An ADU is all the new buzz as the answer to extended and growing families in California as well as a source of additional income. As of 2022, the law in California has drastically cleared the way for almost any homeowner to add an ADU on their property. This means that you could easily expand your home’s value by adding extra living quarters to your current residence.
So, how much is this really going to affect your home’s bottom line? As anyone will point out, this is a volatile market where home values are fluctuating and likely heading toward a correction. This means that if you are planning on adding on an ADU, you must be very cautious because the expense could exceed the additional profit in a sale of the home. On the other hand, if you are planning to use your expansion to accommodate a growing family or members who are returning home, or if you’re planning on renting the space out, an ADU can make a lot of sense. It will take some time to recover your expenses but once you build equity in your ADU, the added value an ADU brings whenever you do sell, or when you get past your profitable threshold and continue renting, never goes away.
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The restrictions by HOAs and communities alike have been rescinded, giving homeowners much more power to improve their home’s value. By some estimates, an ADU can increase your home’s resale value by as much as 30%.
The California housing market is in volatility right now but ADUs will always increase the value of your property.
The extra living space is especially valuable in the more crowded California housing markets, including Southern California.
ADUs can be built-in as a conversion of existing space, especially a garage.
ADUs can be an addition to an existing home structure.
ADUs can be a fully separate backyard cottage, casita or “granny flat.” Perfect for aging in place.
The benefits of an ADU are many. They include:
-An extra source of income if you choose to rent it out
-A place for an aging parent or adult child to live
-An office or workspace
-A place to host guests or Airbnb visitors
The possibilities are endless and the value they add to your home is undeniable. So, if you’re thinking of adding an ADU to your property, don’t wait – the sooner you do it, the more value it will add to your home.
If you’re ready to add an ADU to your home but don’t know where to start, we can help.
We are a team of experienced general contractors who specialize in helping homeowners navigate the custom design and build process of adding an ADU to their property.
ADUs are an affordable addition with a great long-term value because of the many benefits they offer. The state has even provided several financial incentives to encourage homeowners to build ADUs, making them an even more attractive investment.
The value of an ADU can be seen in both the short and long term, making them a great investment for any homeowner.
This a list of current programs according to the California Department of Housing at https://www.hcd.ca.gov/accessory-dwelling-units
- Potential State Grants and Financial Incentives for ADUs
- CalHome Program — State funds to local public agencies and nonprofit corporations for first-time homebuyer mortgage assistance including a home purchase with an ADU or JADU; owner-occupied rehabilitation assistance including rehabilitation of ADUs or JADUs; ADU/JADU assistance including construction, repair, and reconstruction; and homeownership development project loans including predevelopment and carrying costs during construction related to ADUs and JADUs (HCD CalHome program)
- Local Early Action Planning (LEAP) Grants — State grants to local jurisdictions including eligible partnerships for housing planning, and developing or improving an ADU ordinance in compliance with Section 65852.2 of the Government Code (HCD LEAP program)
- Local Housing Trust Fund (LHTF) Program — Matching funds to local and regional housing trust funds. Funds may also be used for the construction, conversion, repair, reconstruction or rehabilitation of ADUs or JADUs (HCD LHTF program)
- Regional Early Action Planning (REAP) Grants — Grants to council of governments (COGs) and other regional entities for activities relating to housing planning and activities including establishing Prohousing Policies such as adopting ADU ordinances or other mechanisms that reduce barriers for property owners to create ADUs (HCD REAP program)
- SB 2 Planning Grants — Grants to local governments including eligible partnerships for housing planning and to encourage ADUs and other innovative building types through ordinances, outreach, fee waivers, pre-approved plans, website zoning clearance assistance, and other homeowner tools or finance tools (HCD SB2 program)
- Community Development Block Grant Program (CDBG) — Federal funds allocated to non-entitlement jurisdictions, and non-entitlement jurisdictions that partner with non-federally recognized Native American communities for community development activities including single- and multi-family rehabilitation and potential local ADU rehabilitation and planning programs. Applicants must be income qualified in low- to moderate-income households for rehabilitation and areas for planning. Contact your local jurisdictions for more information.
- Other Potential Grants and Financial Incentives for ADUs
- City of Clovis: ADU Finance Program — Provides financing to eligible property owners seeking funding to build or repair ADUs on their existing single-family lot in the City of Clovis.
- Santa Cruz County: ADU Forgivable Loan Program — Offers forgivable loans up to $40,000 to homeowners who rent ADUs to low-income households at affordable rents for up to 20 years.
- San Mateo County: One Stop Shop Program — Provides no-cost support from Hello Housing with the design, permitting, and project management involved with building an ADU.
- Monterey Bay: My House My Home Program — Creates affordable ADUs for low-income senior homeowners in the Monterey Bay area.
- City of San Jose: Accessory Dwelling Unit Program — Provides pre-approved ADU plans and support for ADU construction.
- City of Chico ADU Program — Provides pre-approved ADU plans and support for ADU construction.
- Housing Trust Silicon Valley — Provides funding to support homeownership, rental housing, development financing, and offers programs for homeowners.
An ADU Can Create A Profitable Investment Option
Building an ADU on your property is a great way to generate some extra income. Not only does it provide monthly rent, but it can also be sold separately from your property. ADUs are perfect for first-time investors who don’t want to dive into the more expensive multi-family homes or condos. And even better, starting in 2020, you will be able to build a second ADU on your lot. This means two ADUs generating income and increasing the value of your property. So if you’re looking for a great investment opportunity, building an ADU is a great option.
You can also add an ADU to a property you already own, like an investment property. Adding an ADU can increase the rental income you generate as well as the equity of your property. So if you’re looking for a way to make your investment property even more valuable, adding an ADU is a great opportunity.
You can even build a second “junior ADU” limited to 500 square feet. This is a great opportunity for investors who want to add value to their property without breaking the bank.