The housing crunch is taking homebuyers and investors back to the future. Power down your flux capacitor, though, because Amazon has made the time travel on your behalf by selling mail-order prefab homes.
Indeed, homes-in-a-box or boxes are nothing new. Sears advertised its first mail-order home way back in 1908. With the boom in tiny homes and the need to maximize every square inch of available space, ADUs (accessory dwelling units) are all the rage in high-priced cities facing an affordability crisis.
Average full-sized home prices are currently above $400,000, but prefabbed ADUs come prepackaged and flat-packed and are ready to assemble and be delivered to your door or wherever you wish for under $30,000. They have a projected 25-year lifespan. There is more than enough time for investors to build a portfolio.
And Amazon is one of many companies selling these types of dwellings. Home Depot and Walmart also have their versions.
Multiple prefab design choices are available online, from repurposed containers to homes on wheels and more conventional-looking structures. Prices start around $10,000 and increase depending on size and style.
Practical Advantages of ADUs
Owning an ADU has multiple advantages, particularly for investors.
Easy permitting in a lot of places
One advantage of owning a tiny home is that in some places, no permits are required, or they are at least very easy to acquire. Additionally, although some owners connect their homes to their main home’s utilities, it is also possible to live off the grid. All homes contain kitchens and bathrooms and are constructed from durable materials, making them well-suited to four-season living.
Allows more living without new land
If homeowners or investors have a lot or a large backyard, they can maximize the space and earn extra income without buying another home for a fraction of the price.
Enables multigenerational living
Whether you have aging parents or rebellious teens looking for their own space, ADUs allow families to stay close while allowing privacy and keeping costs down.
Ideal for young professionals and gig workers in high-priced cities
One drawback of the modern era is finding accommodation in expensive cities at the start of your career or if your income is inconsistent. If sharing with multiple roommates doesn’t appeal to you, an ADU could be the solution.
Allows owners to be mortgage-free
Assuming you own the land where you wish to place your prefab home, the cost is so low that buyers can buy with cash and be mortgage-free, allowing them to make further investment choices without worrying about living expenses.
Some Tiny Homes to Consider
Amazon container home
One Amazon ADU is the 40-foot luxury portable shipping container home, which retails for $28,865. A sleek two-story dwelling, it is easy to set up and can be used for multiple purposes. However, you will need to check with your municipality about installation rights.
Another Amazon container home costs slightly less, at $23,039. It’s big enough to sleep a small family, with two levels and up to four bedrooms. It even has a balcony for additional outdoor space. The home has a customizable plan, and the price stays the same regardless of your choice.
The Walmart $16,000 tiny home
Walmart’s 19-by-20-foot expandable prefab house costs $15,900. Like its Amazon counterpart, it is delivered by flatbed truck and requires a forklift for unloading.
It is made by Chery Industrial, a New York-based storage solutions company, and contains a bedroom, living room, bathroom, dining room, and kitchen. Once assembled, it requires a little work because, like Amazon’s equivalent, it comes unfurnished and without appliances.
Most tiny homes require a concrete slab to sit on, which adds to the costs, as does hiring professionals for the assembly.
ADU-Friendly States
As the housing crisis deepens, more states are becoming ADU-friendly, including pricier coastal markets like California, Oregon, Maine, Connecticut, Washington, and New York. Each, however, has its own guidelines and restrictions.
Other states that allow ADUs include:
- Arizona
- Texas
- North Carolina
- Florida
- Minnesota
- Hawaii
- West Virginia
- Wisconsin
- Massachusetts
The Advantages and Uses of ADUs for Real Estate Investors
ADUs can be a game changer for real estate investors. Here are some ways they can take advantage of them.
As a rental
The most obvious use for an ADU is to rent it out—whether short-term or (depending on your city’s rules) medium- and long-term—to generate extra income.
As your primary residence
ADUs allow owners and occupant homeowners to live in their ADU while renting out their adjoining primary home midterm. As they are both on the same lot and share the same address, this blurs the line when claiming owner-occupancy status.
This is a huge advantage when building cash to scale a portfolio because it means buying a primary residence with an FHA loan and taking advantage of a low down payment while generating income from it. However, it’s not allowed in all municipalities with specific requirements that the owner must live on the main property, and the ADU is supplementary, so check your municipality’s regulations.
Adding equity to your home
ADUs add equity to your home, making a HELOC an attractive avenue to continue investing.
Buy land and assemble multiple ADUs
If you own land in a scenic location, placing multiple $30,000 ADUs on it is a cheap, effective way to scale your short-term rental business. Assume you have access to $300,000 from a HELOC or savings. Buying 10 Amazon ADUs in a sought-after location could result in a life-changing monthly cash flow.
To lease as office space
An ADU makes an ideal office space for people who prefer to work outside the home but don’t have to go to an office.
Final Thoughts
ADUs are becoming must-have additions in housing crisis-hit states. However, the cost to construct one from scratch with a contractor is over $100,000. The flat-pack mail-order versions for sale by retailers are a welcome relief for homeowners trying to find the extra cash to build an ADU.
“It’s gone from a small niche in the market to really a much more impactful part of new housing,” Scott Wild, senior vice president of consulting at John Burns Research and Consulting, told the Wall Street Journal. “Municipalities love it, existing homeowners love it, developers love it.”
ADUs alone won’t solve the housing crisis, but the economical price of the new prefab versions will undoubtedly help.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
