Why investing in an ADU is one of the smartest investment decisions you’ll make in your lifetime.
Saving enough money to retire in California is tough. Not only do we have to pay off the most expensive houses in the nation, but we also have to save enough to be able to afford to live in the state with the highest cost of living too. As house prices explode as well as the associated property taxes, more than 39% of Californians “mortgage burdened” which means that more than 30% of their monthly income is used up on meeting their mortgage payments. If so much of your monthly income vanishes on mortgage payments, it becomes almost impossible to save the amount of money we’ll need to enjoy a comfortable retirement.
The need to break this cycle is becoming critical to millions of Californians if they hope to have a comfortable and enjoyable retirement in the state they call home now.
Building an ADU on your property with SonderPods could be one of the best investments you will make in your lifetime. Here are the three key reasons why:
Reason One: You could pay off your mortgage 8 years faster
If you put one penny on the first square of a chess board, then on the second square you double that to 2 pennies. On the 3rd square, you double it again to 4 pennies and so on until you have covered the 64 squares of the chess board. You might be surprised that on that 64th square of the chessboard you would placing $93,233,720,368,547,800 – now I had to google what that number is and it’s ninety-three quadrillion dollars which I believe is more money than exists in the world today. What I am describing here is the power of compounding interest, something that Albert Einstein described as one of the most powerful forces in the universe.
Your mortgage is also an example of compounding interest working against you. That small interest rate that you are paying adds up to be a lot of money over the duration of a 30-year mortgage. On a typical $500,000 mortgage with a 4.25% interest rate around $1800 of your $2500 mortgage payment will be going straight to the bank in interest payments rather than paying off your home. That’s right, only $700 of your hard earned $2,500 mortgage payment actually goes towards paying off your home. When you add these interest payments up over 30 years, you would have paid over $880,000 to pay off your $500,000 mortgage.
But don’t worry, there is some good news and you can use compounding interest to your advantage. Making small additional payments can have a massive impact on the cost of your mortgage.
The table below outlines how renting out an ADU on your property from Sonderpods will not only pay for itself but it will also help you make additional payments and pay off your mortgage 7 years faster, saving you over $205,000 in mortgage payments.
|Mortgage Amount at 4.25%||Your Monthly Payment||Mortgage payment contribution from your SonderPod||Years to Pay Off||Money Saved|
($500k original mortgage + $250k for your SonderPod)
(Assuming $2500 rent and 30% tax)
Obviously, this table should be updated for your particular situation but your SonderPod team can help you understand the potential savings you could make by adding an ADU to your home.
Reason Three: You could need to save $750,000 less for your retirement
Hopefully, you are making regular payments into your 401k and that balance is building up over time from the tax benefits and as the markets continue to climb. But what kind of income will this provide for you in retirement?
The widely accepted rule of thumb is that you can expect your retirement income to be 4% of whatever you have managed to save throughout your lifetime. To have a retirement income of $60,000 a year, you will need to save a massive $1.5 million dollars. To put this into context, a 30-year-old needs to make sure that their retirement savings are increasing by $50,000 a year if they hope to retire at 55 – a tough ask if over 30% of your income is already committed to your mortgage payments.
This is where the rental income from your SonderPod can make all the difference in helping you prepare for an enjoyable retirement. With an average annual rental income of $30,000 a year, your SonderPod will provide you with the same income that $750,000 of retirement savings would bring you.
You should always have your own financial plan in place for your retirement, but how much better would you feel about your preparation for your retirement if nearly a third of what you need to retire was already in place?
An investment that pays for itself and pays your house off 7 years earlier AND could reduce what you need to save for retirement over half a million dollars?!
To some, this might all sound too good to be true but it’s actually just a simple process of understanding the compounding impact that small changes can have over longer periods of time.
At SonderPods, we keep the cost of construction low and pass those savings onto our customers. If you have to spend less to create an income stream now and use this additional money wisely, it can truly be life-changing.
To understand more about whether adding an ADU to your property can have a big impact on your retirement plan you’ll first need to confirm that your home qualifies for an ADU. Your SonderPod team can pre-approve your home for an ADU within 48 hours.