The Beginner’s Guide to ADU & DADU Investing (2025)

22:30And then she goes through, she looks at, because it's not just the building variance and the zoning, but there's also setbacks, right? So if there's a street, what is a setback that is required in order to place the dadu on that lot? So sometimes it's five feet, sometimes it's 15 feet. So she's the one that goes in and says, okay, we can put our dadu and we can put it, place it over here. Then I work with an architect to design the dadu that is perfect for this lot. and then the architect works on the design, getting the permits, working with the city. So then I get my permit to build a DADU. Then I go back to my land use attorney that can then help with condoizing the lot, creating the HOA.

23:15And between all this, I also have a surveyor that has to survey the lot first to just even figure out where to put the DADU. And then also once the DADU is completed, they have to survey the lot again before we actually record it with the county in order to be able to say, okay, everything was done to plan or we had to move the data a little bit to the left side or the south side. And so they are the ones that will then plot exactly where the data is on the lot. And that whole thing gets recorded by the city. In Washington State, we have to have an HOA, a homeowners association, when there's more than two properties on a specific lot.

23:58And so we also created an HOA for this whole project. So lots of people involved, and that doesn't even include designers and builders and contractors, so. And this sounds like a lot, it really does. And I think the point of getting an attorney

24:17Ashley Kehr:to help you through a lot of the legal aspect and the planning aspect is such a great idea. instead of trying to figure it out yourself. The next thing is that think about how many millions of people build their own home, okay? They figure out what kind of land they can build on. They figure out how to get drawings done. They figure out the engineering for the septic, the well, how to tie into the sewer. Like if every average day person can figure out how to build one home, you can figure out how to build this ADU. And yes, it does make it different with having to get the HOA. But all of those things, you can get help with hiring an attorney.

25:00Ashley Kehr:So you said that you specifically found a land attorney. Is there any other type of attorney you would recommend to be able to help rookies with us? No, just a land attorney, like a condo attorney, someone that does HOA docs. These are all types of attorneys that can help with the whole condo process. A lot of times when I'm struggling, like I was struggling to find a sewer contractor to do the sewer work for me for this latest project of mine. So I just called the city and I said, do you have a list of contractors that you work with that you recommend? and she sent me 10 sewer installers. And that was great because every one of these sewer installers had worked with her in the past.

25:46They knew what the city wanted. They knew how to do the work. They knew alley restoration process. Like they just knew it. And so I just went down the list. I got 10 different bids. And then I went with the guy that gave me the most confidence and he wasn't the cheapest, but also he was not super expensive. And we got it done.

26:06Tony J. Robinson:I just, you know, Lake is talking about a project right now that's probably a little bit more complex because it's three units. There's a whole condo, like condoizing aspect of that as well. But like, let's say that you're just buying, hey, there's an existing structure. You want to build one DADU. Are you like, what is the sequence of events? Are you, do you have like a DADU plan, like the same plan that you just drop on every single home that you buy? Or are you, are you coming up with something new for every single property? I guess the question is, what comes first? Is it, let me find the land that matches the plans that I have, or let me find the right piece of land and then figure out what plan makes the most sense?

26:42Okay, another great question. So most daddos are between 1 ,000 to 1 ,200 square feet. So you can go in with a pre-approved plan. The pro to a pre-approved plan is that the city has already seen it before. They've already given permits on a different project for that same plan. so then the city actually knows what to look for and not so that kind of reduces your timeline for permitting drastically so once you have just a pre-approved plan the most important thing is to actually look for lots that can house this plan and even if you don't have a plan like the plan is like having a pre-approved plan the only thing you're saving on is yes you're saving a bunch of money on design and costs but you're also saving money on the permitting timeline itself but I think a lot of times like just looking for a lot that is prime for dad who is most important.

27:35Another reason why I love this for rookies is because they can actually, if they just bought a single family home that is, that needs a little bit of love on a large lot, they can actually live in the house, house hack in a different way by building in their backyard. And so like if you buy the right lot and then you're able to just like buy the lot, move in and build in your backyard.

28:00Tony J. Robinson:So when you say a pre-approved plan, like is it, you can literally just walk into city hall and say, can I have the plans? And they say, yep, here they are. Or is there still some sort of fee you have to pay to the city to get access to those plans? It's typically not the city that has a plan. It's an architect. So you can go to an architect and say, Hey, um, Like the schooner is a dadu plan that is super popular in Seattle. Everyone was doing schooners like a couple years ago. So now we have like hundreds of schooners across the city. So the schooner is a plan that a dadu plan that the city is extremely familiar with.

28:36And multiple different architects like have that plan. So you just walk into an architect's office and say, I want to build a schooner in my backyard. Architect has a plan. They have the drawings. and then they just like submit that to the city based on your lot and your topography. And then typically that plan just gets approved. The other like famous one is the E-Rez. Again, has been done a million times. So these are just plans that are available at the city or with the architects.

29:06Tony J. Robinson:Just so you go to the architect and say, I want a pre-approved plan for this city. And they'll say, hey, here are the pre-approved plans that we have, you know, make your choice.

29:16Ashley Kehr:Yeah, exactly. I actually had that happen to me before when I worked for another investor. I did six patio homes for him. And I designed the whole layout and the floor plan and everything, working with the architect. And after we finished building, somebody else came in and said, I want to build that exact same thing. And they basically bought our plans from the architect. And it was actually really annoying because it's like, I spent all this time, all this money to have the plans built out and then you just go and take them. But hey, if it saves you a lot of money, ask the architect what they already have because instead of starting from scratch.

29:56All right.

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34:55Ashley Kehr:All right, let's get back into it. You've bought your lot, now what? Lake is about to share the step-by-step of how to actually get your dad do built and cash flowing and some rookie mistakes you want to avoid. Okay, so Leika, we've got to build. What is the best value that a dadu can add to a property? And you kind of went over how much that value is, but besides adding the property onto the lot, what are some other amenities or different things that make the dadu valuable? So I always say like build a dadu that looks like a single family home. If you look at photos of dadus in backyard cottages, They're typically long and skinny because they're like stuffed into a small lot.

35:44But I like daddies that actually look like a home. So they have to have garages, a nice living and kitchen plan. And typically, if you can add three bedrooms and at least two and a half baths to a thousand square foot structure and make it look like a single family home, those are the ones that get the most demand. And so once you have that built, like there's so many ways to maximize on that, right? Because you have a single family home and now you have a dadu. They each have their own access points. You can then exit that as selling the dadu off to an end user, or you can hold it as another rental property.

36:30You can use that as a midterm rental. I mean, you can live in it, sell the bigger home. Like there's just so many different ways of maximizing value.

36:42Ashley Kehr:Are you guys redoing the basements too? Because in Seattle, a lot of homes have basements, right? Are you guys redoing any of the basement to kind of maximize the space since it is such a small area? Yeah. So basements and attic conversions are also very popular in Seattle because a lot of older homes have these massive attic spaces. So we convert attics and then basements that sometimes have wet bars or kitchens. You can even get an ADU permit for that. But again, I would just be cautious and ask the city like for utilities, does it require its own electrical meter, water meter, sewer line? Most often than not, if it's like a basement or an it's not going to require its own sewer meter, but it's best to just ask the city about it.

37:36But yeah, we do convert a lot of basements. They're great income producing units.

37:41Tony J. Robinson:I just looked at the Seattle schooner Dadu and yeah, it looks like a true single family home. So you wouldn't even know that it's considered a Dadu. And yeah, it's solving a problem, right? because it's like a win-win because the investors are getting a good return on a property. But then I'm assuming the homeowners are probably getting a better deal than if that home was just like a single property on a standalone lot. So it feels like both sides are winning. But I think what I would love for rookies to walk away with, Laka, is what is like the simplest version of the dadu for a rookie? So let's say that you've never done this before or maybe you're giving advice someone who's never done this before, what is the simplest version or maybe the less riskiest way, you know, from 30 ,000 foot view A to Z of doing a dadu?

38:34So the simplest way, if you want to build a detached accessory dwelling unit is find a lot that has a garage that has an access to the garage and then convert the garage into a dadu. A lot of garages are like three, 400 square feet. If you can build another floor on top. That's a nice six, 800 square feet dadu. And you're not actually excavating, pouring in new foundation, like you're using all the existing structures to build out the dadu. Say you don't have that. Honestly, building a dadu is so much easier than renovating homes. As a long term fix and flip person that does a lot of down to the studs renovations.

39:15and I did a down-to-the-stats reno on the house and built a dadu in the back at the same time. Trust me, the dadu was so much simpler because you're just, it's like new construction, right? You have the lot, you're giving it off to a builder. So you're having them just build a brand new structure rather than renovating what's within the confines of four existing walls.

39:37Tony J. Robinson:Why do you say it's simpler? Like what is it about new construction that is less complex than renovating a home? Because I think for a lot of people like HGTV, like house flipping is what they think is like the end all be all bread and butter for real estate investing. And it's just what people have so much exposure to. But what you're saying is somewhat contrarian to say actually building is easier. So what was it about, you know, those two side by side? What made the new construction easier than the reno? So with the renovation, I opened up the floors to find out there was no concrete footings under the house.

40:13So now that the house is built, I have to go in and put concrete footings under the house. Not just that, in most old homes, the floor plan is just not ideal for current living. So you're either opening up walls, you're adding additional rooms, bathrooms, sometimes the flow is just not right. And so you have to literally take everything down to the studs. With building new construction, you're putting all of your ideas and your design elements on paper and someone's literally drawing that up, getting it permitted. And then a builder is just building to plan. So easy. And with all the walls that you have to open up, you just don't know what's behind the walls.

40:53Like for just for siding, for example, this home that I bought was like a 1900s home. So we opened the siding and then we found out there was four additional layers of siding on this house. And so it's like you take out like, and my siding budget was like eight grand and then quickly it went up to 15 because there was so much more demo. And so there's unforeseens, there's errors that can be made. Like it's just more complicated.

41:21Ashley Kehr:I guess, like my last question before we kind of wrap up here is the tax side of it. We just had a guest on whose episode will come out in a couple of weeks, a rookie investor who bought a property and right away his property taxes doubled. What do the taxes look like when you build a dad do? Either you're keeping it on that same lot or you're separating. What is the best way to estimate how your property taxes would change? So that's a really good question again for your attorney. But in my case, what happened was whatever the tax amount was for the existing single family home, it got divided with the dad do.

42:02Um, so it went up, it went up because we added another structure, but so my tax for the existing single family was, I think 3 ,500 for the year, because it was a small single family was 800 square feet. Then my entire tax on the parcel became, I think 6 ,500, but it got divided between the dadu and the existing single family. And the dadu was a thousand square feet. The single family is 800 square feet. So the total square footage was about 1 ,800. It got divided by the two.

42:32Ashley Kehr:It's just crazy to think about like an 800 square foot house being a million dollars. I like in my market, you could buy a 5000 square foot house for a million dollars. So it's always so interesting to see the comparisons in market. Yeah. Well, Lekha, thank you so much for joining us today. Can you let everyone know where they can reach out to you? Yes, you can reach out to me on Instagram or on LinkedIn. My handle is Lekha Devta. and it's always a pleasure to be on the BiggerPockets podcast and I cannot wait to see you guys at the conference this year in Vegas. Yes, Leica will be with us at BPCon.

43:13Ashley Kehr:If you guys haven't already, you can get your tickets at biggerpockets.com slash conference. And if you guys need a discount, send Leica a DM on Instagram and she might be able to hook you up with a pretty good discount that is just for her BFFs. I promise I will. Thank you guys so much for joining us. I'm Ashley. He's Tony. And we'll see you on the next episode of Real Estate Rookie.

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