Interested in Possibly Adding an Accessory Dwelling Unit (ADU) to your Property?
Accessory dwelling units or ADUs – separate living units tucked inside a single family home or sharing land with one – are getting more popular. California has changed or adopted laws that make it easier and more attractive for homeowners to build ADUs.
An ADU can be a newly constructed stand-alone structure, a home addition that creates a separate living space, or conversion of an existing space such as garage or basement into a separate dwelling.
For homeowners, ADUs can be a source of rental income, serve as living quarters for extended family, or a work-at-home space. For those willing and able to build an ADU, the rewards can be substantial.
Six questions to answer before building an ADU:
1. Can I build an ADU on my property?
Before you start sketching layouts and picking paint colors for an ADU, check with your city or county department that oversees planning, construction or zoning to make sure you’re allowed to build, what you’re allowed to build, and where.
2. Who can I hire to build an ADU?
You can hire professionals to do some or all of the work, including the following:
- Design: An architect and/or engineer to draw up plans. If you’re considering a pre-fabricated or manufactured home or a kit for DIY assembly, check with your local building department to make sure the home you’re considering meets local building codes.
- Construction: A general contractor who can act as conductor for the entire project, or individual contractors for electrical or plumbing work.
- Site work: Water, power, sewage and grading, if needed.
Interest and growth in ADU development has given rise to companies who bill themselves as one-stop shops for ADUs. Some offer their own models to choose from, which could make it less expensive than building a custom ADU.
If you opt for a pre-fabricated or manufactured home that can be delivered to your property, check with your city or county building department to make sure it meets local building codes.
3. How much does it cost to build an ADU?
The cost will depend on the size and type of ADU. For instance, the city of San Jose estimates that “a new, custom-built detached ADU may cost as much as $250,000. Retrofitting an existing attached garage or basement may cost approximately $80,000 to $150,000, depending on size, existing plumbing and how you design the space.”
You can save money on the design if you live in a city that offers “pre-approved” building plans that homeowners can use to build their ADU either for free or for a licensing fee. The plans, which can be customized to a degree, speed up the review process because they already meet the city’s building code and design guidelines.
4. Can I finance an ADU?
Financing can be the hardest part of the process. That’s because the majority of traditional lenders don’t offer loans to construct ADUs, and the few that do generally write loans only for work done by professional contractors
Some funding possibilities include:
- Existing savings
- 401K loan
- Cash-out refinance
- Second mortgage
- Home Equity Line of Credit
5. How might I save on the construction cost of an ADU?
Converting an existing space into a separate living unit is likely to cost less than new construction, although things can get pricey if you choose high-end finishes.
Another way to cut cost is to build a dwelling from plans that have been “pre-approved” by your county or city building department. Buying a pre-built model or kit home also may offer a way to cut costs, but be sure to factor in all applicable costs, including utility hookups. Some pre-built models only include the structure itself, so be sure to factor in the cost of finishing the inside and installing electric and plumbing.
6. Calculate the Return on Investment (ROI)
In cities with high housing costs like the Bay Area, rental income can pay for the costs of development in a matter of years, while providing a homeowner with future options for downsized living without having to move from their home. Legally permitted ADUs also tend to add value to a property. Some cities, such as San Mateo, have created ADU calculators to help people determine whether area rents will generate enough to cover monthly expenses.
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