Property Owner
Quiz – True or False?
You'd be happy to see a DADU in your yard.
Your property isn't in an HOA that prohibits DADUs.
You want to create a passive income stream.
You’re not a builder or rental property manager.
You don’t know how to legally condominiumize your property and set up the HOA.
You don’t have enough capital to fund the entire DADU cost.
You don’t want alternative financing (personal loans, hard-cash lenders, liquidating retirement funds, etc.).
Your property is over 6,000 sqft (including the main home’s footprint).
You don’t want to rob a bank. ????
If you answered True…
Then congratulations!
You may be a good fit as the Property Owner for SkyDADU.
SkyDADU is a one-stop-shop for all things DADU. We finance, build and manage DADUs all under the same umbrella.
As the Property Owner for SkyDADU, you must contribute a minimum of 50% of the overall construction cost to begin the journey. The great thing is that you can buyback partner’s equity in one shot or incrementally over time after the first year (up to 9.5 years during the 10-year contractual duration) through SkyDADU’s structured Equity Buyback program. This enables you to regain full ownership, if desired, of your DADU, providing more control over time for financial freedom.
The DADU can either be rented, or sold after it’s completed to cash in on the proceeds (remember, the DADU is condominiumized by SkyDADU so you are not required to sell the main house or the property [with the stipulation that a partial reconveyance of title is approved by the first position deed holder]).
Example – Alex, the Property Owner:
Cash-on-Cash Return (CoCR)
Cash-on-Cash Return (CoCR) for Property Owner:
CoCR is a key metric used in real estate investment to measure the annual return on the cash invested in a property. This metric provides you, the Property Owner, with a clear picture of your DADU’s profitability relative to your initial cash outlay. It helps you understand how much cash flow you can expect to receive as a percentage of your cash investment, making it a straightforward tool for assessing whether your DADU can be a good passive income stream or not.
Example – Alex, the Property Owner:
- Total DADU Construction Cost: $380,000
- Alex’s Investment: $190,000 (50% equity) + $5,700 (SkyDADU origination fee of 3%) = $195,700
- Projected Rental Income:
- Monthly Rent: $4,000 – $500 (Projected Property Tax, Insurance and HOA Fee) = $3,500
- Annual Rental Income: $42,000
- Alex’s Share of Rental Income:
- Since Alex invested the minimum requirement of 50%, Alex receives 50% of the rental income:
- Alex’s Projected Annual Rental Income: $21,000
- Cash-on-Cash Return (COCR):
- COCR = $21,000 ÷ $195,700 = 10.7%
In this example, Alex earns a Cash-on-Cash Return of 10.7% annually. Of course, the rent may not remain at $4,000 per month during the 10-year SkyDADU contract duration so the CoCR can vary based on the rental market conditions.
Return On Investment (ROI)
Return On Investment (ROI) for Alex in 10 years:
ROI in real estate measures the profitability of an investment by comparing the net profit to the initial cost plus other costs incurred over the 10-year period (such as maintenance & repairs beyond the HOA requirements, listing agent fee (2.5%),and the ECT [End-of-Contract Transfer] Fee at 1%).
- Total (Assumed) DADU Maintenance & Repair Cost Over 10 Years:
$10,000 including WSST - Alex’s Total Investment Cost over the 10 Years:
$195,700 + ($10,000 ÷ 2) = $200,700 - DADU Projected Listing Price (Assuming $400,000 as the Baseline Value with Bellevue’s Average Appreciation [Source: neighborhoodscout.com] of 74.6% over 10 Years): $698,400
- Listing Agent Fee (2.5%): $17,460
- ECT (1%): $6,984
- Alex’s Total Rental Income in 10 Years (Assuming the $4,000/month rent remained as-is): $210,000
- Projected Net Profit for Alex (Alex Kept the 50% Equity Position for the 10 Years):
$210,000 + [($698,400 – $17,460 – $6,984) x 50%] – $200,700 = $346,278 - Projected ROI for Alex: ($346,278 ÷ $200,700)*100 = 172.5%
In this example, Alex earns, projected not guaranteed, a 172.5% ROI in 10 years. But remember, this is assuming that Alex had the prerequisite capital of $195,700 in cash. So if Alex had to borrow to meet the prerequisite, then Alex would have to deduct the payments to calculate the CoCR and ROI. All in all, even if you have to finance a portion of the prerequisite, ROI will most likely come in favorable to the Property Owner because the lack of affordable housing is expected to persist for the next decade and beyond. (*NOTE: The numbers above are intended for illustration purposes only. The actual numbers may vary due to taxes and other transactional costs which are not accounted for in these numbers.)
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