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  • Writer's pictureRudy Garcia

How to Make Money by Building an ADU in California 2023



If you are a homeowner in California, you may have heard of accessory dwelling units (ADUs) and wondered if they are a good investment for you. ADUs are small, self-contained living spaces that can be attached or detached from your main house. They can be used for various purposes, such as housing relatives, renting out to tenants, or creating a home office.


ADUs have many benefits, both for homeowners and for the state. They can provide a source of income for homeowners, increase the supply of affordable housing in California, and allow extended families to live close together while maintaining privacy. ADUs can also add value to your property and make it more attractive to buyers.


But how do you go about building an ADU in California? What are the costs, regulations, and steps involved? In this blog post, we will answer these questions and give you some tips on how to make money by building an ADU in California.


Step 1: Check Your Local Ordinances


The first thing you need to do before building an ADU is to check your local ordinances and zoning codes. California has passed several laws in recent years to encourage the development of ADUs and to streamline the approval process. However, local jurisdictions may still have their own rules and requirements that you need to follow.


Some of the things you need to check are:


- The size and height limits of your ADU

- The setback and parking requirements of your ADU

- The design and architectural standards of your ADU

- The utility and fire safety requirements of your ADU

- The fees and permits required for your ADU


You can find out more about your local ordinances by visiting the website of your city or county planning department or by contacting them directly. You can also use the online tool developed by the California Department of Housing and Community Development (HCD) to find out if your property is eligible for an ADU.


Step 2: Plan Your Budget and Financing


The next thing you need to do is to plan your budget and financing for your ADU project. The cost of building an ADU can vary widely depending on many factors, such as the size, type, location, design, and materials of your ADU. According to a 2022 report by UC Berkeley's Terner Center for Housing Innovation, the average cost of building an ADU in California was $156,000.


Some of the major expenses you need to consider are:


- Pre-development costs: These include site preparation, architectural designs, permits, soil tests, impact fees, property survey, and energy reports.

- Construction costs: These include labor, materials, equipment, utilities, and inspections.

- Financing costs: These include interest rates, loan fees, closing costs, and taxes.


To finance your ADU project, you have several options available. You can use your own savings or equity, borrow from family or friends, take out a home equity loan or line of credit (HELOC), refinance your mortgage, or apply for a grant or loan program specifically designed for ADUs.


One such program is the Accessory Dwelling Unit Grant Program offered by the California Housing Finance Agency (CalHFA). This program provides up to $40,000 towards pre-development and non-recurring closing costs associated with the construction of an ADU. However, this program has limited funds and eligibility criteria that you need to meet.


Step 3: Hire a Contractor or Builder


The third thing you need to do is to hire a contractor or builder who can help you design and construct your ADU. Unless you have the skills and experience to do it yourself, hiring a professional is highly recommended. A contractor or builder can help you with:


- Creating a customized design that meets your needs and preferences

- Obtaining the necessary permits and approvals from the local authorities

- Managing the construction process and ensuring quality and safety standards

- Coordinating with subcontractors, suppliers, inspectors, and utility companies

- Solving any issues or problems that may arise during the project


To find a reliable contractor or builder for your ADU project, you can ask for referrals from friends or neighbors who have built ADUs before. You can also search online directories or websites that list qualified contractors or builders in your area. You should check their credentials, reviews, references, portfolio, and insurance before hiring them.


Step 4: Rent Out or Use Your ADU


The final thing you need to do is to rent out or use your ADU once it is completed. Depending on your goals and preferences, you can use your ADU for various purposes, such as:


- Housing relatives, friends, or caregivers

- Renting out to long-term or short-term tenants

- Creating a home office, studio, or workshop

- Hosting guests or travelers

- Selling your property with an ADU


If you decide to rent out your ADU, you can generate a steady income stream that can help you pay off your ADU costs and increase your net worth. According to the Terner Center report, the average monthly rent for an ADU in California was $1,530 in 2022. However, the actual rent you can charge will depend on the size, location, condition, and amenities of your ADU.


To rent out your ADU, you need to comply with the local and state laws and regulations that apply to landlords and tenants. These include:


- Registering your ADU with the local authorities and paying any taxes or fees

- Obtaining a business license and insurance for your rental business

- Screening and selecting tenants and signing a rental agreement

- Maintaining and repairing your ADU and providing essential services

- Respecting the rights and responsibilities of your tenants and neighbors


Conclusion


Building an ADU in California can be a great way to make money and add value to your property. However, it also requires careful planning, budgeting, financing, and hiring. By following the steps outlined in this blog post, you can successfully build an ADU that meets your needs and goals.


If you need more information or assistance with your ADU project, you can contact us at adu@miguelangelodesigns.com or visit our website at www.miguelangelodesigns.com


Miguel Angelo Designs is a licensed and experienced contractor that specializes in designing and building ADUs in California. We can help you with every aspect of your ADU project, from concept to completion. Contact us today for a free consultation and estimate!










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