There’s a saying, “As California goes, so goes the nation!” When it comes to building Accessory Dwelling Units (ADU), that’s also true, with the Los Angeles area currently the most prolific in ADU construction. So what exactly is an ADU? An ADU is a secondary building on your property and the purpose for adding one varies. You may want to build an ADU if you are looking to add a:
- Guest House
- Pool House
- Granny Flat (In-laws flat)
- Long term rental property
- Short term rental space like Airbnb
- Home office
- Home gym
From a Trickle to a Torrent
Until the last few years, the California Department of Housing & Community Development saw relatively few applications for permits to build an ADU. In 2012, only 158 of those applications were filed. By 2017, those numbers had multiplied more than 30 times, with 4,974 permits requested, and the latest figures available from 2019 show 14,702 permits were issued to build an ADU in California.
The ROI of an ADU
In the past few years, as the result of housing shortage in Los Angeles, State Bills 8 & 9, the newest California laws, allow homeowners to build an ADU on smaller lots as a way of combating the housing crisis. This gives homeowners the flexibility of adding an income stream as well as adding value to their property.
Humble Ly, President/Founder of Dakota Benjamin, Inc. is a contractor Highland Premier has worked with in the past who builds ADUs across Southern California.
“An ADU can be a great asset to California homeowners,” said Ly. “It can provide extra income which could be used to help pay for your mortgage,” he said.
Ly is currently working with the City of Los Angeles to fast-track standardized ADU plans. The low range to build an ADU is between $150,000 to $180,000. For a 1,200 square foot unit, the cost can be up to $250,000.
Our advice would be to first allow us to perform a cost benefit analysis consisting of cost vs. usage. This is the best method to determine whether the juice is worth the squeeze, as they say. Which means, how much time will it take to earn back the money you invested in an ADU? Another factor to consider is whether the best use of your money is to renovate your home instead of building an ADU.
What Type of ADU Suits You?
There are three types of ADUs: detached, attached and a two-story conversion. The City of Los Angeles is working to provide pre-approved building plans for ADUs with over-the-counter pull permits which will be available very soon.
- Detached: A completely separate building from the main home. The quickest and least expensive type of ADU to add to your property.
- Attached: Exactly what it means: connected to the primary residence on the property as a way to expand the size of your main home.
- Second Floor Conversion: The ADU is built on top of an existing structure, mainly an option for a single story detached garage. (This can often be the most expensive option.)
The Upside of Building an ADU
- Property Value Increases potentially 15 – 20 percent!
- Affordable Housing for renters priced out of the rental market.
- Utilities are already in place to tie into electricity, gas, water and sewer.
- Passive income: rent is extra income that can be used to pay off a mortgage.
- Multiple Uses: ADUs can be repurposed as your needs change.
- Incentives to Build: some cities provide incentives and loans to build ADUs.
Some Things To Consider
There are some downsides to consider. If you decide to rent out your ADU, you become a landlord and need to be aware of and adhere to code enforcement and rent control laws. Just as your new dwelling will need maintenance down the road, keep in mind the relationship with your new tenants may need work too. It’s a fact that when there is an increase in property value there is also an increase in property taxes. Lastly, consider that you may lose some privacy if you decide to rent out your ADU. Tenants will likely need parking, and will require 24/7/365 access to their rental on your property.
Monitoring Housing Trends
The ADU trend has been gaining ground for a few years and our experienced team at Highland Premiere is here to guide you through the decision of building an ADU, and the impact it may have on your home’s value or salability.