Should You ADU? Learn How to Make Your Property Work for You
Should You ADU? Learn How to Make Your Property Work for You
A light-filled kitchen designed by Inspired ADUs, builders in the Bay Area.
Here's the 411 on what "ADU" means, how much it costs to build one in the Bay Area, and how much value an ADU adds to your property
The Bay Area is abuzz about ADUs in real estate, but what the heck are they?
Granny flat. In-law unit. Guest house. Tiny home. They all are what planners, builders, and us Realtors officially know as accessory dwelling units or ADUs. Whatever you call them, they are the smartest way to invest in your property and expand living space without spending tons of time and money on contractors, permits, and red tape.
Why are you hearing about ADUs now more than ever? A surge of savvy Bay Area homeowners is taking advantage of sweeping changes in California legislation that took effect in 2020 to make building accessory dwelling units easier.
These small, self-contained units are supported by legislators, housing advocates, and real estate agents alike because they are considered a key solution to our housing shortage. ADUs are a relatively painless and efficient way to increase housing density while giving homeowners the things they want – extra space, rental income, and enhanced property value.
Whether constructed simply for economical tiny-house living or designed like a chic dream cottage, more and more accessory dwelling units are taking shape in backyards, converted garages, basements, and in-home additions.
Architect Carrie Shores Diller of Inspired ADUs in the Bay Area and a member of Berkeley's ADU Task Force tells us she sees a massive uptick, especially in San Jose, San Mateo County, Berkeley, and Oakland.
Most homeowners who contact her firm are most interested in adding multigenerational living space in their yards for aging parents or young adult children.
“It’s something that can evolve with your family as your needs change,” explains Carrie, who also works as an educator for Small Homes, Big Impact, an ADU-focused pilot program from the Housing Trust of Silicon Valley.
If you are considering putting your property to work for you by adding an ADU, check out the following FAQs.
What is an ADU in Real Estate?
ADU stands for “accessory dwelling unit.” It's a new name for an old idea – the granny flat or in-law unit.
Under California laws, an allowable secondary unit has these characteristics:
- Self-contained living space with its own entrance, bathroom, and kitchen.
- As small as 250 square feet and as large as 850 square feet, or 1,000 square feet if the ADU contains more than one bedroom. Individual cities may allow larger units, however, so check with your local planning department.
- Up to 16 feet tall.
Who is an ADU for?
- Aging parents
- In-home health care providers
- Young adult children
- Au pair child care providers
- Home-based workers
- Naughty spouses who landed in the “dog house.” (Just kidding... maybe.)
How much does an ADU cost in the Bay Area?
The cost of building an ADU depends on the size of the unit, the quality of materials, whether you are building a free-standing ADU or doing an in-home renovation, whether it's prefab or on-site construction, where you live, and local economic conditions. (During the pandemic, for example, overall construction costs have grown as material costs rise and competition for labor hits record highs in the Bay Area.)
Carrie's design and construction firm reports that its recent East Bay projects have ranged from $393 per square foot to $765 per square foot for free-standing units. Some examples shared in a recent Inspired ADUs blog post:
- 915 sq. ft. ADU in Oakland: $359,341 total construction costs
- 522 sq. ft. ADU in Lafayette: $399,420
- 756 sq. ft. ADU in Berkeley: $433,610
- 638 sq. ft. ADU in Berkeley: $297,516
In-home renovations can cost much more and require additional permitting, neighborhood notifications, and whole-house upgrades to meet building codes if the original structure is old.
Can I rent out my ADU?
Bay Area rents are notoriously high, and availability is low, making this an ideal time to put your property to work by building a money-making rental unit. The average rent in Berkeley is $3,140, $2,830 in Oakland, and $2,488 in Walnut Creek, according to Rent Café, a nationwide apartment search website.
Another way to generate income with an ADU is to downsize out of your main home and move into your second unit. Then rent out the bigger house. Carrie said she has discussed this option with several senior clients seeking ways to fund their golden years.
Note that if you built your ADU on or after Jan. 1, 2020, when the latest state legislation took effect, you cannot legally market it as a short-term rental such as an Airbnb.
How much value does an ADU add to a property?
While it’s difficult to quantify precisely how much resale value an ADU adds to a property, anecdotal evidence shows that homes sold with secondary units have a higher return on investment. They are simply more attractive to buyers for all the reasons we note here.
One study of properties with ADUs in Portland, OR, found that ADUs contributed an average of 25%-34%
Should I build an ADU for my aging parents (or should my parents build one for me)?
A growing number of California families are building ADUs and turning their properties into multigenerational homesteads. There are two generational "flavors" of ADUs:
1. PIMBY (or Parents In My Backyard): Adult children are building ADUs for their aging parents to help with the challenges of living in such an expensive state. Surveys show that seniors increasingly prefer to age-in-place rather than move into a retirement facility, which could cost them more than $5,000 a month in the Bay Area. Some premier senior living communities require a buy-in fee of $1 million and up! Building an ADU provides creative, flexible, and affordable housing options so Baby Boomer and senior parents can downsize and live independently while staying close to loved ones for support.
2. A Short Kick Out of the Nest: Parents are building ADUs for their adult children who are struggling with Bay Area rent or the purchase price of an entry-level home. In California, nearly 40% of young people aged 18 to 34 haven't left the nest, according to U.S. Census data. Moving your grown offspring out of the house and into an ADU (while charging them reasonable rent) is a great way to give everyone in your family the space, separation, and independence they crave.
How do I get on the ADU fast track?
Once upon a time, property owners had to tolerate drawn-out public hearings and permit reviews that took up to two years. High fees significantly dented wallets. To encourage more people to build ADUs, state and local lawmakers cleared a lot of red tape in recent years. Now in California:
- Local planning agencies must approve or deny a permit application within 60 days.
- No neighbor notification or public review hearing is required.
- Design review is not required.
- Parking requirements are reduced to one space per bedroom or unit. Extra parking also is not mandated if the ADU is within a half-mile from public transit, is located within one block of a car share area, in an architecturally and historically significant historic district, built within an existing primary residence or existing accessory structure, or in an area where on-street parking permits are required but not available to the occupant.
- Fire sprinklers are not required if they are not required in the primary residence.
- ADUs cannot be considered new residential uses for the purpose of calculating utility connection fees or capacity charges, including water and sewer service.
- State law prohibits cities from requiring a minimum lot size for ADUs up to 800 square feet.
- Side and rear set-back requirements are capped at 4 feet.
So, should you ADU?
Besides helping with the Bay Area’s housing shortage (feeling altruistic?), adding an ADU can provide rental income, a convenient home for family members, and potentially increase your resale value. The return on your investment can be as big as you choose to make it.
For ADU inspiration, we highly recommend you check out Inspired ADUs' social media posts here.
If you are considering adding an ADU to a property, give us a call. We can provide resources, referrals, and calculate your potential return on investment. We support turning NIMBYs into YIMBYs (Yes In My Back Yard). 888-400-ABIO (2246) or firstname.lastname@example.org