Accessory Dwelling Unit (ADU) in California: How to get started?

A Guide to ADUs in California

If you are looking to maximize your property’s usage and, ultimately, its value without having to do some extensive work that will affect your entire home, one option you can consider is an accessory dwelling unit or ADU.

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What is an ADU?

Simply put, an ADU is a secondary housing unit which allows you to accommodate at least another person who might be interested to stay within your property. ADUs typically fall into two categories:

• Detached or standalone ADU - basically a secondary house that is physically separate from the main house

• Attached ADU – the ADU is physically connected to the main house but is considered a separate unit with a dedicated access not having to go through the main house

Attached ADUs themselves come in many different types, some of them being:

• Garage conversion ADU - a garage converted into living quarters

• Above-garage ADU – an ADU built on top of a garage or workshop, which is also known as a garage house

• Basement conversion ADU - the basement can be converted as a separate living space. It is also known by many names such as basement apartment, in law unit, or English basement.

Regardless of the different options out there, all ADUs have some common characteristics, mainly:

• They are located nearby the main home unit

• They are typically smaller than the average house

• They not only have dedicated bedroom and living spaces, but also have a kitchen as well

• They are developed separately from that of the main home unit; ADUs are usually built long after the main home unit was finished

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Why build an ADU?

ADUs are great to have for visiting family to stay at or for friends who are looking for a place to stay for a foreseeable future while maintaining the privacy and intimacy of your own home. In fact, having an ADU upholds the privacy not only of your family but also of the person staying in ADU, thus promoting a more conducive relationship between the two parties.

ADUs also offer revenue potential by making use of them as Airbnb rentals or home rentals. Given the housing shortages and/or increasing home prices being experienced by many neighborhoods, especially those close to the city and/or running out of space for housing, ADUs are becoming an attractive alternative housing solution, at least for the short term.

Regulations surrounding ADUs

But before you start working building on your ADU and realize that revenue potential, it is important to know beforehand of existing regulations regarding ADUs. These regulations vary from state to state so it’s very crucial to do some diligent research.

For example, the state of California allows for ADUs on single or multi-family lots with a minimum of 800 square feet or 1000 square feet if the ADU is for two bedrooms and even without parking provisions, especially if the ADU is located within half a mile from public transit or within a historical district. California also allows for ADUs to be rented out, as long as it is for a period of at least 30 days.

Another factor to consider is the zoning classification in your local area, depending on where you live, you may or may not be allowed to build an ADU. Even so, some authorities may allow for exceptions that one can take advantage of. For instance, while some areas do not allow for ADU, they may allow for alternative structures to be built like a guest house, or a detached office or bedroom unit with a bathroom.

Other important considerations

As with the construction of any structure, there are permits that need to be filed like a building permit and possibly other documentary requirements for ADUs. Again, the requirements vary from state to state, so it’s important to know what they are in your area and be compliant with everything to avoid future headaches that can drain whatever income you generate from your ADU.

Also, one thing to remember about an ADU’s income potential as a rental property is that, like any other real estate property, it will depend on a number of factors such as its size, amenities available, and distance to public transport and commercial establishment. That’s not even taking into account the expenses for regular maintenance or emergency repairs, minor or major, that can eat away from your rental income.

Then there are the taxes. Depending on the state or city you’re in, having an ADU may incur huge taxes that can end up taking much of the income it regularly generates for you. Consulting a tax professional would help determine the exact taxes involved and can help you in determining whether having an ADU is an investment worth pursuing.

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Before building your ADU

Whether you’ll be building a standalone ADU or an attached one, you will need to spend not only on building the unit but also in making sure it has all the amenities required. You might also need to consider acquiring the services of an engineer or surveyor to make sure everything is in place. All these would depend on your preferences so it’s important to plan beforehand so you know how will be needed.

It’s important that you follow a strict budget in place when you begin constructing your ADU and make sure you have everything planned out beforehand so you will not end up losing money in the long run. If you will need financing in constructing your ADU, you may take out a renovation loan or request for refinancing if you still have equity left in your home.

If you need help along the way, it is highly recommended that you seek the advice of any ADU expert who can better determine the right ADU to build on your property, assist you with the requirements needed for the ADU, and help you in realizing your ADU’s income potential.

Having an ADU helps boost not only your household revenue but also your property’s value in the long run. It’s important that you start on the right track and do things right so you and your family get to realize the income potential of your ADU.