California's ADU craze is making national news!
There are pros and cons to the additional units, but considering California's housing crisis, the reduced road blocks come as a welcome relief to owners. In total, most projects take one to two years to complete.
There are many different types of ADUs:
Attached (new or renovated sharing at least one wall with the primary house)
Interior Conversion (built from and existing converted space-e.g. attic, basement)
Detached (New or renovated freestanding structure such as a small cottage)
Garage Apartment (garage converted to an apartment)
Remodel/Expansion (adding sf to a house that can include a rental unit)
Above/Below Garage (A unit built above or below a garage space)
ADUs are for homeowners and multifamily building owners! Consider the following benefits:
FINANCIAL SECURITY
Building a small home gives you an additional revenue stream that can go toward reducing your cost of living, increasing your retirement fund, or creating more buffer for unexpected life events.
FAMILY
Whether it provides a home for the immediate family, personal space for extended family or friends, a private home for parents, grandparents, or a family member with disabilities, or a return to home for grown children, an ADU can suit the needs of a variety of family situations.
FREEDOM
An ADU provides a family with the freedom to stay in their community. Building an ADU can allow you to downsize and free up your main unit for rental, which can help you secure your retirement and provide more freedom as you age.
Are you considering adding units to your existing property? Cambridge would love to help!
Frequently Asked Questions:
How long will it take?
Building an ADU is not only a financial investment but an investment of time as well. Typically, it takes homeowners one to three months to get started and assemble their team. It then takes the project team another one to six months to develop plans, meet with the city, and submit the application. Depending on how many rounds of review are required and how quickly a homeowner and their project team can respond to comments, make changes, and resubmit plans, it will likely take one to six months to get permits. Construction usually takes 6-12 months. In total, most projects take one to two years to complete.
How will it affect my taxes?
Adding an ADU will affect your property taxes and the resale value of your home. Your primary house will not be reassessed, and your property taxes will only increase based on the added value of your ADU. If you have low property taxes because you have owned your home for many years, your base assessment will not be affected. The assessor will only review the value of the improvement. For example, if a new home buyer pays would pay $150,000 more for your property because of your ADU, and your property tax rate is 1.1%, your taxes will increase by 1.1% x $150,000 = $1,650 per year. Plus you will continue to pay what you were paying before. Junior ADUs or interior conversions have much less (or in some case, no effect) on your taxes.
How can I pay for it?
There are five main options available to homeowners to finance their ADU. Many homeowners use a mix of these options. As you’re doing financial planning for your ADU, remember to include the rental income you’ll receive in your calculations. Some lenders will not consider this income when evaluating you for a loan, but it’s important for you to consider it in your calculations.
1) Cash savings or other liquid assets
2) Cash-out refinance
3) Loans from friends or family
4) Home equity loan or home equity line of credit (HELOC)
5) Renovation loans
How much will it increase my property value?
Your ADU will likely add to your home’s value, though the exact amount is difficult to predict because there are few comparable homes to give definitive rules. A very rough rule of thumb is that your new construction ADU will add 100 times the monthly rental value to your home.
For example, if your ADU rents for $1,800, it should add about $180,000 to the value of your home. Other options, such as interior conversion, home sharing, or creating a junior ADU (JADU), will have a smaller impact on value. Home sharing will not increase the assessed value of your home at all, while JADUs will impact the assessed value less than a traditional ADU (or potentially not at all). Since JADUs are a relatively new form of housing, there is currently little data on them.
How do I get started?
Give Cambridge a call or shoot us an email today! (619)497-0771 or management@cambridgemgi.com
