An ADU as an investment opportunity on HGTV’s Flip or Flop

Last night’s new episode of Flip or Flop, Season 9 Episode 7, featured a home with an ADU (accessory dwelling unit). And this unique feature of the home offers a chance to make more money:

After Tarek and Christina realize the garage in the backyard is now a living space, Tarek lays out the argument: this is not just a studio space or a he/she-shed. It is possibly a rentable unit. This may make this property even more enticing.

This got me thinking. ADUs are supposed to help provide more housing units in more expensive markets like Portland and Los Angeles. Instead of building denser, taller housing in single-family home neighborhoods, ADUs take advantage of existing yard space, garages, or other buildings on residential properties.

But, while the ADUs might provide more housing, they may not necessarily provide housing that is that much cheaper. Take the example from Flip or Flop: with a home valued at over $1 million in North Hollywood, they estimated they could rent the studio ADU with a full bathroom and kitchen for $2,000 a month. How many people could afford this?

Further, such units could become a tool for residents and developers to generate more revenue. In such competitive markets, adding any kind of residential unit presents an opportunity. The ADU could enable a homeowner to generate money from their property. An investor interested in a single home or one with multiple homes could generate even more money with ADUs.

To truly provide housing that is more plentiful and at a reasonable price, it seems like a lot of ADUs are needed. They cannot provide as many units as large multifamily developments might. Yes, they do not disturb the existing character of a neighborhood much. But, if the ultimate goal is to broadly expand housing options, the occasional ADU in an expensive area might not be enough.

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