As home prices continue to rise, many prospective buyers are exploring creative solutions to make homeownership more affordable. One increasingly popular option is purchasing a property with an Additional Dwelling Unit (ADU), which offers a built-in source of rental income.
Why Consider a Home with an ADU?
The Portland, Oregon real estate market has seen steady appreciation over the past several years, with home prices rising upwards nearly 40% in the last five to six years. For many, this surge has made the dream of homeownership feel out of reach. However, properties with legal ADUs provide an opportunity to generate consistent rental income, which can help offset the cost of owning a home.
An ADU, or Additional Dwelling Unit, is a secondary housing unit on a property. This could be a basement apartment, a backyard cottage, or a garage conversion. Not only does this offer potential income, but it also adds flexibility to how the property is used.
Real-Life Example: 1121 SE Sherman Street
Consider a property currently listed in a vibrant Portland neighborhood at 1121 Southeast Sherman Street. This home exemplifies the benefits of an ADU. The main unit upstairs features two bedrooms and two bathrooms, making it an ideal primary residence. Meanwhile, the downstairs unit includes two bedrooms and one bathroom, and it is already generating $1,600 in monthly rental income.
This rental income could be applied directly toward the mortgage, significantly easing the financial burden. Since the downstairs unit is already occupied, the income stream begins immediately upon purchase.
View Property Website >> https://hatchhomes.com/1121-se-sherman-st/
Financing a Home with an ADU
One common question for buyers interested in ADU properties is how rental income impacts loan qualification. According to lending experts, buyers can factor rental income into their financing:
- Rental Market Appraisal: When the property is appraised, buyers can request a rental market analysis. Lenders typically allow 75% of the projected rental income to count toward the loan qualification.
- Lease Agreements: If there is an existing renter with a valid 12-month lease, lenders may use the full lease amount to support loan approval.
This flexibility can make a significant difference, enabling buyers to qualify for homes they might otherwise consider unattainable.
Things to Consider
While the financial benefits are compelling, owning a property with an ADU also comes with responsibilities. As a landlord, you’ll need to manage the unit, maintain the property, and uphold any lease agreements. However, the potential rewards include building wealth through homeownership and enjoying steady cash flow from rental income.
A Unique Opportunity in Portland
Portland’s real estate market offers a unique opportunity for buyers to explore multi-use properties like those with ADUs. Homes like 1121 SE Sherman Street provide a chance to own in a desirable neighborhood while keeping costs manageable. By factoring rental income into the equation, buyers can reduce their effective monthly payments to levels comparable to much lower-priced homes.
Is It the Right Fit for You?
Buying a home with an ADU isn’t the perfect solution for everyone, but for those willing to embrace the role of landlord, it’s an excellent strategy for navigating today’s competitive market. If you’re intrigued by the idea of owning a property that helps pay for itself, consider exploring available options in your area.
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