California ADU business

California ADU business

Rental Property Investor · Santa Maria, CA · Member since 2019 · 158 posts · 81 votes

What's up guys,

I just finished building a permitted ADU (accessory dwelling unit) on my sfh. Converted my garage into a 488 sq ft 1cbed 1 bath apartment. final cost with permits was about 37k. I built most of it with my old man and only had to outsouce a few things. The cash flow is great from this unit alone and I plan on building another unit on the right side of my house. Ca just passed SB 13 along with 2 accessory bills effective Jan 1st 2020 that no longer require owner occupancy, city's can't charge impact fees, and can add up to 2 units per lot (not including the home itself). From what I read the bill allows 1 jr adu (under 500 sq ft) and 1 adu (above 500 sq ft, max 1200). Luckily where I live there is rarely ever any need for AC or heater use). Does this seem like a good market to hit in y'alls opinion? From my research, there is way more money in this at least for my area. A typical duplex goes for about 400k in my area and doesn't bring you cashflow nowhere near close to what an ADU brings. I'm just curious to see how much value the units will add to a home since this is fairly new (from a legal perspective anyway). The only drawback from this I see besides needing the cash to fund it, is for an investor who prefers to get all their cash invested back from a deal will more than likely not get everything back at the end especially if they contract everything out ( the lowest quote I got for the ADU was about 60-70k but that was just an estimate and could have been more).

Average rent for ADUs in my area:

1 bed 1 bath- $1000-$1300

2bed 1 bath- $1300-$1600

Something tells me they can go for a little bit more because I had tenants bidding for my unit within the first week of construction.

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Chris MasonPro Member
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Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Originally posted by @David Maldonado:

What's up guys,

The cash flow is great from this unit alone and I plan on building another unit on the right side of my house. C

Danger Will Robinson, Danger!

A single family home with multiple ADUs cannot be financed using Fannie, Freddie, FHA, VA, or USDA. Basically, there went good 30YF financing, both for you (should you ever want to refinance) and for your pool of buyers (should you ever want to sell).

A house that can't be institutionally financed with good 30yf rates is going to lose a LOT of resale value. Your buyer pool is essentially reduced to cash buyers, and a savvy cash buyer will figure out why they are the only offer on the table, and reduce what they are willing to offer in turn (since they know they can't refi to pull the liquidity back out of the house for redeployment elsewhere).

See this reply in the discussion

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  • Rental Property Investor · Long Beach, CA · Member since 2019 · 145 posts · 49 votes
    6y

    Damn I wish I had saved it as all I am finding is info on the metrics to calculate power usage. I did find It should result in a 2.5 to 3.5 kw system, net cost around $5k after tax credit. I would be comfortable using that number in costing the build.

  • Member since 2019 · 21 posts · 4 votes
    6y

    Does anyone know the average costs for all City fees for an ADU and/or JADU? Permitting, impact fees, etc?

    I'm thinking about putting an offer on a SFR with a non permitted ADU built and would like to know what it would cost me to get it permitted. This is in Placentia CA.

  • Rental Property Investor · Santa Maria, CA · Member since 2019 · 158 posts · 81 votes
    6y

    Hey guys so my architect was in the process of drawing me up plans for my 2nd unit for house and he already experienced some push-back from the city for one of his other clients. So from my knowledge, we are allowed to have a jadu (500 sqft or less within an existing space) and an adu (detached or sharing a wall with the house above 500 sqft no more than 1200 sqft). So I already have a jadu (garage conversion to studio) and I want to build an adu about 600 sqft AND will be sharing a wall with the house in order to avoid solar. My city's building inspector sent me an email clarifying the solar requirements and in there it states that an adu is considered an "addition". According to my architect, apparently the city is saying that a jadu is not considered an "addition" which still shouldn't be a problem in accordance with the new bill. Can anyone tell me what I'm missing? I'm going to drop by the building department on Thursday and show them my preliminary plans for approval before I move forward but I want to know if anyone here would know why it possibly wouldn't be allowed?

  • Rental Property Investor · Long Beach, CA · Member since 2019 · 145 posts · 49 votes
    6y

    David so what exactly is the city saying you can or can't or must do?

  • Rental Property Investor · Fullerton, CA · Member since 2019 · 10 posts · 7 votes
    6y

    @Peter Mai, I would budget about $6-10k, but I'll find out soon and let you know how much I paid in Long Beach.

  • Rental Property Investor · Santa Maria, CA · Member since 2019 · 158 posts · 81 votes
    6y
    Originally posted by @John A Murray:

    David so what exactly is the city saying you can or can't or must do?

     This came from my architect. He said one of his plans for 2 units for one of his clients were rejected by the city. He told me to show the city the preliminary plans to see if there would be any issues before we move on. I'm going to find out myself on Thursday when I go directly to the city because I already got confirmation from the building inspector that inspected my jadu about being able to add a 2nd unit (adu).

  • Rental Property Investor · Long Beach, CA · Member since 2019 · 145 posts · 49 votes
    6y
    Originally posted by @Peter Mai:

    Does anyone know the average costs for all City fees for an ADU and/or JADU? Permitting, impact fees, etc?

    Long Beach Plan Check and Permit fees 2020 ADU $3,500, with $1,500 of that being a refundable recycling fee. No impact fees as less than 700sf (impact fees were $4600 prior to 2020).

  • Rental Property Investor · Placentia, CA · Member since 2018 · 2 posts · 1 vote
    6y

    Hi All, a lot of good information here. I usually invest out of state (KY mainly) but have started working on ADU plans in SoCal recently as well.

    @Peter Mai , You should be able to search Placentia Building and Safety department to look up their fees. Each jurisdiction is slightly different but from past experience if your looking for a NEW detached ADU its going to be in the $4,000 - $6,000 range (depends on SF & components) but if it's an addition to an existing occupied building then it will be much less. Detached garage conversions are typically treated as a new unit for permit purposes because you're changing the occupancy of the building. You're probably going to need an architect/engineer to put together a plan to submit to the city/county so keep that cost in mind as well.

    @Marinelle Tan , I work with an architect (im a structural engineer) and we've put together a handful of ADU plans. We just got one approved through the LA City Planning Department and going through structural checks. If you need any help with upcoming ADU plan/permit, let me know. 

  • Investor · Member since 2019 · 21 posts · 5 votes
    6y

    Does anyone know if it's permitted to build an ADU attached to a DETACHED garage, so expanding the garage essentially but as an ADU. Also would it be permitted to make that addition raised foundation rather than a continuation of the slab the garage sits on, see attached. Imagine an adu built where the red shed is. This is in Glendora Ca btw.

  • Investor · Member since 2019 · 21 posts · 5 votes
    6y

    The idea comes from wanting to keep garage for front tenants. While adding adu 

  • Investor · Lodi, CA · Member since 2019 · 7 posts · 3 votes
    6y

    @Christopher Beloud I reached out to my city planner to discuss my project. Converting attached garage into Junior ADU. This is going to be $2k for plan approval and permit. If detached they were going to require school fees and it changed the permitting cost as the renovation was going to exceed their threshold of $53,900, which triggers additional fees.

    City planner, building department, engineering technician (for second address), public works (second water meter if we want go that route) and Electrical Utilities Department will all be involved on new construction and all will want to get their piece of the pie (at least in my city).

    Additionally, if we want to have a separate water meter and the ADU was plumbed separately a second water meter could be installed. A U shaped piece would be installed in the appropriately sized water meter box to accommodate both meters at $350. New 3/4 inch water meter costs another $350. Since this would be a "new development" the new water meter would require me to pay fees of $3,777 for water and $5,142 for wastewater.

    For a second electric meter I would need to involve the CIty's Electrical Utility Department and open up another bag of fees. Haven't discussed with them as my electrician has suggested installing a device to determine kilowatt usage for the main dwelling and the ADU.

    For now my ADU strategy will be looking for properties with attached garages and are large enough to eventually add a detached ADU if I decide to go that route and I prove that this strategy works.


    TLDR: Call your city planner and see what is possible and get an idea of fees so you are shocked when it comes time to make it happen.

  • Rental Property Investor · Placentia, CA · Member since 2018 · 2 posts · 1 vote
    6y

    @Christopher Beloud, yes this is possible and sometimes a simpler cheaper permitting process. You usually have to add structural reinforcements to the garage portion(I.e foundation hold downs) because the building occupancy change & layout changes. Detached garages were built assuming no occupancy and their under built as a livable building. Other than that the raised slab should be an issue and you’ll have to keep the new building offset from fence line. Usually 5ft

  • Investor · Member since 2019 · 21 posts · 5 votes
    6y

    @Scott OConnor thanks for the reply! If this deal goes through I’ll have to fill everyone in on my experience with it. 

  • Poway (San Diego) · Member since 2018 · 25 posts · 7 votes
    6y

    Has anyone has looked at building a property specifically for Main house + ADU + JADU? It could offer some benefits if designed properly to avoid a "slumlord" style property with 3x units crammed on one lot. However, I know building can be very expensive and time-consuming. Thoughts? I have no idea what a price per sqft would look like on something like that.

  • Investor · Walnut, CA · Member since 2017 · 72 posts · 37 votes
    6y

    Like all of this 'build on property ' projects, most cities are reluctant to move things along for things that are not the norm. The rules in California are getting more and more defined however it still doesn't make the process easier. Adam B: As long as you large enough property (JADU is quite easy besides plumbing & HVAC) adding ADU can be possible. In Cal the state law has addressed having all 3 on the same land.

  • Rental Property Investor · Lancaster, CA · Member since 2015 · 103 posts · 55 votes
    6y

    @Drew Leo You are right on the money about building and safety not helping ADU projects move forward. I was told by an inspector and a front desk employee they are against ADU's because they don't want them in their neighborhoods. So, until the mindset of the people we depend on to move our plans and permits forward, changes for the better, it will continue to be difficult in LA County. In the long run it will be worth it but I can't even begin to say how difficult it has been dealing with the county.

  • Investor · Walnut, CA · Member since 2017 · 72 posts · 37 votes
    6y
  • Member since 2020 · 3 posts · 2 votes
    6y

    Im hope that i am making the right decision in building an ADU. i am Curently refi to cash out and build a 3/1 ADU. I lovenmy privacy but am willing to sacrifice that for a year or two and buy somewhere else and pay half of my new mortgage with ADU cash flow

  • Member since 2018 · 52 posts · 15 votes
    6y

    We have a detached garage 425 Sq/ft West LA, I was quoted between 50k and 140k LOL.

  • Rental Property Investor · Lancaster, CA · Member since 2015 · 103 posts · 55 votes
    6y

    @Ouman You 50k might be about right for 425 sq ft. My ADU is under 500 sq ft, so I didn't have to pay the extra sewer connection and school fees. Make sure you aren't being charged for those. I was very relieved when I saw how much I avoided paying just for those two things. I have used the same contractor for a few projects, so I'm getting a break on my price but 140k, seems to me, very much on the high side.

  • Member since 2020 · 3 posts · 2 votes
    6y

    I am being charged 130 for a 3/1 1000 sq ft. The guy told me that he used to work for a contractor and no is working for himself without a license 

  • los angeles, CA · Member since 2017 · 31 posts · 5 votes
    6y

    @Steve Graves

    Can change people’s mindset, some cities I knwo will even twist the language to block the project

    For those doing JADU, be aware that both Fannie and Freddie currently doesn’t refi on that type of property.

  • Member since 2020 · 2 posts · 0 votes
    6y

    Can you tell me your break down... how much more or less you paid for eletricity, plummer, foundation... thanks  im planning to do my in east los angeles using my friends thtat i know work in the industry.. construction, but i dnt know, what do you recomment and how long did the process last.. from city permmits and builting it...  that is the most difficult thing that you face during the process 

    thanks 

  • Member since 2020 · 2 posts · 0 votes
    6y

    Can you tell me your break down... how much more or less you paid for eletricity, plummer, foundation... thanks  im planning to do my in east los angeles using my friends thtat i know work in the industry.. construction, but i dnt know, what do you recomment and how long did the process last.. from city permmits and builting it...  that is the most difficult thing that you face during the process 

    thanks 

  • Rental Property Investor · Santa Maria, CA · Member since 2019 · 158 posts · 81 votes
    3y

    ADU Appraisal:

    Hey everyone it has been a while. I'm currently getting ready for my 5th ADU build and I want to share some news:

    A similar house in my neighborhood with both an ADU and a JADU sold for $1.15 million, after only being listed for a few days. Properties around my neighborhood are worth around $550,000. I was able to get a copy of the appraisal report and the comps that were used were mulit-familys (tri-plex). As of today, that house was the first and remains the only property with both an ADU and a JADU in my area.

    Question:

    If I were to apply for a HELOC, would that $1.15 million dollar property be the only objective comp that can be used to determine my property's value? I'd be able to quit my job and do this full-time if this can work!

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