Building ADU in San Jose, California

17 Replies

Investment Info:

Single-family residence other investment in San Jose.

Cash invested: $200,000

Attached ADU built in my San Jose property backyard (630 sqft). 15% annual CoC return.
3D visualization: https://my.matterport.com/models/hRAxQheq93H?section=media&mediasection=showcase

What made you interested in investing in this type of deal?

1) maximize the value of the land, generate cash flow to pay off mortgage faster.
2) increase the value of the property itself
3) San Jose is one of the most ADU friendly cities in California. The city streamlined the ADU permit process with increasingly relaxed rules now. One of the only cities that doesn't require owner occupancy. More here: https://abc7news.com/society/s...

How did you find this deal and how did you negotiate it?

Hired the architect and contractors and negotiated the contracts myself.
Most important factors when you evaluate a contractor: expertise and experience in building ADU in the specific Bay Area city, quality, speed, price including payment schedule.

How did you finance this deal?

Family and savings by myself. Work with the contractor to figure out payment schedule that works for you!

How did you add value to the deal?

Worked closely with the architect to make sure the floor plan is going to not only attract the best tenants, but also increase resale value.
Picked the final materials myself to make sure everything is appropriate for a rental, but also attractive as a home for the next buyer.

What was the outcome?

15% annual CoC return. $2500 monthly rent over $200,000 investment into the project.

Lessons learned? Challenges?

It's well worth the effort and time! Glad to see it paying off now!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Hiring the right team is the key. I spoke to many lenders, architects, contractors in the process

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Hi Chen Zhou, congratulations and thank you for sharing the information. The unit looks great. I recently plan to add an ADU to my property. May I ask which builder you used? Thank you.

Attention! Great News! San Jose 2019 ADU ORDINANCE CHANGES

The City Council voted on Dec. 17, 2019 to update San Jose's zoning code pertaining to ADUs to align with new California State laws that go into effect on Jan. 1, 2020. San Jose's zoning code changes for ADUs are effective immediately. The table below shows the prior regulations and the newly approved regulations.

ITEM PRIOR REGULATION (BEFORE DEC. 17, 2019) NEW REGULATIONS THAT ALIGN WITH CALIFORNIA STATE LAWS
Effective Date City Council approved the regulations below on July 27, 2018 with subsequent updates approved on May 23, 2019; June 25, 2019; and November 19, 2019. On December 17, 2019, City Council approved the following changes, effective immediately upon their vote on Dec. 17, 2019.
Zoning District

ADUs are allowed:

• In R-1, R-2, and R-M zoning districts on lots that have one single-family residence.

• In Planned Development (PD) districts that are subject to R-1 standards and uses OR where ADUs are not expressly prohibited.

• In a low-density cluster development if it conforms to development standards of the R-1 zoning district, and the development and use standards of the low-density cluster permit.

ADUs are allowed:

• In R-1, R-2, and R-M zoning districts on lots that have one single-family residence.

� On lots with a single-family residence In Planned Development (PD) districts that are subject to R-1 standards and uses OR the ADU conforms to the development and use standards of the PD district.

• On any lot with an existing single-family dwelling unit, where regardless of zoning, the lot has any of the following General Plan Land Use/Transportation designations:

- Residential Neighborhood

- Mixed-Use Neighborhood

- Urban Village or Urban Residential

- Transit Residential or Rural Residential

- Downtown

- Mixed-Use Commercial

• On two-family (duplex) lots and on multifamily properties

• In a low-density cluster development if it conforms to development standards of the R-1 zoning district, and the development and use standards of the low-density cluster permit.

Minimum Lot Size 3,000 square feet No minimum lot size
Minimum Setbacks from Rear and Side Property Lines 0 feet for 1-story conversions and new construction.

5 feet for second-story ADUs constructed above a garage or accessory structure.
0 feet for 1-story conversions and new construction.

4 feet for second-story ADUs constructed above a garage or accessory structure

4 feet minimum rear and side setbacks required for detached ADU in multifamily developments.
Maximum Height

For detached ADUs:

Single story – 18 feet maximum
Second story – 24 feet maximum

Attached ADUs are subject to the height limits of the main home.

Single-family properties - No change in height requirements.

Multifamily properties - 16 feet maximum height for detached ADUs.

Rear Yard Coverage Area covered by the ADU, accessory buildings, and accessory structures, except pools, shall not exceed forty percent (40%) of the rear yard. Area covered shall not exceed forty percent (40%) of the rear yard or up to 800 square feet, whichever is greater.
Detached ADU Allowed Locations

Rear yard only, at least 6 feet away from primary dwelling.

May be attached to a detached garage or other existing accessory structure.

Must meet minimum setbacks for an accessory building in accordance with Section 20.30.500.

No changes except that ADUs that exceed forty percent (40%) of the rear yard must maintain minimum 4 foot side and rear setbacks. One-foot overhang for eaves would be allowed.
ADU Size (in sf)
LOT SIZE (SF) ADU MAXIMUM SIZE (SF)
3,000 - 5,444 600
5,445 - 9,000 700
9,001 - 10,000 800
10,001 - Up 900
LOT SIZE (SF) ADU MAXIMUM SIZE (SF)
Up to 9000 1,000
9,000 and greater
1,200
Number of Bedrooms and Bathrooms Two bedrooms allowed on lots with an area greater than 9,000 square feet, and only one bathroom. Up to two bedrooms and two bathrooms allowed for all units.
Attached ADU Maximum Floor Area May not exceed 50% of the existing or proposed primary dwelling living area. May not exceed 50% of the existing or proposed primary dwelling living area or 800 square feet, whichever is greater.
Design Standards Visual compatibility with existing primary dwelling is required. No design standards, except new simplified standards for attached ADU units for historic buildings listed in the Historic Resources Inventory.
Parking requirements An ADU requires 1 space unless the property qualifies for an exemption under State law—see the parking requirements.

If a garage has been converted, the main dwelling parking space must be replaced, as uncovered or in front or side setback areas. Parking spaces may be configured on-site per state law.
No change in parking requirements for the ADU.

Replacement parking for garages and carports converted to ADUs will not be required.
Junior ADU
(JADU)
Not allowed. Allow JADU up to 500 square feet within the existing walls of a single-family home. Must include at least an efficiency kitchen. May share a bathroom with the primary unit. Owner-occupancy and deed restriction will be required, subject to State law regulations.

Also, don't forget that many of the School and park fees for San Jose are being waived in 2020. It is a great time to build an ADU.

@Chen Zhou

Wow, thanks for sharing your ADU journey. I'm looking at building one in San Leandro.

I have a bedroom that leads to the backyard. If possible, I plan to add an ADU to the existing bedroom and add 475 SF.

@James Phan when I last checked (mid last year), San Leandro had also adopted the State laws for ADUs. However, as @Brian Larson mentioned about school and park fees, they were very high in the city. I have not heard if San Leandro is waiving them in 2020, like San Jose is. I had assumed SL had the high fees so as to discourage people from doing it, while still complying with the law. 

@John Sherwood - The ADU laws have changed (significantly) starting Jan 1, 2020. One of the changed laws is that local authorities cannot have these stupidly high impact fees (schools, parks, etc.) for ADUs. They need to take the (small) size of ADUs when they assess the fees. So I am very hopeful that San Leandro (and all cities) will revise their fee lower. I would love to find out if someone has found out that info. As such I am going to find out in next few weeks (as I am converting one storage shed into an ADU studio) in Hayward (unincorporated county area)

@James Phan - San Leandro has updated its ADU guidelines, and are in line with the State of CA. As @Sandeep S. pointed out, the new laws have greatly reduced fees and requirements, especially for units <750 sq ft! You can see it here: https://www.sanleandro.org/documents/Planning/ADU%20Handout_Jan2020.pdf 

(see page 2 - "Impact Fees"). The only potential fee for <750 sq ft ADU is a wastewater hook up fee. If you are doing something >750 sq ft, then they'll still get you with at least $17k in fees.

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