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ADUs - An Incredible Home Investment Opportunity!

Today I'm sharing on an important topic that could be of benefit to you or someone you know. I’ve been soaking up information related to Accessory Dwelling Units since December of 2016 and following the ever-evolving morph of legislation since. While the rental income opportunity is obvious, I’m passionate about the flexibility this legislation provides for individuals who want to stay in their homes as they age—offering them an affordable means to do so. In addition, this legislation makes it much easier to add independent living space for aging family members or post-college children returning home.

What are ADUs?

Accessory Dwelling Units (ADUs) are known by many names: 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.

State legislation that took effect January 1, 2017 gave California cities more flexibility and latitude for allowing homeowners to build ADUs. Since then, both state and local legislation has been evolving to further ease requirements and costs for homeowners to incorporate ADU’s and JADUs (Junior Accessory Dwelling Units).

What are the benefits of ADUs?
  • ADUs are an affordable type of home to construct in California because they do not require paying for land, major new infrastructure, structured parking, or elevators.

  • ADUs can provide a source of income for homeowners.

  • ADUs are built with cost-effective wood frame construction, which is significantly less costly than homes in new multifamily infill buildings.

  • ADUs allow extended families to be near one another while maintaining privacy.

  • ADUs can provide as much living space as many newly-built apartments and condominiums, and they’re suited well for couples, small families, friends, young people, and seniors.

  • ADUs give homeowners the flexibility to share independent living areas with family members and others, allowing seniors to age in place as they require more care.

  • JADUs, which are no more than 500 square feet and are typically bedrooms in a single-family home that have an entrance into the unit from the main home and an entrance to the outside from the JADU. The JADU must have cooking facilities, including a sink, but is not required to have a private bathroom.

What are the types of ADUs?

  • Garage conversion

  • Attic or basement

  • Stand alone unit

  • Above garage structure

  • JADUs are incorporated into the original structure

Can you build an ADU on your existing home?

ADUs are intended for single-family detached homes that meet zoning, lot size and other site criteria set by each local municipality. While State legislation has made it easier than ever to add an ADU, requirements, restrictions and costs vary among municipalities. Therefore, the very first step would be due diligence with your city’s planning department to find out if your property is suitable.

Other important considerations include carefully outlining your short term and long term goals for adding an ADU, analyzing the approval process and cost of construction, and of course consulting with your CPA regarding any property tax and/or income tax impact. In addition, you’ll need to consider personal privacy, management of the second unit if your intent is for rental income, and of course your time and effort in planning for and constructing the ADU.

Thinking about purchasing a home? Look for ADU potential for investment value!

If you are considering purchasing a single-family detached home, looking for a property type that would allow you the flexibility of adding an ADU is something to keep in mind, whether or not you feel an ADU would be a good fit for you. Going forward, as home prices and rents increase, properties that offer the flexibility of additional living space will add value. Working with a real estate professional, like myself, who is knowledgeable and can help you identify properties with ADU potential will benefit you.

I hope you found this information helpful. If you would like more information about ADUs or JADUs, please feel free to reach out to me. I’ll be happy to discuss with you whether your current home may have ADU potential, and can provide you with information and additional resources.

Tamara Z, GRI, CNE, ePro, REALTOR

Helping you make smart real estate investment decisions.

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