New Legislation Sparks ADU Boom in L.A.: How This Affects You
This past fall, the California state legislature passed a series of bills that are likely to reshape the way many neighborhoods in L.A. and all of California look. The bills which include SB 13, AB 670, AB 671, AB 881, and AB 68 basically allow for any single-family home to add up to a 1000 sq ft ADU (accessory dwelling unit) on their property as long as they have 4 feet setbacks from the property boundaries. The laws also expedite the permitting approval process and outlaw many of the ways local HOAs and municipalities have limited construction in the past.
These changes offer many opportunities and the potential to reshape neighborhoods by bringing down the monthly cost of holding properties for those who are able to build and rent a second unit.
Say you own or buy a home in the Hollywood Hills or somewhere in L.A. where you have enough room to add a 750 sq ft one-bedroom unit. Something comparable to the structure in the photo above.
The cost of construction on a similar unit would be approximately 250k, breaking down to around $300-$350 per sq ft. If this gets financed for 30 years at today’s mortgage rates, then the monthly payment would be less than $1,200 per month (assuming no money down and an interest rate of 4%.) Simultaneously, the rent for this type of unit in the Hollywood Hills would average $2,500 per month, generating an additional revenue of $1000 after expenses. An ADU unit will not only pay itself off, but add value to your property, if you choose to sell.
The figures on this are obviously compelling. At Prefab Review we help thousands of people across the country every month, build modular and prefab homes. We’ve seen a major uptick in our clients and readers in L.A. based ADU projects.
The new ADU laws certainly provide interesting financial opportunities for those enterprising enough to take advantage of them. Even before these new laws were passed, ADUs were growing rapidly in popularity in L.A.. Annual permit applications for ADUs in L.A. expanded from 299 in 2015 to 3818 in 2017.
So, what should your next steps as a homeowner or potential buyer be? Ask yourself two questions:
- If you own land or a home – would you be able to add a small one or two-bedroom unit to your property? If so, there is likely substantial ROI for doing this.
- If you’re considering buying, and since we are a partner of Tenstar Properties it would be in your best interest to utilize their local knowledge and understanding of these new laws to ease your transactional needs. The question you need to ask: does the opportunity to add an ADU either a) make the cost of ownership more palatable or b) provide an opportunity to add value to your home and make it a better long-term investment?
Michael Frank is the founder of Prefab Review, the leading website helping readers and clients learn about and build prefab and modular homes and accessory dwelling unit (ADU).
