Learn to ADU

Putting Your Vision In Motion

We have our own Vision and Goals for how we plan to design our ADU’s. These are few items we suggest you take into consideration the size, use, layout, specific project needs (storage, laundry room, etc.), architectural style, and privacy. It is imperative that you have a very clear sense for your specifications. We would suggest you make that your number 1 priority early in the process. Making changes during the process can and will be costly.

Some cities have guidelines intended to help maintain the character of a place that can include guidelines on color, material, details, and style, among other things. You might be excited to think about the finishes (the type of siding, flooring, fixtures, or lighting), but these design details do not need to be decided early in the process. These elements do not affect the form and placement of the unit, which is what the design will focus on initially.

Meet with the City

Once you have a preliminary design, it’s a good idea for you & your designer to have a pre-application meeting with the local planning (and possibly building) staff. At this point (ideally, halfway through the design plan refinement process) it is a good idea to show the design concept to city staff to make sure the plan is approvable and to identify any other regulatory considerations.

After meeting with the city, you or your designer can complete the city’s permit application and appropriate plans for that stage of the review.

Finalize your plans and prepare for construction

Following your city meeting, you will have asked your questions and addressed any critical issues prior to submitting your permit application.

It is a good idea at this phase to talk to your neighbors about your ADU development to keep them informed of your intentions to build.

ADU state law does not require neighbors to sign off on the construction of an ADU and generally cannot stop an allowed ADU project, but you will need to live next to your neighbors for many years, and the development and construction process will be much smoother if your neighbors are kept informed throughout the process, especially in the beginning.

Cost

Most people’s units cost between $400 to $600 per square foot to build.

Sqft of the space X $400 to $600 (variation region, labor, materials) per square foot

450 sqft x $600 = $270,000.00

The cost to build an ADU varies by region, due to the fluctuation in labor and material cost. Understand that building an ADU is very different from building a single-family home. The importance rule of thumb is to make sure you are considering every cubic foot.

ADU cost more per square foot than typical single-family homes for several reasons.

• There are fixed costs associated with permitting and design fees.
• Margins are smaller for general contractors, subs, and architects.
• ADUs require new foundations, new walls, plumbing, electric, heating and cooling, and a separate roof, just like a regular house.
• There are no economies of scale. You know how you get a significant discount if you buy groceries from Costco because you’re buying in bulk? Building a tiny house is the opposite.
• ADU’ still require a bathroom and kitchen, which are ‘expensive’ square footage.
• Since the units are smaller the cost per square foot isn’t offset by extra bedrooms, large living rooms, and hallways you find in larger homes. This space is considered ‘cheaper’ square footage and brings the average cost per square foot down.

What all of this means is, yes, the cost per square foot of an ADU is most likely going to be higher, but you are packing a lot more value into a smaller space.

Construction

Now that your have your design and plans verified and approved by the local building and safety department in your area, your contractor will begin working on your ADU getting you just a little closer to completion.

Please note prior to construction getting started be sure to have a contract in place with the licensed contractor specifying all materials, and phases of the project, to ensure that your are aware of payments to be made and progress of your project. Having this very detailed documentation will help elevate costly change orders as well as the stress and anxiety of knowing when the ADU will be done.

Finance

Options for financing your ADU are

1. Cash, Savings, Retirement Accounts i.e. 401k Loan (Essentially a loan to yourself)
2. Second Mortgage (Additional mortgage to your current mortgage)
3. Home Equity Line of Credit (HELOC) (Borrower can draw down money as your need it. You only pay interest and fees when you use it)
4. Cash-Out Refinancing (Refinance current mortgage and pulling cash out of equity)
5. Renovation Lending (Based on Future Appraised Value 95% LTV, allows you to build in the construction cost with in your loan. You are provided an additional set of eyes, an HUD Inspector on the ADU project. Please note you may add Solar and Renovation on primary home may be allowed)
6. Reverse Mortgage (Homeowner over 62 “Age in Place” no monthly mortgage payment please note you are still required to stay current on property taxes, borrowers do not plan to leave there home to heirs.)
7. Ground Lease Agreement (Builder pays for the construction of the unit instead of the owner)
8. Shared Appreciation/ Shared Equity Agreement (Private companies specialize in this type of product where they will pay you a certain amount of money at the start of the agreement. At the end of the agreement or hen you sell the property the homeowner pays the company an amount of money linked to the change in home value.)
9. Private Money + Construction Loan (Short Term Loans these tend to have higher rates, you will need to refinance the loan to pay off these Short Term Loans QUICKLY!)

Lease

There are countless options for how you will generate income with your ADU may vary from long term rental income or short term. Be sure to consult your City and County regarding the ordinances. If you are not sure where to start schedule a consultation Northern California | Southern California| Inland Empire Riverside

Property Vesting LLC + Trust | Insurances

Now that you are a property owner with responsibilities as a landlord, you must take an iron clad view at the business of ADU’ing. For instance, if there is a situation that occurs at the property where someone is hurt what sort of insurance, what legal representation should you have, and how should you file your corporate entity in the event the harmed individual wishes to pursue damages. Not to be Debbie downer but these are all things that must be consider through the process.

Protect

Start today contacting your family real estate attorney, cpa, and insurance provider to discuss the cost and options as you review your right and responsibilities as a landlord and how you ensure you don’t bring the pain home.