How much new ADU build increase value of the home in california

[Suganya Vinayakam]

I'm currently constructing an ADU in Southern California. While I haven't remodeled the main house, it's situated in a highly desirable neighborhood. I'm interested in understanding the increase in value that the newly built ADU will bring to the current value of the property. will it be appraised for same cost per-sqt as like main house? Did anyone appraise the property / sold after adding adu?

[Craig Jones]

I'm not familiar with the rules in LA, but in NorCal detached ADUs on single-family properties are required to have separate utilities.  They can't be piggybacked off of the main residence.  For sure PG&E requires this for gas and electric, and I think most jurisdictions require it for water and sewer as well.  Trenching, utility connection charges and etc. add a huge cost handicap which makes the economics unworkable in almost every case.  Unless it's owner occupied and they just don't care.

I am starting to see a lot of interest in putting small ADUs on existing multi-family properties though.  Like small enough to be 100% prefab offsite and then trucked in.  Often these go on lot area that's been converted from parking, but it sorta depends on the property configuration.  Shared utilities are the norm for multi-family so that issue doesn't comp up.  And the numbers are pretty good on the projects I've looked at.

[Dan Heuschele]

Quote from @Daniel H.:

Quote from @Greg M.:

Quote from @Alberto Cioni:

The ADU unit construction here is around $ 200K-250K for 2 bed and 2 bath. But then you can rent the ADU for about $ 40000-50000 per year. So in 5 years you have the money back and endless cash flow for the future.

Your numbers fail to take in account several things. That $250K cost needs to come from somewhere. Borrowing that money @ 8% is a $20,000/year cost. Don't forget about your property taxes going up to account for that ADU. A $250K ADU = ~$3,125 more in property taxes.

I'm not sure where you're getting $3,334 - $4,167 a month for a 1,200 sq ft ADU. Los Angeles's own numbers show that ADUs are not being built in high rent locations. They're being built in places like Sylmar, Panorama City, and Sun Valley. Lots of them available for under $2K. Even in the nice locations, most top out around $2,800.

Of course there is also your increased insurance, vacancy, repairs, CapEx, and the never mentioned reduced rent on the main house since having a stranger living in your backyard usually isn't appealing to most renters.

No way it's paid off in 5 years. You're likely cashflow negative for the first few years. 

ADUs are a dud. One report I saw said that something like 80% of the ADUs built were to house parents/children of the homeowner and were not being rented out. They just aren't that profitable. 

I'm calling for final on a converted garage next week. In NELA it will bring in over $2k/mo, it cost $110k to build(sweat equity obviously). Maybe this is neighborhood specific, but most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

>most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

Have you seen these appraisals? I have gone to numerous RE meetups and discussed numerous ADU appraisals and was heavily involved analyzing one (that gave a value of ~$50k for a ~400' garage conversion 1/1. This analysis was for my first protege and was more thorough than the appraisal). Most (virtually all) are giving values below the main ppsf.

Can you post a property with an ADU and the recently appraised amount? I will use comp tools to appraise property value without the ADU to determine cost added by ADU.

Thanks

[V.G Jason]

Honestly, I just got an ADU added to our home in Manhattan Beach. I think it made my property lower in value-- I wish I was kidding.

Still worth it, can keep the in laws there and not in the main house. 

[Daniel H.]

Quote from @Dan Heuschele:

Quote from @Daniel H.:

Quote from @Greg M.:

Quote from @Alberto Cioni:

The ADU unit construction here is around $ 200K-250K for 2 bed and 2 bath. But then you can rent the ADU for about $ 40000-50000 per year. So in 5 years you have the money back and endless cash flow for the future.

Your numbers fail to take in account several things. That $250K cost needs to come from somewhere. Borrowing that money @ 8% is a $20,000/year cost. Don't forget about your property taxes going up to account for that ADU. A $250K ADU = ~$3,125 more in property taxes.

I'm not sure where you're getting $3,334 - $4,167 a month for a 1,200 sq ft ADU. Los Angeles's own numbers show that ADUs are not being built in high rent locations. They're being built in places like Sylmar, Panorama City, and Sun Valley. Lots of them available for under $2K. Even in the nice locations, most top out around $2,800.

Of course there is also your increased insurance, vacancy, repairs, CapEx, and the never mentioned reduced rent on the main house since having a stranger living in your backyard usually isn't appealing to most renters.

No way it's paid off in 5 years. You're likely cashflow negative for the first few years. 

ADUs are a dud. One report I saw said that something like 80% of the ADUs built were to house parents/children of the homeowner and were not being rented out. They just aren't that profitable. 

I'm calling for final on a converted garage next week. In NELA it will bring in over $2k/mo, it cost $110k to build(sweat equity obviously). Maybe this is neighborhood specific, but most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

>most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

Have you seen these appraisals? I have gone to numerous RE meetups and discussed numerous ADU appraisals and was heavily involved analyzing one (that gave a value of ~$50k for a ~400' garage conversion 1/1. This analysis was for my first protege and was more thorough than the appraisal). Most (virtually all) are giving values below the main ppsf.

Can you post a property with an ADU and the recently appraised amount? I will use comp tools to appraise property value without the ADU to determine cost added by ADU.

Thanks

A property two doors down from one I own with an old house shoved in the rear of the lot sold for $650k in 2018, the developer that bought it built a new house in the front and had the old house declared an ADU. The property sold for $2.6m in 2021(timing helped). I will DM you the address but prefer not to post it. I'm sure it didn't appraise for that. But I'm sure the developer made $1m. Obviously this is California spec building and not the traditional RE stuff I come to this website to read about :)

I should not have said same as main house. Though certainly they can sell for more than they cost to build.

[Delbert Standifer]

My ADU will be completed next month. I paid 175k for a 400 ft.² one bedroom one bath ADU. It should rent for $1700. That basically meets the 1% rule. As for as the appraisal right now the property is valued at 850k I'll see what the new appraisal will come in at when I refinance and they make me get an appraisal. I'm hoping for a 1M appraisal. We shall see.

[Daniel H.]

Quote from @Craig Jones:

I'm not familiar with the rules in LA, but in NorCal detached ADUs on single-family properties are required to have separate utilities.  They can't be piggybacked off of the main residence.  For sure PG&E requires this for gas and electric, and I think most jurisdictions require it for water and sewer as well.  Trenching, utility connection charges and etc. add a huge cost handicap which makes the economics unworkable in almost every case.  Unless it's owner occupied and they just don't care.

I am starting to see a lot of interest in putting small ADUs on existing multi-family properties though.  Like small enough to be 100% prefab offsite and then trucked in.  Often these go on lot area that's been converted from parking, but it sorta depends on the property configuration.  Shared utilities are the norm for multi-family so that issue doesn't comp up.  And the numbers are pretty good on the projects I've looked at.

No, its not that way in LA. You actually are technically not allowed to have a second drop for electrical. The city sees it as a safety issue, they will do it, but its rare. Water/Sewer/Gas are up to you.

[Suganya Vinayakam]

@Delbert Standifer please be posted after receiving new appraisal value for your adu with main home

[Robert Ellis]

Quote from @Daniel H.:

Quote from @Dan Heuschele:

Quote from @Daniel H.:

Quote from @Greg M.:

Quote from @Alberto Cioni:

The ADU unit construction here is around $ 200K-250K for 2 bed and 2 bath. But then you can rent the ADU for about $ 40000-50000 per year. So in 5 years you have the money back and endless cash flow for the future.

Your numbers fail to take in account several things. That $250K cost needs to come from somewhere. Borrowing that money @ 8% is a $20,000/year cost. Don't forget about your property taxes going up to account for that ADU. A $250K ADU = ~$3,125 more in property taxes.

I'm not sure where you're getting $3,334 - $4,167 a month for a 1,200 sq ft ADU. Los Angeles's own numbers show that ADUs are not being built in high rent locations. They're being built in places like Sylmar, Panorama City, and Sun Valley. Lots of them available for under $2K. Even in the nice locations, most top out around $2,800.

Of course there is also your increased insurance, vacancy, repairs, CapEx, and the never mentioned reduced rent on the main house since having a stranger living in your backyard usually isn't appealing to most renters.

No way it's paid off in 5 years. You're likely cashflow negative for the first few years. 

ADUs are a dud. One report I saw said that something like 80% of the ADUs built were to house parents/children of the homeowner and were not being rented out. They just aren't that profitable. 

I'm calling for final on a converted garage next week. In NELA it will bring in over $2k/mo, it cost $110k to build(sweat equity obviously). Maybe this is neighborhood specific, but most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

>most of the SFH within a few square miles of me sell with ADU price per square foot the same as the main house.

Have you seen these appraisals? I have gone to numerous RE meetups and discussed numerous ADU appraisals and was heavily involved analyzing one (that gave a value of ~$50k for a ~400' garage conversion 1/1. This analysis was for my first protege and was more thorough than the appraisal). Most (virtually all) are giving values below the main ppsf.

Can you post a property with an ADU and the recently appraised amount? I will use comp tools to appraise property value without the ADU to determine cost added by ADU.

Thanks

A property two doors down from one I own with an old house shoved in the rear of the lot sold for $650k in 2018, the developer that bought it built a new house in the front and had the old house declared an ADU. The property sold for $2.6m in 2021(timing helped). I will DM you the address but prefer not to post it. I'm sure it didn't appraise for that. But I'm sure the developer made $1m. Obviously this is California spec building and not the traditional RE stuff I come to this website to read about :)

I should not have said same as main house. Though certainly they can sell for more than they cost to build.

 amazing strategy 

[Dan Heuschele]

Quote from @Delbert Standifer:

My ADU will be completed next month. I paid 175k for a 400 ft.² one bedroom one bath ADU. It should rent for $1700. That basically meets the 1% rule. As for as the appraisal right now the property is valued at 850k I'll see what the new appraisal will come in at when I refinance and they make me get an appraisal. I'm hoping for a 1M appraisal. We shall see.

 My guess is between $900k and $950k. I hope you do better. I am eager to hear the results of your appraisal.  Can you please post the value as determined by the appraiser?   

People keep posting on BP with poor ADU appraisals (and this matches what I hear at RE meet ups), but for some reason there is a reluctance to believe these posts.

Good luck

[Greg M.]

Quote from @V.G Jason:

Honestly, I just got an ADU added to our home in Manhattan Beach. I think it made my property lower in value-- I wish I was kidding.

Average home price in Manhattan Beach is $3 million. Median price is $1.2 million. You think people that can afford those prices want some stranger living in their back yard? The ADU just takes up valuable backyard space.

Biggest problem with ADUs is it's only a matter of time before California starts fining those that are not rented out. They've already talked about issuing fines to landlords that have units vacant too long. I can see them saying the ADU was allowed in order to increase density and if you're not doing that, here is your fine. Of course, if you rent it out, that renter can't be removed thanks to the new tenant protections. Enjoy your $3 million home with that weird guy living in your backyard forever.

[Bruce Woodruff]

Quote from @Daniel H.:

Quote from @Brandon Leong:

What are folks seeing for cost per square foot for ADU conversions? As preivously stated above, I have a small storage space (around 200 sqft) that can be converted into an ADU (already have approved plans from LADBS) and am meeting with various contractors and teams. I am seeing quotes around $120k which would put that cost per square foot around $600 which seems a lot compared to what I have seen/read online

The reason your cost per square foot is so high is you still have to add all the things a regular house has but in a smaller space. All your mechanical will be about the same as if you were building a much larger house. $120k for 200 sqft seems reasonable.

 I'm speaking only with my experience in SoCal...but another reason they are expensive is that we were required to use very 'green' products. Only tankless water heaters, extra insulation, heating/cooling, etc.... That raises the cost esp in a small SF model....

[Sam Haggart]

Quote from @Dan Heuschele:

Quote from @Suganya Vinayakam:

I'm currently constructing an ADU in Southern California. While I haven't remodeled the main house, it's situated in a highly desirable neighborhood. I'm interested in understanding the increase in value that the newly built ADU will bring to the current value of the property. will it be appraised for same cost per-sqt as like main house? Did anyone appraise the property / sold after adding adu?

It is unlikely a refinance appraisal will give you the cost of a hands off ADU addition. This implies you start with an initial negative position. To recover the initial negative position will consume many months (usually years) of your cash flow.

Adding small units in small unit counts is expensive development. There is no more expensive residential development than adding single count ADU.

This results in hands off ADU additions being one of the worse RE investments. Here is a more complete list of reasons that a hands off ADU addition is not typically a good investment.
1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) The financing on an ADU is typically far worse than for initial investment property acq
uisition or is often not leveraged (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to the value added by the ADU, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to the value added by the ADU, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?
9) if CA an ADU and JADU can be added to virtually all homes. However, Freddie/Fannie will not finance a parcel with 2 ADUs. This lowers refinance options. It can potentially limit your buyers when/if you go to sell.
10) JADUs require OO. Note this is not only to rent the JADU, but in strictest interpretation to even have a legal JADU. This limits purchasers to house hackers significantly limiting the potential buyer. JADU are value subtract as they typically reduce the value of the RE and often best option at selling is to remove the JADU.
11) if the ADU is being added to a SFH, the ADU can make the house rent controlled (if it is over 15 years old). I do not believe this is the intent of the ADU laws, but many jurisdictions appear to be interpreting it differently than my opinion. See AB1482.

ADU laws were added to add housing. However building small unit count, small units is very expensive housing. It is resulting in increase to housing costs and poor returns for the hands off investor. Some jurisdictions recognize this and allow large number of ADUs which compounds the NIMBY against ADUs. For example in city of San Diego you can designate a few units as affordable units and build 15 units in a single family zoned area. No one wants 15 unit apartments built next door to their SFH.

good luck

Thanks for this breakdown. This was super eye opening as someone planning to build an ADU in Orange County, CA. I still may proceed as it's my primary residence so the negative equity portion is not my primary goal but it remains a good argument against.

I plan to shop around more but I’m surprised that there aren’t more funding options in California with the recent popularity of ADUs help with the leverage component. 

[Robert C.]

Quote from @Suganya Vinayakam:

I'm currently constructing an ADU in Southern California. While I haven't remodeled the main house, it's situated in a highly desirable neighborhood. I'm interested in understanding the increase in value that the newly built ADU will bring to the current value of the property. will it be appraised for same cost per-sqt as like main house? Did anyone appraise the property / sold after adding adu?

Based on the responses you probably can see that ADU additions on single family homes are still the wild west right now, so you need to be clear on the numbers and goals in your specific market. Appraisals are unreliable, but there are definitely places like near me where you can make the money off of resale. 

My biggest concern with ADU’s on single family lots is that all the new laws have muddled what the long term value looks like, and most people don’t realize it yet. What will be the difference between a single family home + ADU vs making a duplex with SB9, for example? Duplexes are generally valued lower than a single family. As other people have mentioned, does it increase risk of being rent controlled down the road? Duplexes usually get a carve out, but triplexes not necessarily if you add ADU+JADU. 

Now AB1033 allows you to condo convert your ADU’s. That’s an interesting one, but who knows what that’s going to look like as an investment! I actually can’t believe that one passed statewide. 

Anyways, I have taken advantage of adding ADU’s in 5+ multifamily and triplexes. For the former, being able to add 25% more units to the right apartment building is just magical. And moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

[Brandon Leong]

Quote from @Delbert Standifer:

My ADU will be completed next month. I paid 175k for a 400 ft.² one bedroom one bath ADU. It should rent for $1700. That basically meets the 1% rule. As for as the appraisal right now the property is valued at 850k I'll see what the new appraisal will come in at when I refinance and they make me get an appraisal. I'm hoping for a 1M appraisal. We shall see.

 Curious to hear what the appraisal when you find out! Good luck

[Brandon Leong]

Quote from @Robert C.:
Based on the responses you probably can see that ADU additions on single family homes are still the wild west right now, so you need to be clear on the numbers and goals in your specific market. Appraisals are unreliable, but there are definitely places like near me where you can make the money off of resale. 

My biggest concern with ADU’s on single family lots is that all the new laws have muddled what the long term value looks like, and most people don’t realize it yet. What will be the difference between a single family home + ADU vs making a duplex with SB9, for example? Duplexes are generally valued lower than a single family. As other people have mentioned, does it increase risk of being rent controlled down the road? Duplexes usually get a carve out, but triplexes not necessarily if you add ADU+JADU. 

Now AB1033 allows you to condo convert your ADU’s. That’s an interesting one, but who knows what that’s going to look like as an investment! I actually can’t believe that one passed statewide. 

Anyways, I have taken advantage of adding ADU’s in 5+ multifamily and triplexes. For the former, being able to add 25% more units to the right apartment building is just magical. And moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

Thanks for sharing your experience. The ADU I am thinking of adding is on a triplex property and my understanding on the valuation of these types of properties is cap rates (4-5% depending on the neighborhood in LA) and thus adding more income to the property increases the value of the property assuming the cap rates hold

[Brian Koons]

Constructing an Accessory Dwelling Unit (ADU) in Southern California is a smart move, especially in a highly desirable neighborhood. ADUs can significantly enhance your property's value by adding living space that can be used for rental income or as additional living quarters for family members.

The increase in value from an ADU can vary widely depending on several factors such as the size, quality, and functionality of the ADU, as well as its integration with the main property. In most cases, ADUs do not appraise at the same cost per square foot as the main house. This is because the main house often includes value drivers that ADUs do not, such as larger living spaces and more comprehensive amenities. However, ADUs still add substantial value by increasing the overall utility and potential income generation of the property.

When it comes to appraisal, an appraiser will consider the added value of the ADU based on comparable properties in the area (comps) that have similar features, including ADUs if available. The income approach might also be used, evaluating the potential rental income the ADU could generate. This method is particularly relevant if you're in a market with high rental demand.

Many property owners have found that adding an ADU significantly increases their property's market value and appeal. While the added value may not directly correlate to the cost per square foot of the main house, the investment often pays off in terms of increased property value and rental income potential.

Let me know if you have any other questions! I work at an ADU company based in San Diego, and would love to help how I can

[Allan C.]

@V.G Jason I can't believe you added an ADU in MB! I wouldn't have don3 that to any property west of 405… but I guess you really wanted your ILs out of the main.

[Jason Meissner]

Hey Suganya,

The people outside your area are just reading the news. You will do great with an ADU in your area if you do a good job keeping your cost under control. The main thing to keep in mind as a true investor is, can you simply add square footage to the main property to get the same sale price if you're planning to sell the property. It is much easier to add SQFT than to add an ADU. Square footage on the house will translate more consistently in an appraisal. However...doing both is preferable so go for it. If you are planning on renting of course add the ADU.

Good Luck

[Dan Heuschele]

Quote from @Robert C.:

Quote from @Suganya Vinayakam:

I'm currently constructing an ADU in Southern California. While I haven't remodeled the main house, it's situated in a highly desirable neighborhood. I'm interested in understanding the increase in value that the newly built ADU will bring to the current value of the property. will it be appraised for same cost per-sqt as like main house? Did anyone appraise the property / sold after adding adu?

Based on the responses you probably can see that ADU additions on single family homes are still the wild west right now, so you need to be clear on the numbers and goals in your specific market. Appraisals are unreliable, but there are definitely places like near me where you can make the money off of resale. 

My biggest concern with ADU’s on single family lots is that all the new laws have muddled what the long term value looks like, and most people don’t realize it yet. What will be the difference between a single family home + ADU vs making a duplex with SB9, for example? Duplexes are generally valued lower than a single family. As other people have mentioned, does it increase risk of being rent controlled down the road? Duplexes usually get a carve out, but triplexes not necessarily if you add ADU+JADU. 

Now AB1033 allows you to condo convert your ADU’s. That’s an interesting one, but who knows what that’s going to look like as an investment! I actually can’t believe that one passed statewide. 

Anyways, I have taken advantage of adding ADU’s in 5+ multifamily and triplexes. For the former, being able to add 25% more units to the right apartment building is just magical. And moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

 AB1033 is like sb10 in that it allows a jurisdiction to opt in.  So passing means as much as the passing of SB10 that last I heard was only authorized by a single jurisdiction.  

Duplexes and 2 units only get a carve out from AB1482 rent control if a unit is owner occupied prior to tenant occupying the other unit or less than 15 years old. Some jurisdictions, I believe erroneously, are having existing unit become rent controlled if over 15 years old when an ADU is added. Note this goes against the rationale of the 15 year rule which was to encourage new housing by not having it result in rent control for 15 years. The state law makers have to clarify on this as the way it is today is unclear and adding an ADU can make your existing unit rent controlled.

>moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

I agree this seems to be low/zero risk but I am unsure why you excluded the duplex.. I would have only stated as converting SFR. In fact adding unit to SFR in area with true zone MF also seems to not get the negative impact from adding an ADU. Worst ADU addition appraisal occur where there is no zone MF in the vicinity.

Are you aware of city of San Diego rules regarding converting existing legal space to ADUs?   It may interest you.

Best wishes

[Dan Heuschele]

Quote from @Brandon Leong:

Quote from @Robert C.:
Based on the responses you probably can see that ADU additions on single family homes are still the wild west right now, so you need to be clear on the numbers and goals in your specific market. Appraisals are unreliable, but there are definitely places like near me where you can make the money off of resale. 

My biggest concern with ADU’s on single family lots is that all the new laws have muddled what the long term value looks like, and most people don’t realize it yet. What will be the difference between a single family home + ADU vs making a duplex with SB9, for example? Duplexes are generally valued lower than a single family. As other people have mentioned, does it increase risk of being rent controlled down the road? Duplexes usually get a carve out, but triplexes not necessarily if you add ADU+JADU. 

Now AB1033 allows you to condo convert your ADU’s. That’s an interesting one, but who knows what that’s going to look like as an investment! I actually can’t believe that one passed statewide. 

Anyways, I have taken advantage of adding ADU’s in 5+ multifamily and triplexes. For the former, being able to add 25% more units to the right apartment building is just magical. And moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

Thanks for sharing your experience. The ADU I am thinking of adding is on a triplex property and my understanding on the valuation of these types of properties is cap rates (4-5% depending on the neighborhood in LA) and thus adding more income to the property increases the value of the property assuming the cap rates hold

 Triplexes and quads are not appraised on cap rates if using conventional financing.   They are appraised on comps. 

However, adding an ADU to a triplex is likely to be appraise better with respect to the cost of the ADU addition than adding it to a SFR. if you add one ADU, you will likely be comped against quads with maybe a slight adjustment for it not being a true quad.

Good luck

[Robert C.]

Quote from @Dan Heuschele:

Quote from @Robert C.:

Quote from @Suganya Vinayakam:

I'm currently constructing an ADU in Southern California. While I haven't remodeled the main house, it's situated in a highly desirable neighborhood. I'm interested in understanding the increase in value that the newly built ADU will bring to the current value of the property. will it be appraised for same cost per-sqt as like main house? Did anyone appraise the property / sold after adding adu?

Based on the responses you probably can see that ADU additions on single family homes are still the wild west right now, so you need to be clear on the numbers and goals in your specific market. Appraisals are unreliable, but there are definitely places like near me where you can make the money off of resale. 

My biggest concern with ADU’s on single family lots is that all the new laws have muddled what the long term value looks like, and most people don’t realize it yet. What will be the difference between a single family home + ADU vs making a duplex with SB9, for example? Duplexes are generally valued lower than a single family. As other people have mentioned, does it increase risk of being rent controlled down the road? Duplexes usually get a carve out, but triplexes not necessarily if you add ADU+JADU. 

Now AB1033 allows you to condo convert your ADU’s. That’s an interesting one, but who knows what that’s going to look like as an investment! I actually can’t believe that one passed statewide. 

Anyways, I have taken advantage of adding ADU’s in 5+ multifamily and triplexes. For the former, being able to add 25% more units to the right apartment building is just magical. And moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

 AB1033 is like sb10 in that it allows a jurisdiction to opt in.  So passing means as much as the passing of SB10 that last I heard was only authorized by a single jurisdiction.  

Duplexes and 2 units only get a carve out from AB1482 rent control if a unit is owner occupied prior to tenant occupying the other unit or less than 15 years old. Some jurisdictions, I believe erroneously, are having existing unit become rent controlled if over 15 years old when an ADU is added. Note this goes against the rationale of the 15 year rule which was to encourage new housing by not having it result in rent control for 15 years. The state law makers have to clarify on this as the way it is today is unclear and adding an ADU can make your existing unit rent controlled.

>moving from a triplex to fourplex generally has no impact to the $/sq ft appraisal. From my view, neither property type (with the right features) suffers from the same potential downside appraisal risk as converting SFR or duplex. 

I agree this seems to be low/zero risk but I am unsure why you excluded the duplex.. I would have only stated as converting SFR. In fact adding unit to SFR in area with true zone MF also seems to not get the negative impact from adding an ADU. Worst ADU addition appraisal occur where there is no zone MF in the vicinity.

Are you aware of city of San Diego rules regarding converting existing legal space to ADUs?   It may interest you.

Best wishes

I excluded duplexes because at least in the SF Bay Area, SFR earn a premium on sale over Duplexes, and duplexes get higher price/sq ft over 3-4 units. That's in general of course - exceptions to every rule and all that. So adding one more unit to a duplex may deplete equity gain even if it improves cash flow over here.

In San Francisco proper the discrepancy between 2 and 3 units is bigger I assume because of condo conversions. I never really understood the discrepancy in the sub markets except maybe people can wrap their heads around renting out 1 unit versus maybe they are scared of having more then one tenant? There are also discrepancies due to whether or not the public record includes garage square footage. People either can’t do math or don’t pay close attention to that not-so-little item. 

Thanks for the specifics on these bills. Really hard to keep all the details straight since there have been so many laws passed down from the state in recent years. 

[Carlos Ptriawan]

Quote from @Craig Jones:

I'm not familiar with the rules in LA, but in NorCal detached ADUs on single-family properties are required to have separate utilities.  They can't be piggybacked off of the main residence.  For sure PG&E requires this for gas and electric, and I think most jurisdictions require it for water and sewer as well.  Trenching, utility connection charges and etc. add a huge cost handicap which makes the economics unworkable in almost every case.  Unless it's owner occupied and they just don't care.

I am starting to see a lot of interest in putting small ADUs on existing multi-family properties though.  Like small enough to be 100% prefab offsite and then trucked in.  Often these go on lot area that's been converted from parking, but it sorta depends on the property configuration.  Shared utilities are the norm for multi-family so that issue doesn't comp up.  And the numbers are pretty good on the projects I've looked at.

these are the very recent regulation that's from what I read, it makes more sense to add ADU into small MF.

[Dan Heuschele]

Quote from @Brian Koons:

Constructing an Accessory Dwelling Unit (ADU) in Southern California is a smart move, especially in a highly desirable neighborhood. ADUs can significantly enhance your property's value by adding living space that can be used for rental income or as additional living quarters for family members.

The increase in value from an ADU can vary widely depending on several factors such as the size, quality, and functionality of the ADU, as well as its integration with the main property. In most cases, ADUs do not appraise at the same cost per square foot as the main house. This is because the main house often includes value drivers that ADUs do not, such as larger living spaces and more comprehensive amenities. However, ADUs still add substantial value by increasing the overall utility and potential income generation of the property.

When it comes to appraisal, an appraiser will consider the added value of the ADU based on comparable properties in the area (comps) that have similar features, including ADUs if available. The income approach might also be used, evaluating the potential rental income the ADU could generate. This method is particularly relevant if you're in a market with high rental demand.

Many property owners have found that adding an ADU significantly increases their property's market value and appeal. While the added value may not directly correlate to the cost per square foot of the main house, the investment often pays off in terms of increased property value and rental income potential.

Let me know if you have any other questions! I work at an ADU company based in San Diego, and would love to help how I can

>The income approach might also be used, evaluating the potential rental income the ADU could generate. This method is particularly relevant if you're in a market with high rental demand

I would like to know the appraiser who valued an ADU using income approach for a conventional loan. Please provide this.

Thanks

[Carlos Ptriawan]

Quote from @Dan Heuschele:

Quote from @Brian Koons:

>The income approach might also be used, evaluating the potential rental income the ADU could generate. This method is particularly relevant if you're in a market with high rental demand

I would like to know the appraiser who valued an ADU using income approach for a conventional loan. Please provide this.

Thanks

 I never seen one LOL

but one strategy you could do is just do HELOC and income from rent in ADU can be used to decreased DTI, not all the bank can do that though.

[Bruce Woodruff]

One thing rarely mentioned about ADUs is the general density and parking overload. Back when I was bidding/building and these became the rage, it was astounding to see municipalities in already crowded areas allow the density to (almost) double without taking any steps to provide additional parking or other amenities. 

This may vary by area......