Are you considering adding more living space to your home? You may have heard about accessory dwelling units, or ADUs, and want to learn more. In this blog post we will explore what an ADU is, how it differs from other types of housing, and the benefits they can provide.
What does ADU mean?
An accessory dwelling unit (ADU) is a second housing unit on the same property as a main house. ADUs are almost always smaller than the main house and typically have a separate entrance from the main house. They contain all the main features you’d expect to see in a regular home, like a living room, a kitchen, and a bathroom.
ADUs go by many names, like tiny house, casita, carriage house, granny flat, backyard cottage, and in-law suite. Whatever you call them, they’re a flexible option for creating additional living space.
Why do people build ADUs?
Although every ADU is different, people typically build an ADU for one of three reasons:
- More living space - Many Revival Homes customers have growing families or work from home, and want to use an ADU as a home office, a gym, or an extra bedroom.
- Multigenerational living - Other customers want to provide living space (or space for long visits!) for their parents or for adult sons and daughters. ADUs help families stick together, and help older people live independently in their neighborhood.
- Rental income - Some customers rent their ADU to a long-term tenant, a shorter-term tenant (like a traveling nurse), or on Airbnb. With record-high housing costs and a massive housing shortage in California, building an ADU can be a great way to help pay the mortgage and earn supplemental income.
What types of ADUs are there?
ADUs come in all shapes and sizes. Here are a couple of ways to think about types of ADUs:
- Location - Some ADUs are detached from the main house, usually a backyard unit. Others are attached to the main house.
- New or converted space - Some ADUs are built by converting existing space, usually a garage. Others are built in new space that adds square footage to the home.
- Construction method - Most ADUs are built using traditional ground-up construction (think 2x4s and roof shingles). Modular ADUs are almost entirely pre-built in a factory and installed at your home. Pre-fabricated units are built in components off-site and installed at your home.
Will my city allow me to build an ADU?
If you live in California, you’re almost always allowed to build an ADU at your home. This is because of new state laws that make it much easier to get a building permit from your city, and stops cities from imposing rules that make it too difficult to build an ADU.
Generally speaking: if your ADU is less than 800 square feet, less than 16 feet tall, and more than 4 feet away from the property line, your city must permit your ADU. The city must also respond to your permit application within 60 days. Many cities, including Los Angeles, allow detached ADUs that are up to 1,200 square feet and have 2 stories.
How long does it take to build an ADU?
Building an ADU is not an overnight process, and challenges with supply chains can lead to unforeseen project delays. It’s best to expect the process to take about one year. Here are the major milestones:
- Planning and design (1-3 months): Revival Homes can help you think through your ADU plans and create a financing strategy. We’ll also connect you to a design-build general contractor who will work with you to create a full set of architectural drawings (which includes the site plan, floor plan, and design choices).
- Permitting (1-3 months): After the plans are complete, we’ll submit them to your city’s building department for approval. This process can move faster if your city, like Los Angeles, offers pre-approved ADU building plans.
- Construction (6-9 months): Once your ADU project gets a building permit, then construction can begin. The typical steps are site prep, building the foundation, erecting walls and a roof, installing plumbing and electrical, putting in insulation and drywall, and installing finishes and fixtures. After construction, the city will inspect the unit and give you a certificate of occupancy, indicating that the unit is safe for habitation.
How much does it cost to build an ADU?
This varies significantly, depending on the size of the ADU, whether it’s new space or converted space, whether your home is located on a hillside, and the types of fixtures and finishes you want. It’s also important to remember that the cost of building materials has escalated in the post-pandemic economy.
With all that said, you can expect to pay about $250-300/sqft for an ADU that’s built in converted space, and about $350-450/sqft for an ADU that’s built in new space. So a typical 1-bedroom, 600 sqft ADU will cost between $150,000 and $270,000. This ballpark estimate includes soft costs (a survey, designs, permit fees, etc.) and hard costs (lumber, appliances, labor, etc.)
You can check out our ADU Budget Calculator for a more precise estimate of project cost.
How do people pay for ADUs?
Few of us have the spare cash to pay for an ADU project out of pocket, which is why most homeowners get a loan to finance their ADU. Here’s more info on typical lending options, which include:
- Home equity loan or line of credit: This is a second mortgage that allows you to use your home equity to finance construction; you pay the loan back over 10-20 years. Home equity loans are widely available to homeowners with good credit, tend to be quick to close, and don’t require you to refinance your existing mortgage (which is a plus if you’ve recently refinanced and locked in a low rate). Most banks will let you borrow up to 80% of your home’s current value (together with your mortgage). However, if you’re a relatively new homeowner who hasn’t yet built up much home equity, this option probably won’t provide enough cash to pay for an ADU.
- Cash-out refinance: This is a type of mortgage that allows you to refinance your primary mortgage. You access additional funds to pay for construction, and pay the loan back over 30 years, just like a standard mortgage. Like a home equity loan, cash-out refis are widely available and tend to be quick to close. However, you’ll have to retire your current mortgage, which likely means you’ll be paying a higher interest rate going forward. And like a home equity loan, relatively new homeowners probably can’t get enough cash from a cash-out refi to pay for an ADU.
- Renovation loan: This loan both replaces your existing mortgage and provides you with the funding needed to build the ADU; you pay the loan back over 30 years, just like a standard mortgage. Two examples are the Fannie Mae HomeStyle and the FHA 203(k) loan. These can be a good option for people who don’t yet have much home equity. However, relatively few lenders offer these loan products, and they’re often slow to close. Additionally, a third-party consultant has to certify that key milestones are met before they’ll approve payments to the contractor, which can slow down construction.
To help homeowners pay for ADUs more easily, the California state government recently launched a grant program that provides up to $40,000 per homeowner to help offset some of the costs of the typical ADU project. This blog post has more information on the grant.
Whichever loan you choose, make sure that you have enough cash savings for a down payment and for project cost overruns. Revival Homes can help you decide which lending product is right for you, and can connect you with an independent mortgage broker to access the lowest-cost lending options.
How do I get my ADU project started?
To make your ADU project happen, you’ll need:
- A project plan
- A budget and financing plan
- An architect who will create the construction plans and get them permitted
- A contractor to build the ADU
Revival Homes can help you at every stage of the process. We’ll schedule you for a free consultation with an ADU expert, who will help you create a project plan, a budget, and a strategy for financing your ADU. If you like, we’ll connect you to an independent mortgage broker who can get you the loan product that’s right for your needs. We’ll also connect you to a local design-build contractor, who’s able to both create the architectural plans and build the ADU.
You can get started today by scheduling a free consultation with a Revival Homes ADU expert.
