Comparing Residential Units and Accessory Dwelling Units (ADUs)

Residential Unit

A residential unit is an independent living space within a larger building, such as an apartment or a single-family home. It provides its occupants with all necessary facilities for daily living, like bedrooms, bathrooms, and kitchens. Each unit is designed to be self-contained, offering privacy and a distinct living area. Access is usually direct from the outside or through a shared hallway.

Ownership

In a building with multiple units, each unit can be owned by different people or entities, each with its title or lease. In a single-family home, the owner has complete ownership of the house and the land it's on.

Accessory Dwelling Unit (ADU)

An ADU is a smaller, separate living space located on the same property as a primary single-family home. It can be part of the main house, attached to it, or entirely detached. ADUs include options like basement apartments or guest houses and are used to provide additional living space. They help with affordable housing and offer flexible living arrangements for families.

Ownership

Typically, the owner of the main house also owns the ADU, though this can vary depending on local rules and specific situations.

Breaking Down the Costs

Residential Units

Cost Variation Based on Bedroom Count in California. The cost of building a home in California increases with the number of bedrooms. More bedrooms mean more space, materials, and work, which all add to the expense. Here’s a rough idea of average building costs based on bedroom count:

• 1-bedroom homes: Around $530,000
• 2-bedroom homes: Around $700,000
• 3-bedroom homes: Around $1.01 million
• 4-bedroom homes: Around $1.45 million

Cost Variation Based on Square Footage in California. The size of the home also affects the cost. On average, building a home in California costs about $500 per square foot, but this can vary:

• In high-demand areas like Los Angeles or San Francisco, costs can reach $800 per square foot.
• In more affordable areas like Bakersfield or Fresno, costs might be as low as $150 per square foot.

Accessory Dwelling Unit (ADU)

Building an ADU in California generally costs between $200,000 and $400,000. Several factors influence these costs, including the ADU type, location, and size.

Soft Costs in Building an ADU. Soft costs are expenses for things like design and permits, not including labor and materials. In California, these usually make up 10-15% of the total ADU cost. Here’s a breakdown:

• Architectural fees: $20,000-$30,000
• Consultation fees: $8,000-$12,000
• Permit costs:
  • Building permit: $2,000-$10,000
  • City fee: $3,000-$11,000

Factors Impacting ADU Costs. Several key factors affect the cost of building an ADU:

• Size: ADUs range from 600 to 1,200 square feet. Regulations set a minimum of 120 square feet and a maximum of 1,200 square feet.

• Location: Costs vary by region, influenced by local housing prices and regulations. There are efforts to make ADU construction easier and more affordable.
• Amenities: Adding features like large windows or accessibility options can affect the cost and appeal of the ADU.

Rental Considerations

Residential Units

Occupancy and Mortgage Considerations. There are no statewide rules about renting out properties, but you should check with your mortgage lender first. Some mortgage agreements have restrictions on renting. Also, look into local rules and homeowners association guidelines.

Licensing Requirements for Landlords. In California, you don’t need a special landlord license, but requirements can vary by location. Property management companies do need licenses. Make sure to follow local laws and regulations. We can help connect you with experts if needed.

Steps to Renting Out Your Property

• Step 1 Market Research: Find out what other rentals in the area charge.
• Step 2 Property Preparation: Make sure your property meets safety and livability standards.
• Step 3 Legal Compliance: Know the local rules and HOA guidelines.
• Step 4 Mortgage Check: Verify rental permissions with your lender.
• Step 5 Professional Assistance: Think about hiring a real estate agent or property manager.
• Step 6 Financial Implications: Be aware of tax and insurance requirements.

Responsibilities for landlords can differ by location, so careful research is key before renting out your property.

Accessory Dwelling Unit (ADU)

Renting out an ADU in California can be a great opportunity. Recent changes in laws now allow ADUs to be rented without the requirement that the owner live on the property. However, there are still important factors to consider.

Rental Regulations and Options. ADUs can usually be rented for 30 days or more, favoring long-term rentals over short-term stays. Some cities like Los Angeles and San Francisco don’t have minimum rental period rules but always check local regulations.

You can use platforms like Airbnb or VRBO to set rental terms that comply with the law. Alternatively, you could sign a lease with a corporate housing company to get a steady income from professionals relocating for work.

Long-Term Rental Versus Short-Term Lease. Renting your ADU on a long-term lease is a traditional option. Hiring a property management company can make the process easier and handle day-to-day responsibilities.

Financial Considerations. Building an ADU can raise your property value, leading to higher property taxes (about a 1-2% increase). The property will be assessed as a combined value of the original home and the ADU. The rental income from the ADU can help cover tax costs and boost overall profitability.

Optimal Design and Floor Plan. Design your ADU with renters in mind to make it more appealing. Discuss your rental goals with your contractor to ensure the design is functional. Many contractors offer pre-designed plans that are optimized for rental use, helping you get the most value from your ADU.