L.A.’s newest real estate trend, Accessory Dwelling Units, has made its way into luxury real estate. We heard from Seth Phillips, of Pacific Luxury Developments, on what makes an ADU unique, how to build one, and much more.
What is an ADU?
ADU stands for Accessory Dwelling Unit
How did this come about?
As of Jan. 1, 2017, California passed laws that now make it possible for most Single-family homeowners to build a 2nd home on their property. They did this because California has a critical housing shortage and we need to build more homes.
Is that the same thing as a duplex?
Yes, it is very similar. The second home has a separate address, utilities, and a separate kitchen. It can be attached or detached from the main house.
How is it different from a Duplex?
The most important difference is that duplexes can only be built on land zoned for multi-family units. Before the ADU law, a single family lot (R1) could only have one living unit, but now with an ADU it can have two.
Where can you build ADU’s?
It is State law, so they can be built anywhere across the state.
What are people using ADU’s for?
The most popular usage is homeowners that add an ADU unit and rent it out for additional income. Another important application is for housing elderly parents or relatives. This avoids the high cost of assisted living facilities and keeps loved ones close when they need it most.
Is it difficult to build an ADU and how expensive is it?
The ADU’s must be built to the same standard as a regular single-family home with the same building and safety requirements. In California, this does require a high level of craftsmanship for safety reasons. That said, our company can build a turnkey ADU unit in 3 to 8 months depending on size and complexity. The cost also has a broad range from $200 to $350 per square foot based on the same factors.
Is building an ADU a good investment?
This is why we call this ADU Gold! Homeowners now have an opportunity to build a rental unit on land they already own. The land is free. To compute your Return On Investment (ROI) you just need to compare your construction cost to your rental income. In a good neighborhood, your $300,000 ADU could bring in rent of $5,000 a month. On top of that the ADU also immediately increases the value of your property. If you paid $300 a foot to build your ADU and as an example, according to Zillow, the median list price per square foot in Los Angeles is $523. That means for every $300 a foot you spend in construction you are generating $223 a foot in profit! That’s a great way to create equity.
Is there financing available to build an ADU?
Yes! There are many different loan options available. We are most excited by the most recent arrival of a major brand bank that is offering purchase or refinances plus construction money in one loan. It is completely conventional rates, zero points, with fixed 30-year terms. Plus they value the loan based on the after construction value. This means low downpayment requirements! This is the gas on the fire.
When should a homeowner start?
We recommend starting now. What the government giveth the government can taketh away. This is a great example of the get it while the gettins good.
For more information:
Pacific Luxury Development
415 N. Crescent Dr. Ste. 240, Beverly Hills, CA 90210