In September 2020, a new California Department Of Housing handbook regarding laws, rules, and regulations of newly built ADU’s was released. This article regards the laws of only the state of California, other states may be different.
According to the state of California, an ADU is defined as, “An accessory dwelling unit with complete independent living facilities for one or more persons and has a few variations.” What exactly does that mean? It means that ADU’s are made for independent tenants that may vary in terms of size, design, bedrooms, bathrooms, and more. ADU’s can be custom built to any homeowner’s specifications while still following all regulations that the state of California hands down to builders. ADU’s go by a few different names. Some people call them granny flats, in-law units, backyard cottages, secondary units and more. No matter what you call them, ADUs are an innovative, affordable, effective option for adding much-needed housing in California.
In 2020, California Governor Gavin Newsom signed five bills into law regarding ADUs. These bills make ADUs more accessible for renters across the state. If you're looking to build an ADU or you're looking to rent one, you're going to want to know about the changes that went into effect in 2020 and in the California Department of Housing and Community Development Handbook.
In the past, many state and local laws prevented California homeowners from being able to build ADUs, even in cases where the property itself would qualify. There were also several cost barriers for many homeowners, as well as time delays that made the project very expensive. This is why California passed the new laws intended to take effect in 2020. These laws are designed to remove many of the roadblocks that would have previously prevented families from being able to build an ADU, whether that was property restrictions, fees, or a neighborhood group that simply did not want ADUs to be built in the neighborhood.
An existing space can even be converted into an ADU. An ADU can be a remodel of an existing interior space, an attic dwelling, a basement apartment, an addition attached to the house or garage, or a separate dwelling located on the property. For example, if you were to buy a home with a garage, and have no need for the garage itself, you can convert it into an ADU that will generate a new income for yourself.
California has an affordable housing problem. As rent prices skyrocket through
the city, people are having trouble finding affordable places to live. By building an ADU,
you are giving your future tenant a chance to have their own independent dwelling
without paying the price of their own full sized home. ADU’s come in 1-3 bedrooms so
even a whole family could rent one out. ADUs provide benefits for both society and
individuals. ADU’s provide livable spaces but with lower costs and quicker permitting
processes than for larger, multi-family buildings. Because ADUs tend to be smaller than
full size homes, and their amenities are more inexpensive. They provide more
affordable housing options. Oftentimes, these units are the only rental housing available
in older, predominantly single-family neighborhoods, making it possible for people from
all walks of life to live in the area.
Not only do ADU’s increase the value of your current home from $150,000 and
up, they are an asset that will only rise in value over time. ADU’s also create a way to
collect monthly rent in which you can put toward your current home mortgage (if
applicable.) The Housing Department of California states, “ADUs tend to be significantly
less expensive to build and offer benefits that address common development barriers
such as affordability and environmental quality. Because ADUs must be built on lots
with existing or proposed housing, they do not require paying for new land, dedicated
parking or other costly infrastructure required to build a new single-family home.
When making an investment, the first and most important thought is maximizing your returns. With an ADU, you have a tangible investment that will not only forever hold its value while bringing in monthly rent, you also can depend on the value of that new unit increasing. Another great part of building an ADU is that the monthly expenses are low.
Not only can you rent out your ADU to a tenant immediately after it passes all inspections, but you can also convert it into an office. An ADU is a perfect solution for those in need of a home office or a studio in which to work. There are many working citizens in Los Angeles who work from home, but don’t want to pay for a separate office. I Additionally, you can find tenants who would split the space, that might be willing to pay rent on the unit. For example, if one person only needs the ADU part-time, it could be rented out for the unused hours. Square footage in your ADU that is dedicated solely for work can be an income tax deduction come tax time. Be sure to consult with your tax advisor for details on how and when this deduction can be taken.
The typical amount a landlord charges for rent in California is roughly 0.8-1.1% of
their ADUs value. This value is determined by the market value of the ADU and subject
to some degree of personal preference. For example, charging a high 1% for renting an
ADU worth $100,000 is not unreasonable. On the other hand, charging 1% for an ADU
valued above $350,000 might turn most renters off. Los Angeles ADU permit requests
have increased dramatically since 2016. This increase reflects the need for more
affordable housing in the state as well as the recognition of ADUs as financial assets.
This increase in ADU permit application is due largely to the passage of new state laws
effective since January 1, 2020. Also, the addition of the California Department Of
Housing and Community Development ADU Handbook is making it easier to construct
In order to collect the full rewards of constructing your ADU, you must take all the factors of renting into account. This includes tenant screening, placing ads, and considering utility cost-sharing. You can post an ad to rent the ADU on a real estate website such as Zillow or contact a realtor/property manager for help finding a tenant. ADU’s can be rented tentatively month to month or signed to a long term lease that could be 1 or even 2 years.Under California law, the tenant contract cannot be ended in the middle of any month unless you agree to end it. If you (as the landlord) want to end the tenant lease, you must do so only at the end of the month and only after giving 20 days written notice. Though this type of agreement can be oral, a written contract is recommended to avoid any kind of misunderstanding.
The California Department Of Housing and Community Development now encourages the building and Use of ADU’s. ADUs as an important source of housing to help combat the housing crisis our communities are facing in California.California’s housing production is not keeping pace with demand. In the last decade, less than half of the homes needed to keep up with the population growth were built. ADU’s make it possible for more homes to be built without creating new land. ADU’s are an affordable alternative to apartments and they put money in the hands of homeowners which stimulates the economy. More homeowners collecting rent from a newly built ADU means less defaults on mortgages. This creates a ripple effect that helps the economy in California stay stable. ADU’s increase values of homes. With more ADU’s being built, the value of homes in California is increasing which creates a supply and demand chain for property in California.
Most of the new laws are just regulations on building your new ADU, but the California governor is also making it much easier to create an ADU. There are thousands of new permits for ADUs being filed in California for a new ADU every year. This will make housing more affordable for all people in this great state. The rate in which people were approved for permits in California grew nearly 50 percent between 2017 and 2018. More than 7,000 ADUs were permitted across the state in 2019. These numbers still have room to grow. This means that obtaining a permit is becoming easier as time goes on and right now is a great time to begin building your new ADU!
Neo Builders Inc. is an experienced construction company with a specialty in building ADU’s. Building an ADU with Neo Builders will increase your monthly cash flow in a stress free and organized process. Check out our Los Angeles rules and regulation page for more details.
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