immediate cash payment. The process is hassle-free, with Yardsworth handling all aspects of the lot subdivision and offering a six-figure upfront sum. If you’re already thinking of turning a portion of your yard into a rental, there’s no downside – turn it over to the pros at Yardsworth, cash your $100,000+ check, and be done with it.Yardsworth Backyard Sale Pros:
- Upfront Cash: Receive a substantial sum (typically $100-200k+) of money immediately.
- Zero Out-of-Pocket Costs: Yardsworth absorbs all expenses related to the lot subdivision, which can quickly run up to $75k in many areas. You don’t pay a dime.
- Taxes: Your cash payment is often tax-free (or at least tax-deferred!)
- Keep Your Great Mortgage Rate: There’s no need to refinance your existing mortgage.
- Long-term Financial Sense: The upfront cash can equate to decades’ worth of potential ADU rental income. Imagine, would you rather have $200,000 cash today, or make $400/month for 20 years renting an ADU (with a lot of hours / blood-sweat-and-tears involved)?
- No Repayment: This isn’t a loan; it’s a straightforward sale. Yardsworth pays you cash, and you never pay it back.
- Hassle-Free: Yardsworth takes over all aspects of management and development.
- Reduced Expenses: Unlike an ADU, with an SB-9 lot split and sale to Yardsworth, your property taxes should actually go down, saving you money each year, for as long as you own your home.
- Increased Net Worth: When you accept a $100-200k cash payment from Yardsworth, your net worth increases immediately. It’s not debt / not a loan. You become wealthier.
SB-9 Lot Split Cons:
- Reduced Control: Of course, the trade-off of a hands-off / hassle-free process means less say in the day-to-day details.
- Reduced Yard Space: this is obvious, too, of course. But, you are selling part of your land to new owners.
