Will 4 New California ADU Laws Help First-Time Home Buyers?

The Problem: Homes In LA Are Expensive, Especially For First-Time Buyers

Anyone who’s been searching for a home in Los Angeles will tell you how expensive it is, even for an entry-level house.  It really is hard to find that perfect home for a reasonable price, especially in places like West LA. This is especially burdensome for first-time buyers, who aren’t selling a home to trade up. They’re spending their hard-earned savings to get into their very first home… and unfortunately finding they just don’t get much for their money out here in the city of Angels.

There Are Some ‘Creative’ Solutions To Make It Work

So, first-time buyers are getting creative.  They’re more open to getting resourceful and buying a ‘fixer-upper’ or a duplex.  With a fixer, they can get a better price at the outset and either delay repairs until they have the capital or put in their own elbow grease (time and effort) to make the necessary renovations.  With a duplex, they can offset their housing costs by becoming a landlord and collecting rent from their tenant in the other unit. But there are drawbacks to both.

Buying a fixer is fine if you go in ‘eyes wide open’ about the scope and budget of repairs needed. It would make sense to buy a fixer for a ‘good price’, but once you factor in the cost of repairs and improvements, the total cost often exceeds the market value for a ‘turn-key’ house in the same area.  You’d be overpaying.

Also, with fixers, the age of the home matters a lot.  When buying a fixer built before the 1940’s, you have a much greater chance of running into old construction & systems that are expensive to repair or replace (foundation, electrical, plaster walls, plumbing, etc).

With regard to a duplex, unfortunately, right now they are extremely expensive because they are sought after by both owners and investors and there is only a limited supply.

The Better Option: Build an ADU!

Fortunately, there is a solution to both of these problems! Now, another option exists for first-time buyers to get creative in achieving their dream of owning a home: accessory dwelling units.  You may have heard of the new California ADU laws implemented in the past few years. As of the beginning of 2020, there are further changes to ADU laws going into effect.  

All these new regulations make it much easier to build an ADU or convert the garage in your backyard to an ADU. Building an ADU essentially turns your single-family home into a duplex, as you can rent out the additional unit to a tenant.  So, if that first-time buyer can find a reasonably priced house with a detached garage in the back, they are ‘halfway’ to creating their duplex.

‘Woah, You’re Half Way There’

The garage already exists and is likely the right size for a small one-bedroom unit (350-400 square feet).  Also, the garage already has a foundation, walls, a roof, etc, so it’s relatively inexpensive and easy to convert it into an ADU (and create your ‘duplex’).  Our Greatbuildz contractors have been quoting a budget of $60,000-$100,000 for a complete garage conversion to ADU, including the kitchen, bathroom, etc. You can anticipate the total project to take 3-6 months from start to finish.

Assuming you’ve created a studio or one-bedroom, one-bath ADU, it’s likely you can start earning $1,500 – $2,200 in monthly rent, depending on location. Remember, because your ADU is virtually ‘brand new’, it should appeal to a tenant and achieve a reasonably high rent.  That monthly rent will go a long way towards your mortgage payment and monthly housing costs. As far as your tenant’s utilities, you can have them pay those directly to the utility company (if you created separate meters) or you can have them reimburse you a set amount every month.

Financing an ADU Is Easier Than You Think

First-time home buyers have multiple ways to finance a garage conversion ADU project.  Obviously, they can pay for it from their own savings. Another option is to finance their purchase and construction by taking out a mortgage called a HomeStyle loan, which includes the cost of renovations.  Finally, they can secure a home renovation loan after their purchase, which is a very quick process but comes with a higher interest rate, from a company like Lightstream or SoFi.

Learn The Laws and Talk To an Expert

Check out a summary of the new California ADU laws and take a look at the official legislation as well.  For most single-family homes, the garage conversion restrictions are very limited.  The city of Los Angeles has allowed ADUs on most residentially zoned lots, regardless of lot size.  When converting an existing garage into an ADU, two parking spots need to be maintained for the existing residence, but can be uncovered spots on a driveway, which can be side-by-side or even tandem.  

What you need to know about ADUs: There’s a New Law In Town

Let’s briefly discuss the guidelines which have recently changed to make accessory dwelling units much more viable for many homeowners. As one method to help assuage the housing crisis, the state, along with many California cities, have eased many previous restrictions to building these structures. To simplify this article, I’ll be discussing the guidelines specific to ADUs in Los Angeles, so please keep in mind that other local cities will likely have their own set of rules.

Parking – Probably the most drastic change has been to the parking requirement. Whereas previously the city required off-street covered parking (garage, carport) for both the existing home and any new living structure proposed, the guideline now allows the main house parking to be uncovered (ie. the driveway) and ZERO parking for the additional unit, as long as it’s near transit.

Increase in maximum permitted size

Greater variety of types of ADUs allowed

Some utility fees are being waived to encourage homeowners to build

It’s also important to note: ADUs don’t require any ‘discretionary’ approval, meaning that you don’t need approvals from city planning dept, neighbors, planning boards, etc, as long as you meet the established guidelines. So, getting the right to build an accessory dwelling unit is just a matter of submitting plans to the building department and going through the plancheck process to obtain a building permit.

What kind of ADUs are there?

The two primary options are either building a new free-standing unit in the backyard or converting an existing garage to an ADU. A garage conversion is the most cost-effective option because the basic structure already exists. The downside is the limitation in size – most 2-car garages are only 300-400 square feet. This is still enough space for a ‘studio’ or small one-bedroom unit, with both a kitchen and a bathroom.

A new ADU, however, can take many forms.

It can be attached to an existing home, attached to a garage in the rear of the lot, or detached completely.

It can be one or two stories, with a maximum height of 25’.

It must be in the backyard area and not in front of the existing home. A new detached accessory unit is limited to 1200sf, while an addition attached to an existing home is limited to the lesser of either 1200sf or 50% of the size of the existing home. A 400-600sf ADU is ideal for a one-bedroom floor plan and a 600-1200sf structure is enough to be one or two stories, with up to three bedrooms and multiple baths!

Who can build an ADU?

The city of Los Angeles has allowed ADUs on most residentially zoned lots regardless of their size as long as the structure meets the basic restrictions and there is an existing home already on the property (with only minor exceptions). With regard to parking, an ADU is exempt from any parking requirements as long as the property is within one-half mile of a public transit (bus stop, etc).

If converting an existing garage into an ADU, two spots need to be maintained for the existing residence but can be uncovered spots on a driveway, which can be side-by-side or even tandem. A new accessory dwelling unit must be at least 10’ away from the existing house and garage or it must be attached to either. Also, a new unit must be at least 5’ from both the rear and side property lines. A garage conversion into a living space, however, does NOT need to meet these setback requirements.

How much does an ADU cost?

An accessory dwelling unit will vary greatly in cost based on the options and size you choose. As discussed, the most cost-effective option is to convert an existing detached garage. Since the major components already exist, the construction entails items such as constructing the fourth wall (where the garage door is currently), adding the interior components such as interior walls, a kitchen, bathroom, flooring, etc; adding windows and doors, plumbing, electrical, HVAC, insulation, and a new sewer line that will probably connect to the sewer lateral at the front of the main home.

The cost for an ADU garage conversion can usually range from $50,000-$100,000 depending on the homeowner’s requirements. Costs to construct a new ADU can also vary considerably based on size, number of stories, location, access, etc, but will generally range from $100,000-$400,000.

How do I pay for an ADU?

Homeowners have multiple ways to finance their accessory dwelling unit project. Obviously, they can pay for it from their own savings. Or they can finance this construction by taking out a home equity line of credit, securing a construction loan, or using a home renovation loan which is often a very quick process, but comes with a higher interest rate, from a company like Lightstream or SoFi.

Process and Timing

How long does it take to build an ADU?

As you can imagine, the timing is different for a garage conversion versus new construction project. For a garage conversion, you can expect the entire process to take 3-6 months, which includes the time to design the architectural plans, wait for the city to conduct plancheck, and finally, the construction process – which will take about 2-3 months. A new ADU will take longer for city plancheck and require a longer construction process, so you can expect the entire process to take 6-9 months, with the construction phase lasting 3-6 months.

What is the process of building an ADU?

The process usually begins with the homeowner meeting one or more experienced contractors, who come to the home to discuss the project and provide some insights about the location constraints, size, design, estimated costs, etc. Once the owner and contractor are on the same page about the desired parameters, either one can bring in an architect or plan designer to prepare the plans.

Once the plans are finished and approved by the owner, the contractor(s) will do a detailed estimate and bid. Next, the owner will select their desired contractor and sign an agreement for the work. Either the architect or contractor will submit the plans to the building department for plan check and manage the process until a building permit is issued. Finally, construction can commence.

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