ADU experience in Orange County, CA or LA County, CA

37 Replies

Hello everyone!

I have been an out-of-state buy and hold investor for a couple years, but am looking to purchase my personal residence closer to home. The strategy is to manufacture a "house hack" by buying a property on a large (8000+) lot with a detached garage, which I can covert to an ADU. I would live in the ADU while renting out the front house.

Location: 

I'm planning to identify a property that would "work" with the ADU restrictions. Looking in cities that have more "lenient" ADU laws. So far, I've looked at Whittier, Buena Park, Pico Rivera, Lakewood, and Bellflower.

Financing: 

I would want to use a 203k loan to cover the costs of construction of the ADU along with the property itself. Downpayment of 5-10%.

Construction: 

This is where I'm a little stuck. I know about planning and permits but I'm a little lost as to where to start with that process. 

Here are my questions: 

1) Based off the cities identified, any red flags? 

2) Any catches with the 203k loan? Will this make my offer on a house "less attractive"? Are contractors paid then, by the bank? How does disbursement work? 

3) How should I approach the construction / permits? Should I go with a company that specializes in ADUs, or will a normal GC be able to handle it? What would be the pros and cons? Should the GC go with me to look at the property prior to my purchase? I'm hearing a price of about 100-150k quoted for a 1000 sqft 2 bedroom ADU - any ideas if this sounds reasonable?

4) (probably a dumb question) How exactly does an ADU differ from just "building a second house on your lot"? Or are there no differences?


I would love to hear about people's experience with this! Thanks in advance. Please feel free to tell me if I have left out any important details and I will be sure to fill them in. 

The market is shifting a little in SoCal, so you may be able to pick up something soon. 5-10% down still makes it a little hard in the meantime to make payments. It may make your offer a little weaker with a 5-10% down and 203k loan, but if a house isn't getting a lot of offers, they have to consider you. I don't have too much experience with a 203k loan, though. From what I understand, you get the money and pay the contractors on your own, but you need everything lined up. Plans, architect, contractors, etc. A very common complaint I'm hearing is the architect and the general contractor don't get along.

I have friends building in FV, Westminster, GG, Midway city right now. Some cities are more lenient than others, but that has to do with each city and each inspector. Most of my friends are building ADUs with GCs and not a company that specializes in ADUs. Yes, you should have a contractor go look at it prior to purchase if you can, but most won't take you seriously since they're all so busy(the good ones at least) . You should know the laws and rules of each city from setback, to size allowance, etc.  $100-150k is probably ok just the building part of it, but not the fees such as school fees and code upgrade fees. You will probably have to add in fire sprinklers, possibly a new and separate sewer line, maybe a meter, etc. 

From what I understand, an ADU usually has to be a lot smaller but essentially it is a 2nd house on your lot.

Originally posted by @John S. :

I just started looking stuff on google on this.  Does anyone know anyone that specializes in ADUs or GCs that will do ADUs in the Los Angeles area?

I'm in LA and we do ADUs in the LA area and SGV. Message me your info if you want to talk.

My husband is a Licensed civil Engineer/GC specialized in getting the ADU permits. Usually you will need the plan approved than your lender can take it into consideration. 203 K loan usually will not work due to the loan amount is too small. I might be able to refer you the right lenders if you still need. Feel free to reach out to me.

1) Depending on your long-term goals, find out what the restrictions are on renting out both units. I am pretty sure in Whittier for an ADU (not a duplex) the owner must live in one unit, this is common in many cities for ADUs.

Also, be sure to go to the city during your physical contingency period and make sure you are are gathering data from the right source. I just closed with a client on a property that has a Glendora postal code but officially assigned to the city of San Dimas. Glendora's building codes would have allowed an ADU on their lot, San Dimas does not. This could have been a horrible mistake.

2) I agree with @Jon L. , it will make your offer a bit less attractive but with a shifting market, you probably be okay. 

3) Any qualified contractor should be fine. Have your contractor walk through with you during your physical contingency period, if you could get them there the day of your inspection, even better. This way you aren't asking them to go out to everything you may make an offer on. If you are already in escrow, the contractor will know you are serious. The price seems reasonable, my client just contracted a GC to convert only a garage for about $80k.

4) There is a difference between a duplex and an ADU on an SFR lot, sometimes differences could be how they are metered, what the setbacks are, and how they could be rented out. Often times the ADU could only be a percentage of the primary residence and no more than a certain square footage. If there is Rent Control or a Rent Stabilization Ordinance, it may be triggered if you build a second unit. Just be sure to check with the city.

Hope that helps! Feel free to reach out. 

I just closed with a client on a property that has a Glendora postal code but officially assigned to the city of San Dimas.

There's a lot of little pocket areas around like that. It says city x, but is really in city y, or maybe unincorporated territory. Boundaries and zip codes are highly gerrymandered. You really need to research every little detail. The good news is you can do most of it online these days in LA County.

Originally posted by @Vickie Y. :

Hello everyone!

I have been an out-of-state buy and hold investor for a couple years, but am looking to purchase my personal residence closer to home. The strategy is to manufacture a "house hack" by buying a property on a large (8000+) lot with a detached garage, which I can covert to an ADU. I would live in the ADU while renting out the front house.

Location: 

I'm planning to identify a property that would "work" with the ADU restrictions. Looking in cities that have more "lenient" ADU laws. So far, I've looked at Whittier, Buena Park, Pico Rivera, Lakewood, and Bellflower.

Financing: 

I would want to use a 203k loan to cover the costs of construction of the ADU along with the property itself. Downpayment of 5-10%.

Construction: 

This is where I'm a little stuck. I know about planning and permits but I'm a little lost as to where to start with that process. 

Here are my questions: 

1) Based off the cities identified, any red flags? 

2) Any catches with the 203k loan? Will this make my offer on a house "less attractive"? Are contractors paid then, by the bank? How does disbursement work? 

3) How should I approach the construction / permits? Should I go with a company that specializes in ADUs, or will a normal GC be able to handle it? What would be the pros and cons? Should the GC go with me to look at the property prior to my purchase? I'm hearing a price of about 100-150k quoted for a 1000 sqft 2 bedroom ADU - any ideas if this sounds reasonable?

4) (probably a dumb question) How exactly does an ADU differ from just "building a second house on your lot"? Or are there no differences?


I would love to hear about people's experience with this! Thanks in advance. Please feel free to tell me if I have left out any important details and I will be sure to fill them in. 

 Hi Vickie:

Did you ever find a property to do an ADU?

Buena Park is more friendly to ADU's in OC than lets say Anaheim or Garden Grove.

Los Angeles city is more lenient my assumption that cities in Los Angeles County might be that way too.

I am going through each city and looking to do the same. I am in Santa Ana and working through their process, its tough here too because SA is already overcrowded and parking is an issue.

Like I was saying BP seems to be one of the more ADU friendly cities in OC, Newport Beach surprisingly is amenable too.

I have a couple of alternative ideas and lending sources the can do ADU financing

Keep us posted on your progress.

@Vickie Y.

I'm trying to do a similar thing around Fullerton or Anaheim. How has your progress been?

@Rob Massopust

Curious to know your observations on Anaheim's (un)friendliness to ADU's and the research you've done so far. Would you know the permitting costs/fees in Fullerton and Anaheim, by any chance?

Originally posted by @Sharon Wu :

My husband is a Licensed civil Engineer/GC specialized in getting the ADU permits. Usually you will need the plan approved than your lender can take it into consideration. 203 K loan usually will not work due to the loan amount is too small. I might be able to refer you the right lenders if you still need. Feel free to reach out to me.

 HI Sharon

We are looking for a lender [FHA or Fannie Mae ok] that will allow the rents from the proposed rents from the proposed ADU. I know you can use those lenders to incorporate the construction of the ADU but they will not allow the buyer to use those funds to help qualify. Any ideas.

Originally posted by @Grace Ronquillo :

@Vickie Y.

I'm trying to do a similar thing around Fullerton or Anaheim. How has your progress been?

@Rob Massopust

Curious to know your observations on Anaheim's (un)friendliness to ADU's and the research you've done so far. Would you know the permitting costs/fees in Fullerton and Anaheim, by any chance?

 I spent some time talking to the City of Anaheim planning dept this week and its still no one can give you a straight answer, we were looking to do a junior adu and they do not allow anything  less than 400 sq feet. 

https://www.anaheim.net/DocumentCenter/View/21828/Accessory-Dwelling-Units

Fullerton just passed some new legislation that encourages the ADu Anaheim has more resistance.

http://www.nocchamber.com/news/details/city-of-fullerton-reduces-fees-for-adus

@Rob Massopust

Thanks for the info and the heads up on Anaheim! The price points I'm seeing there are lower but seems like they're much harder to deal with. My husband and I are in the initial stages of research but this helps us lean more towards Fullerton. Hope you're able to push through with your junior ADU. Keep us posted and we'll keep you posted on our progress as well.

In Anaheims defense you can draw up a speculation outline of what you want and take it to the counter and they will do a preliminary assessment for no charge.

Originally posted by @Grace Ronquillo :

@Rob Massopust

Thanks for the info and the heads up on Anaheim! The price points I'm seeing there are lower but seems like they're much harder to deal with. My husband and I are in the initial stages of research but this helps us lean more towards Fullerton. Hope you're able to push through with your junior ADU. Keep us posted and we'll keep you posted on our progress as well.

 Los Angeles is surprisingly more progressive than you would expect.

I am also looking for properties in Santa Ana, I see a bigger demand for that and Garden Grove too.

Are you going owner occupied or are you going as investor. [ certain rules apply to each]

Oh and Buena Park's code by state law and allows up to 1200 sq ft.

Let me know some of your objectives and criteria and will see if I can advise.

I have a friend that has done quite a bit, he is a great resource. 

Thanks @Rob Massopust ! We are looking to do an owner occupied (at least for now) and hoping SB13 and/or AB881 pass so the owner occupancy requirement goes away. We are looking for properties close to Brea in the $500-600k range and do the ADU conversion to help with the mortgage. Would you know a ballpark estimate for the cost of a garage conversion, with permits and all? My husband is a civil engineer so he can probably draw up the plans and work with the city.

You can buy and convert or add an ADU as investor you just can not rent out both units.

But if you buy and add ADU and rent out other unit then move out guess that would be in the grey area.

I am not sure how they monitor it, its with the initial permit application and you have to show chain of title and that the same owner on title is on the application.

Yea... some cities have explicit rules that once the owner moves out, the ADU is no longer considered habitable and cannot be rented out. Such a nonsensical rule in my opinion. Really hoping it gets scrapped soon.

Does anybody have experience with doing an ADU in unincorporated OC (OC Planning Dept)? We're looking to convert our existing attached garage in Rossmoor. We have a dumb low ceiling/roof at the back that will require reframing and likely limited foundation work. Hoping it doesn't trigger a ton of crazy fees.

Any experiences or suggestions are greatly appreciated.

Thanks,

Joe

Originally posted by @Grace Ronquillo :

Yea... some cities have explicit rules that once the owner moves out, the ADU is no longer considered habitable and cannot be rented out. Such a nonsensical rule in my opinion. Really hoping it gets scrapped soon.

HI Grace

What is the latest on your project?

 

Hi Rob, it is still pending approval from the city at this point. We are requesting for separate utilities (at least gas and electric) for the converted garage but it seems it's not allowed for garage conversions here at least according to the city. Anyone know how to apply for separate utilities? 

@Grace Ronquillo

What City did you end up making your purchase in?  It sounds like you purchased the property without clearing everything with the City.  Just curious, what made you comfortable in moving forward?  I'm trying to use the same strategy here in OC for my first home.  Any tips you can provide would be appreciated!

@Rob Massopust

Any update on your project?

Big changes coming in 2020. It will get easier and hopefully less costly. you will be able to take an SFR and do a junior ADU and add an additional detached ADU up to 1200 sq ft. The cities have till 1/2/2020 to finalize on their overlay laws.

Also I heard that some lenders will allow you to use the qualifying future rents, but have not got confirmation on this yet. IF they do that is going to be huge.

So you could do it in stages too. Buy large SFR and do a junior or attached ADU, get it fixed up and rented and then do the detached. But if you can get one loan for the entire project that would be awesome. One of the issues though might be the upper limit on conforming loan. If anyone knows of a jumbo loan that can double as a rehab loan then that would be great.