Just finished building an ADU in Los Angeles

[Paul Dashevsky]

Just finished an ADU in the Lake Balboa area of Los Angeles. Expanded an existing detached garage into a 740sf ADU with 2 bedrooms and one bath. I'm renting it for $2500. The total cost of the project was around $175k.

I had a great contractor who finished it in 3 months.

[Dan H.]

Originally posted by @Carl Mathis:

Nice job - congrats!

If you don't know you should beware - SFRs are often excluded from rent control under SB-1482 as 'separately alienable' but when you have 2 distinct units on the same lot you can no longer claim this exemption. The rent control increase limits can be annoying but IMO they are the smaller part of the puzzle - what I think is bigger are the eviction protections and relocation assistance requirements. With these provisions its not too hard to get stuck with someone who is paying small increases every year who is then only evict-able if you do something to reclaim the property such as owner move-in or substantial renovation. Doing these wrong can lead to a wrongful eviction suit and a large settlement. Since these are no-fault you then have to pay relocation assistance even when fully legit which can get costly.

It is my opinion that LL attorneys are essential for all decisions in California.

I am not an attorney...

It is my belief that the 15 year rent control exclusion applies to both the new ADU and the existing unit. At the very minimum, the exclusion clearly applies to the new ADU. The ADU is less than 15 years old, clearly exempted.

Here is my rationale for the 15 year also applying to the existing structure:

1. The regulation IMO is not clear.  This typically would go to does not apply.
2. The rationale for the 15 year exemption is to encourage the addition of new units. Applying this rationale to the new ADU would imply that the new ADU should not result in the regulation to apply to any aspect of the property for 15 years. It seems clear what the rationale of the 15 year exemption is and not applying the exemption to the existing unit is contrary to the rationale for the 15 year exemption.

This is not the first time I have posted my opinion on this.  So far no one (including any RE attorney) has posted indicating that they disagree with my interpretation.

15 years from now, who knows what will be in place.  Likely, long before the 15 years is up, there will be new regulations.  

My point is that I would not let the rent control regulation dissuade an ADU addition. I would be concerned about the value of the ADU versus the cost to add the ADU (i.e. the initial negative position) and how that typically traps the invested capital in the property for too long (typically years) and how the initial cash flow foes towards recovering this initial negative position (typically takes years of cash flow to recover the negative position). Note in most markets adding an ADU starts with at least a $50K negative position.

Good luck