What's an Accessory Dwelling Unit? (ADU)

One of the Real Estate buzzwords you will hear a lot today is “ADU” which is a shorthand acronym for an Accessory Dwelling Unit.

An ADU is the legal version of what has been known by many other names over the years: granny flats, in-law units, backyard cottages, secondary units, etc.

The primary reason ADUs were made legal in California is to address the housing shortage. Since the law was initially passed there have been updates and revisions so you have to keep track of any changes as well as what your local jurisdiction may require. While the law is statewide, many cities have their own implementations so do your own research as to what can be done where you live. The information contained in this blog is intended to inform you as to the general parameters and trends in California and not advise on what you specifically can do on your lot.

Let’s answer some common questions.

What are the benefits of ADUs?

ADUs are popular because:

• they can provide a source of income for homeowners without having a property zoned for multiple units. In other words, you can build an ADU on your existing SFR lot and rent it out.

• these structures are often built with cost-effective wood frame construction, which may be less costly and they do not require paying for land or major new infrastructure.

• with an aging population it is a great option for extended families to be near one another while maintaining privacy and allowing seniors to age in place as they require more care.

• often they provide as much living space as many newly-built apartments and condominiums and they’re well suited for many uses.

• they can expand the living space of an existing property for those in need of a home office or guest room. In other words, if you need more space but love your current home and don’t want to move, this is a great option.

Is This Statewide in CA?

These ADU rules are statewide in California and all local jurisdictions (cities, counties, etc.) must comply with these new laws starting January 1st, 2020. If a City doesn't create a new Accessory Dwelling Unit Ordinance, then state law will apply. If a City creates their own ADU Ordinance, it must comply with these new rules implemented in 2020.

What Are the Different ADU Options?

• Detached: the unit is separate from the primary structure.

• Attached: the unit is attached to the primary structure.

Does an ADU Have to Be New Construction?

No, you can convert existing space into an ADU. This can be a storage unit on the property or a garage per your local requirements. This can be a very cost effective solution particularly if it is space you otherwise aren’t using and it can be repurposed.

A variation of converting existing space is what is referred to as the Junior Accessory Dwelling Unit (JADU) which is a specific type of conversion of existing space that is contained entirely within an existing or proposed single-family residence.

What’s a Junior Accessory Dwelling Unit?

A Junior Accessory Dwelling Units is a very small living unit (up to 500 square feet) created out of space within an existing single family home. They may share central systems, contain a basic kitchen utilizing small plug-in appliances, may share a bathroom with the primary dwelling resulting in reduced development costs. JADUs present no additional stress on utility services or infrastructure because they simply repurpose existing space within the residence and do not expand the dwellings planned occupancy.

Can I Have Multiple ADUs on One Lot?

You are now permitted two ADUs on a single family zoned property: one full Accessory Dwelling Unit (ADU) and one Junior Accessory Dwelling Unit (JADU) to be within the existing or proposed space of a single-family dwelling, or a JADU within the walls of the single family residence, or an ADU within an existing accessory structure, that meets specified requirements such as exterior access and setbacks for fire and safety.

This topic can get a lot more complicated. For example you may be able to have one detached new construction ADU that does not exceed four-foot side and rear yard setbacks. This ADU may be combined on the same lot with a JADU and may be required to meet a maximum unit size requirement of 800 square feet and a height limitation of 16 feet.

Or you may be allowed up to two detached ADUs on a lot that has existing multifamily dwellings that are subject to height limits of 16 feet and 4-foot rear and side yard setbacks.

As with everything else I am publishing here, check and double check your local requirements.

Will Building an ADU Increase Property Taxes?

Construction of a new ADU should not trigger a reassessment of the entire property. As with other types of new construction, only the value of the new ADU (new construction added) will be added to the property's assessed value.

However there are few different types of ADUs that can be built so each situation will be handled differently regarding property tax.

Are there any owner-occupancy requirements for ADUs?

This is one of the most common questions from investors as a SFR with one or two ADUs can be an attractive alternative to buying a duplex, triplex or other income property.

Prior to recent legislation, ADU laws allowed local agencies to elect whether the primary dwelling or ADU was required to be occupied by an owner. However the updates to state ADU law removed the owner occupancy allowance for newly created ADUs effective January 1, 2020. The new owner-occupancy exclusion is set to expire on December 31, 2024. So the answer to this question is going to be different depending on your timeline and usage.

FYI, local agencies may not retroactively require owner occupancy for ADUs permitted between January 1, 2020, and December 31, 2024. However, should a property have both an ADU and JADU, JADU law requires owner-occupancy of either the newly created JADU, or the single-family residence. Under this specific circumstance, a lot with an ADU would be subject to owner-occupancy requirements.

The recommendation here would be that if your intent is to have an income property, best to buy a true income property and not try to bootleg an ADU into something it is not.

What Else Do I Need to Know?

A lot. This post just scratches the surface. If you are planning on adding an ADU or JADU to your current home, there are consultants and firms that specialize in getting that done and can best advise you on what is possible on your lot and in your situation and budget.

A few things I have observed about ADUs as a Real Estate Broker:

• I see more being ADUs built in the City of LA than let’s say in the South Bay cities of Manhattan Beach, Redondo Beach, etc. From what I have heard, LA has been more accommodating but that may change going forward.

• Where I have seen them in LA, the value equation was such that with the added income from the rental, a buyer could possibly afford to buy in a neighborhood they otherwise could not afford.

• Detached garage or pool house conversions may be more common than ground up construction even though I am not sure as to the difference in the final cost.

• There haven’t been enough sales of homes with ADUs to accurately anticipate how the appraiser will value the addition.

• Not every ADU is intended as a pure rental unit. Some are planned as flex home offices - guest rooms.

And lastly, plan carefully. One of the most common mistakes I have seen is that how the ADU sits on the lot isn’t really conducive to a rental or won’t help on resale (usually because it cuts into the privacy of the main house). Also make sure the size of the ADU is appropriate for the rental income you want.