With all the economic uncertainty in the world right now, you may be questioning whether it’s the right time to invest in a DADU. Does it make sense to invest in real estate during periods of economic instability, or is it wiser to wait until the economy settles?
The reality is that a DADU may be one of the best investments you can make in uncertain times.
Real estate is a good hedge against inflation
Income-producing real estate is generally a good inflation hedge, especially with a fixed-rate loan. While rents and home prices don’t generally track with the stock market, they do correlate with inflation (or exceed it). In periods of high-inflation and market volatility, real estate can help provide some stability in an investment portfolio.
A need for new housing
Rental rates tend to rise particularly in the face of high inflation. In desirable markets like the Seattle metro area, rent is expected to rise more quickly than inflation given the region’s low vacancy rates. What’s more, the greater Seattle metro area has been growing steadily every year for many decades (and forecasts project that growth to continue), but limited available land constrains the building of new single-family homes. Even with multifamily construction ramping up, demand for new single-family housing will continue to be strong for years to come.
Creating substantial value for your property
Compared to buying a new home, adding a DADU is considerably less expensive, since you already own the land. To illustrate the point, the median home price in King County was $875k in September 2022, and new construction costs are roughly $400-500+ per square foot, not counting the cost of the land. By comparison, a backyard home adds value directly to an asset – your land – that you already own. MyKabin offers multiple 1,000 square foot homes that can be added for under $400k.
MyKabin homeowners have been able to rent 1,000 square foot, 2-bed, 2-bath backyard homes for about $3,000/month. For the right property, that could mean a cap rate of 8+% – virtually unheard-of in our high-priced real estate market.
Because land is so expensive in King County, there is a huge amount of untapped value for people who already own property to add a DADU. MyKabin is a superior option compared to traditional design-build firms because of our competitive cost per square foot, our turn-key comprehensive service, and our deep expertise in backyard homes.
Preparing for the future
Financing options for DADUs have also just gotten a boost, thanks to new Freddie Mac rules which now allow rental income from a DADU to be included in the income qualification for a mortgage. As a result, DADUs will retain higher resale value.
And some more good news: after two years of intense volatility in the construction industry, we’re finally seeing (some) market stabilization. Shutdowns and other work interruptions are less frequent, some (but not all) supply chain challenges are beginning to work themselves out, and even despite inflation, prices for commodities like lumber have started to return to more stable territory.
If you’re interested in learning more about how a DADU can be used as an income-generator for your property or a lower-cost housing option for friends and family, get in touch and our team would be happy to walk you through the process.