Featured image credit: Alfred Twu
In Southern California’s competitive market, a home is rarely just a home. It’s an elevator to wealth generation. Therefore, when someone purchases a suburban house in the Los Angeles area, it’s beneficial to consider how it can produce income, even while remaining a primary residence. Two of the most popular housing models for building wealth through suburban investments are duplexes and accessory dwelling units (ADUs). Each offers distinct benefits. But determining which is best for your situation depends on your goals, zoning, and how comfortable you feel with construction.
Knowing the Difference Between a Duplex and an ADU
In case you missed our blog about ADUs, these are basically additional living units (not the primary residence) that share lots with single-family homes. Sometimes, they’re built directly onto the initial home. Other times, they’re a converted unit (like a garage). They can even be free-standing units, like a backyard guest house.
Because of housing inventory shortages, California has relaxed its laws on ADUs, making it easier for homeowners to capitalize on these income-generating opportunities. Units can even be approved in as little as 60 days in some circumstances! As if that’s not a sweet enough deal, the parking and site restrictions faced by older models have been reduced.
Duplexes are a different animal. A duplex consists of two distinct but connected units, often warranting their own addresses and utilities. Investors tend to like the idea of living in their investments, so duplexes are popular with business-minded buyers. They can easily live in one unit and rent out the other. Now, with the introduction of double duplexes, the prospects offered by duplexes are even more attractive.
Which Choice Generates More Income?
If you’re considering a suburban house as an investment, ADUs and duplexes are smart choices because both can generate significant income. However, one option is clearly better for the investment veteran, while the other is more suited to the novice.
Los Angeles monthly rental rates for ADUs can easily range from $1,800 on the low end to $4,500 for a premium model. Size and location remain the primary value drivers. Even a modest ADU can effectively offset the cost of a mortgage, property taxes, and routine maintenance.
Duplexes offer two full units capable of attracting the market rent for the given area. And, in the case of double duplexes, that increases to four income-generating units. Even a standard duplex can typically exceed the rent generated by a single-family suburban house with an ADU. This means that duplexes, especially when rented by long-term tenants, offer higher, more reliable income streams.
Reselling a Suburban House with an ADU Versus a Duplex
It’s also important to understand the resale potential of these disparate investments.
A suburban house can accumulate significant equity with an ADU. In LA specifically, a well-constructed ADU can tack on an additional 20% to 30% in equity. Depending on the ADU’s size and design, this could generate anywhere between $200,000 to $500,000 in added equity.
Unlike single-family homes with ADUs, duplexes are almost exclusively zoned as multi-family properties, subjecting them to a higher capitalization rate. Since duplexes are commonly appraised with stronger earning multipliers, they also tend to offer a higher resale value.
What Can You Manage as an Investor?
If upfront cost is a concern, an ADU will obviously be a more manageable choice than building a full duplex. Depending on size, style, and the conditions of a build site, ADU construction costs in Los Angeles can still easily range from moderate to high.
Duplexes will still almost always cost more upfront. They could require multifamily zoning, separate meters, and a more elaborate construction price (or purchase price). They also require more in the way of management responsibilities, since they are two separate but full living units.
The Smart Choice for Your Goal
Ultimately, for investors primarily focused on wealth generation, a duplex is typically the smarter choice. After all, they offer the higher gross rent potential and the valuation of a robust multi-family asset. But for those inexperienced in property investment or working with a tight upfront budget, a suburban house with an ADU can be a more realistic starting point for generating income. Both paths can accelerate wealth accumulation. By understanding what they require and what they offer, you can commit to the right investment for your goal.
With a brand that says as much as JohnHart’s, Senior Copywriter Seth Styles never finds himself at a loss for words. Responsible for maintaining the voice of the company, he spends each day drafting marketing materials, blogs, bios, and agent resources that speak from the company’s collective mind and Hart… errr, heart.
Having spent over a decade in creative roles across a variety of industries, Seth brings with him vast experience in SEO practices, digital marketing, and all manner of professional writing with particular strength in blogging, content creation, and brand building. Gratitude, passion, and sincerity remain core tenets of his unwavering work ethic. The landscape of the industry changes daily, paralleling JohnHart’s efforts to {re}define real estate, but Seth works to maintain the company’s consistent message while offering both agents and clients a new echelon of service.
When not preserving the JohnHart essence in stirring copy, Seth puts his efforts into writing and illustrating an ongoing series entitled The Death of Romance. In addition, he adores spending quality time with his girlfriend and Romeo (his long-haired chihuahua mix), watching ‘70s and ‘80s horror movies, and reading (with a particular penchant for Victorian horror novels and authors Yukio Mishima and Bret Easton Ellis). He also occasionally records music as the vocalist and songwriter for his glam rock band, Peppermint Pumpkin.
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