For first-time buyers, California’s ADU laws make buying a home with an ADU, or adding one, attractive: ADUs up to 1,200 square feet, 60-day approval, and rental income that can help with the mortgage. Here’s what first-time buyers should know about California ADU laws.
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.
The Problem: Homes In LA Are Expensive, Especially For First-Time Buyers
Here at GreatBuildz, a free service that connects homeowners in Los Angeles, Orange County, Ventura & San Diego with reliable general contractors, we talk to first-time homebuyers every day about their challenges of buying and renovating. Fortunately, 4 new California ADU laws for 2020 give first-time buyers another option to consider – below are some things to keep in mind before starting your house hunt.
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 1940s, 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 (ADU meaning). 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.
California ADU laws are some of the most permissive in the country with regard to allowing ADU construction. Essentially, a majority of single-family zoned properties would be allowed to build an ADU. The state seems to be making a concerted effort to build more housing, so the California ADU laws make it clear that local cities and municipalities cannot create rules to preclude ADU buildings. Those same California laws also make sure HOAs don’t prohibit the construction of ADUs. With all Every municipality will still set its own standards with regard to ADUs and garage conversions, so please make sure to start your ADU plans by speaking to your city’s building or planning department. Alternatively, speak with a local architect experienced in the local regulations.
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 $90,000-$120,000 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 toward 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.
If you want to learn more about the process and costs of building an ADU or garage conversion in Los Angeles, Orange County, Ventura or San Diego, please check out my other blog posts below. When you’re ready to take the next step and talk to a contractor or designer/architect about your specific ADU project, please feel free to call one of our friendly Greatbuildz staff at 818.317.3567 or at www.Greatbuildz.com.
Read more about California ADU laws and everything you need to know about the process:
https://www.greatbuildz.com/blog/los-angeles-adu-accessory-dwelling-unit/
https://www.greatbuildz.com/blog/garage-conversions-los-angeles/
Frequently Asked Questions
Can an ADU help me afford my first home?
Yes. An ADU can generate rental income that helps offset your mortgage, and California law makes ADUs easier to build with 60-day approval and impact-fee exemptions for units under 750 square feet. Buying a home with an existing legal ADU, or one that can add one, can improve affordability.
What are California’s ADU rules?
California requires cities to allow ADUs up to 1,200 square feet on eligible lots, with streamlined 60-day approval and impact-fee exemptions under 750 square feet. Setbacks are typically 4 feet from side and rear. Junior ADUs up to 500 square feet within the home are also allowed, with owner-occupancy.
Can first-time buyers use rental income to qualify?
Some lenders and ADU-specific loan programs let buyers use projected ADU rental income to help qualify for a loan, which can boost buying power. Requirements vary by lender and loan type, so ask specifically about ADU or accessory-unit income when applying. A home with a legal ADU strengthens the case.
