The Hot New Thing in LA Real Estate: ADUs

Blog Post Image
Real Estate

They go by many names; Granny flat, Garage Conversation, Mother-in-Law Suite, Backyard Home.   All describe the same thing; Accessory Dwelling Units (ADUs) and they are suddenly the hot new thing in Los Angeles real estate.  Building a second unit on your single family property has become much easier as of January 1, 2017, when California State Legislature passed the Accessory Dwelling Unit Bill (SB 1069 & AB 2299). 

The bill eased a number of regulations by reducing parking restrictions, reducing or eliminating water and sewage hookup fees, increasing the maximum allowed size, and requiring a ministerial approval of conversion of an existing ADU.  The city of LA has issued guidelines to inform homeowners what they can do.

Los Angeles has a long history of unpermitted additional units.  In fact, it is estimated 55% of the housing units added in LA County from 1981 to 2000 were unpermitted accessory dwelling units.  Affordable housing advocates are elated with the change in state law. From the increase numbers of permits being sought this year, it appears are homeowners are as well. By the end of February of this year, more than 50 applications to build ADUs were filed with the Los Angeles Department of Building and Safety. That’s more than the full year average for the last decade.

Generally speaking, ADUs can take one of three forms: Detached: Unit is separated from the primary structure, Attached: Unit is attached to the primary structure and Repurposed Existing: Space within a primary residence that is converted into an independent living unit. 

So if you are a homeowner looking to leverage your property for income or if you are a first-time buyer and are struggling to afford the high cost of Los Angeles real estate, you now have new options. 

For home Buyers looking to qualify for a home loan, lenders may be able to factor in the income from ADUs toward loan qualification.   This could allow you to afford more house than you would otherwise.  Work with a real estate agent to find homes that include a rentable unit on the property.  You will have to perform due diligence to confirm the rental unit is legal, and/or invest additional funds and time to make it legal. The Los Angeles City Council voted in May to approve a new law that makes it easier to get approval for existing units that were created without the city’s approval.  

If you already own your home and want to invest in converting your garage into a rental unit you have three options for financing; Refinance your first mortgage and take cash out, get a second mortgage (HELOC), or renovation financing.  Although the costs can be significant, you are not buying the land so the rental income will pay off the investment much faster. 

The costs can be significant, and you should plan on a lot of effort and investment of your time to hire architects, contractors and getting the necessary approvals from the city.  There are a number of vendors out there who will handle the entire project for you

So whether you are a buyer or homeowner expect that Accessory Dwelling units will be something you will see more of in the coming months & years.