Are you a California homeowner considering building an Accessory Dwelling Unit? You might be wondering what an ADU is, if it’s the right investment for you, and what the steps are to constructing an income producing unit on your property.
You know the saying: “There’s no time like the present,” and with the newest modifications to California ADU laws in 2020, this might just be a sound piece of advice.
Before we talk about the newest California ADU laws, the team at Levi Design Build wants to make sure that we provide you with some of the basics of building an ADU.
- What is an ADU?
- Types of Additional Dwelling Units
- The Benefits of Investing in an Additional Dwelling Unit
- What to Know Before Investing in an ADU
- ADU Cost
- ADU Financing
- Choosing a Professional ADU Contractor
What is an ADU?
ADU stands for Accessory Dwelling Unit and is essentially a smaller residential unit built on a single-family lot that has an existing, often larger, primary home.
The first of these types of dwellings have been around for hundreds of years and were known as carriage or coach houses. It was a place to store things, much like a garage, and provide sleeping quarters for workers outside of the main residence.
ADU’s gained renewed popularity during the mid-Twentieth Century. The average size of a single-family home during that era was approximately 950 square feet and the average family size was 4. If we do the math, that meant each person had a living space of less than 250 square feet. The lot sizes of those properties have not changed but the average home size has more than doubled to over 2500 square feet in 2020.
Depending on your family’s size and needs, that increased living space may very well be justified, especially with families now working and schooling from home during Covid-19. The global pandemic is also responsible for the loss of jobs across California and nationwide. The takeaway for many residential property owners is that having an additional source of financial stability is crucial. The potential income opportunity of an ADU, whether in the form of equity or rental income, is definitely worth considering.
Over the years leading up to the present, these types of additional property dwellings have taken on many different names, though their purpose has remained quite the same. You may recognize some of these terms that are synonymous to ADU:
- Guest house
- Back house
- Backyard bungalow
- Carriage house
- Coach house
- Secondary Dwelling Unit
- Ohana (popular in the Hawaiian Islands)
- Garage house
- In-law suite
- Granny flat
- Accessory apartment
Types of Additional Dwelling Units
ADU’s take on many forms and are not always detached from the main property dwelling. Let’s take a look at the main types of ADU structures:
We hope now that you know the main types of Accessory Dwelling Units, you can make an informed decision when choosing the right ADU for your needs.
The Benefits of Investing in an Additional Dwelling Unit
We already mentioned some of the reasons why building an ADU is a good investment and perhaps a good choice for your household needs. Now let’s take a moment to consider some of those reasons in more depth and also explore why ADU’s are good investments into the environment and your community as well.
It’s common these days to see extended family sharing one residential property. Reasons can include caregiving for elderly or disabled family members, providing entry-level housing options for young adults, and providing childcare for grandchildren. Sometimes parents, as they age and become empty nesters, will move into and ADU, allowing their adult child and their family to move into the primary dwelling while remaining nearby.
While we always work hard to ensure financial stability for ourselves and our families, unforeseen life circumstances and changes throughout the stages of our lives undoubtedly influence our financial status. Renting your ADU to family or private renters can provide a stable income opportunity that allows for financial security.
Affordable Housing / Local Community and Economy Benefits
Depending on where you live, housing costs can be astronomical. Adults on fixed-incomes, young adults, and low-income households are often displaced. The lack of affordable, adequate, and safe housing is a real issue that needs addressing. Many cities offer incentives to help low-income property owners build Additional Dwelling Units that will provide them with an income, as well as incentives for property owners who promise to rent to low-income households for a minimum amount of year (usually no less than five).
Either way, the financial, and community and local economy benefits are well worth it. The building of ADU’s provide work opportunities for local businesses while contributing to the housing and gentrification efforts of any given community.
In the beginning of this article, we spoke about the increased square-footage of new homes compared to those just a few decades ago. Yes, we agree that larger homes are essential for larger or multi-generational family living situations. However, with ADU’s averaging between 600 and 1000 square feet, a lesser square-footage dwelling is probably sufficient for individuals or small family households.
From the natural and manmade materials needed to build a home to the resources needed to maintain it – such as heating and cooling – an ADU is an eco-friendly choice for those who wish to lessen their carbon footprint and contribute to the preservation of our natural environment and its resources.
What to Know Before Investing in an ADU
Now that we’ve discussed the benefits of an ADU, here are a few things you need to know before making the decision to invest in and build an ADU.
Local Zoning Codes
Each community has its own regulations for ADU’s that are typically decided at the local government level. For this reason, it is always best to reach out to your city’s building division to better understand their process and rules before taking any further steps on your ADU project.
California ADU Laws
Many local communities have regulations that can seem complicated and burdensome to someone considering building an Additional Dwelling Unit. In an effort to address the current housing crisis and encourage the building of new units to meet the demand, the State of California recently adopted some laws that help remove some of the local obstacles and streamline the process.
Obstacles that the 2020 California ADU laws attempt to mitigate are linked to fees, community disputes, time, size, and beyond. Below are a few of the new key laws to be aware of as a potential investor of an ADU.
SB-13 (Owner-Occupancy Prohibitions and Fee Limitations)
Prior to 2020, local laws could require the homeowner to occupy the primary dwelling as their residence before allowing them to build an ADU on that same property. SB-13, through January 1, 2025, removes that restriction.
In addition to occupancy laws, ADU builders were often burdened with impact fees for ADU’s smaller than 750 square feet. Local agencies are now required to set fees based on actual square footage.
AB-670 (Homeowner Associations Limitations)
For those of you living in HOA communities with strict CC&R’s (Covenants, Conditions, and Restrictions) inhibiting or making the building of an ADU readily inaccessible, you can now move ahead with an ADU investment knowing that AB-670 prohibits HOA’s from restricting the building of an ADU on any property that is zoned for single-family residential use and otherwise meets all of the necessary regulations.
AB-671 (Local Government Assistance)
Perhaps one of the most important new laws is AB-671. It addresses the California housing crisis head on by requiring local government agencies to provide a plan that promotes and includes incentives for low-income homeowners seeking to build an ADU as well as for homeowners that pledge to rent their ADU property to low-income individuals or households. Local agencies should readily provide information on grants and programs that will assist with the costs, planning, and construction of Additional Dwelling Units. These programs provide positive community improvements by increasing the number of affordable housing units while simultaneously contributing to the gentrification of urban neighborhoods.
The cost of any investment is usually the deciding factor when determining whether or not to move forward with a project. If you do a web search for the costs associated with building an ADU, you will certainly be met with varying information and left wondering what information is correct and what the actual cost for your project will be.
Levi Design Build understands just how confusing this can be and that’s why we make it a point to be as transparent as possible during the consultation process so that our clients can make an informed financial decision.
Because the type, size, and design preference will influence the budget, there is no one size fits all when it comes to an ADU project. However, there are budget guidelines that will help you determine an estimated cost.
We recently dedicated an entire article to ADU Development Costs where we broke down the costs associated with different factors such as design, planning and permits, city fees, and construction labor and material. Based on our experience and completed ADU projects, we estimated that the average total cost for a 499 square foot, 1-bedroom, 1-bathroom unit to be $113,300.00-$138,250.00.
With new resources available to help with the costs associated with building an ADU, homeowners now have more opportunities beyond the standard financing options previously available.
If grants and incentivized programs are not an option for your particular project, there are still many traditional financing options that could make your project feasible. In a recent study by the UC Berkeley Center for Community Innovation, the following financing methods were broken down by who they best serve:
“Existing Cash Savings or Support
Owners with sufficient cash saved outside the value of their home or who have cash support from family and friends, and do not wish to take on debt.
Cash-Out Refinance Loan
Owners with significant home equity who are refinancing to take advantage of lower interest rates or to extend the length of their repayment term.
Home Equity Loan or Home Equity Line of Credit (HELOC)
Owners with significant home equity who do not want to refinance with higher interest rates. When interest rates are high, taking out a smaller second mortgage through a HELOC may make more sense than refinancing the first mortgage at a higher rate.
Owners with high income but without significant home equity, buyers looking to purchase “fixer-uppers,” or those who wish to leverage financing without liquidating savings.”
Choosing a Professional ADU Contractor
Levi Design Build wants you to make the choice in builder that works best for your needs. That’s why we offer FREE consultation meetings that will cover in detail the milestones to a successful project, what the common stumbling blocks are and strategies to overcome those stumbling blocks. We’ll talk about time frames, associated costs, how to pay for them, and the return on investment.
Levi Design Build is a team of experienced and knowledgeable design, planning and construction professionals with a history of successful home additions, major renovation and ADU projects. We stay up to date with the latest in real estate market and building trends, making it possible for us to always provide the best customer experience, value, design, and craftsmanship on every single project, from start to finish.
We’re here to help you get started on your ADU project today.