Adu anyone?

How to avoid signing your life over to a mortgage
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aptruncata
Posts: 55
Joined: Thu Jun 14, 2012 11:14 pm

Adu anyone?

Post by aptruncata »

Does anyone have experience in purchasing a ADU (Accessory Dwelling Unit) for their property either for extra rental income or to house in laws?
I had a consultation today and would like to share what i've learned. (I'm in southern california)

-max size is 1200sq ft.
-anything over 750sq ft. will be charged a impact fee (about $20k by the city).
-the unit will have it's own address, own electrical panel, own sewer line (connecting to the city sewer separately).
-pretty lax on parking space requirement so no need for designated parking on the property.
-no requirements for solar.
-$10k deposit, non refundable (says will refund within 3 days of signing contract) but floor planning alone will take about a month back and forth with the designer. So $10k deposit is basically non refundable.
-8-10 month turnaround from date of signing contract to occupying the unit.
-hard money loan available up to $100k at 10%
-Lastly, $350-$400/sq ft. :shock:

Western Red Cedar
Posts: 173
Joined: Tue Sep 01, 2020 2:15 pm

Re: Adu anyone?

Post by Western Red Cedar »

I haven't built one but have followed the issue/movement for a while.

$350 - 400 per sq. foot sounds pricey for an ADU. I think average prices in Portland and Seattle were in the $150,000 to $300,000 range for a detached structure. This was a year or two ago, so it's feasible that labor shortages and increases of material are driving up the cost. It may also be that Southern California's market is just much more expensive than the PNW. I remember coming to the conclusion that it really only makes sense as an investment in a market like Seattle/Vancouver/SF where the cost of a SFR is north of 500-750k.

One of my coworkers did the ADU tour in Portland and shared some of the costs and photos with me. Here are a couple links that might be helpful:

https://www.buildinganadu.com/cost-of-building-an-adu

https://accessorydwellings.org/adu_tour/

I think some of the price quote might reflect a "all inclusive" service with design, permitting, construction, etc... I think it's fairly easy to find off the shelf designs and it shouldn't be too challenging to navigate your way through the local permitting process. Any labor/sweat equity will also lower your costs.

TL/DR - you can almost certainly find a cheaper option with a little creativity and ingenuity.

aptruncata
Posts: 55
Joined: Thu Jun 14, 2012 11:14 pm

Re: Adu anyone?

Post by aptruncata »

Thank you for the links.

SFR here are well above 500-700k and even when assuming they are all inclusive, $3-400/sq.ft. in my opinion is heavily inflated.
For example, my insurance policy will rate at a replacement cost of $200 to upwards of $250/sq.ft. for a higher end homes in my area.
(this is ofcourse in the event of a catastrophic loss whereby the entire home must be replaced from the ground up)
Granted an ADU will be for a smaller footprint but i don't see how the premium over that of what the insurance actuaries calculated for my particular home, zip code and a primary structure replacement would be cheaper per sq. ft. than a sub 1000sq. ft. granny flat.

I don't know if i'm comparing apples to oranges here but if i am, feel free to chime in. :)

Thanks,

Riggerjack
Posts: 2993
Joined: Thu Jul 14, 2011 3:09 am

Re: Adu anyone?

Post by Riggerjack »

ADU is an artifact of urban building code, not a form of construction, or investment fad.

For this reason, ADU and SFU, or MDU are entirely separate categories of construction, and have differing costs. Same methods, materials, and labor but entirely different regulatory costs, and different sales/rental values. Apples, oranges, bananas.

This best summary of real estate value of a lot I have ever run across was something a developer in a real estate appraiser's forum. He said a lot was worth it's highest developed value, minus his cost of development (including permits through sales commission, and anticipated profit, and room for prices to move over the time period of development).

If one looks at it this way, one can more effectively guage the value of an ADU vs the value of merely having ADU capacity as part of a future sale of your property. It may be worth more as potential expansion, than as a completed project, after you calculate the completed costs...

What I can say, is that all phases of construction and permitting are open to homeowners, and guiding homeowners thru the process is an unpleasant, but necessary part of the permitting job.

Go in with a positive attitude, the understanding that you don't own the land, you pay a mortgage for the opportunity to apply for a permit, and that the prices you are about to pay are among the reasons you anticipate the profits you do.

IOW, permits are a barrier to entry, enacting a tax of personal energy and financial costs that many will not overcome. You are betting your energy and money on your venture. The obstacles you overcome will eliminate competition, helping you achieve your goal profits.

Of course the knock on effects are borne by those who don't participate in this market, at this level. High costs of living are merely one such effect, but HCOL seems popular in some places.

aptruncata
Posts: 55
Joined: Thu Jun 14, 2012 11:14 pm

Re: Adu anyone?

Post by aptruncata »

Riggerjack wrote:
Tue Dec 22, 2020 1:44 pm


For this reason, ADU and SFU, or MDU are entirely separate categories of construction, and have differing costs. Same methods, materials, and labor but entirely different regulatory costs, and different sales/rental values. Apples, oranges, bananas.

Go in with a positive attitude, the understanding that you don't own the land, you pay a mortgage for the opportunity to apply for a permit, and that the prices you are about to pay are among the reasons you anticipate the profits you do.
Thank you for the insight.

Surprised with the going rate $/ sq.ft. I've inquired on a hypothetical scenario whereby the primary building will be rebuilt to match the ADU and they have quoted the same price to build both the primary residence as the ADU.. which was also a bit confusing.

I'm actually not anticipating any profits as this unit is to house dw's parents and I don't plan on charging them any rent.

Riggerjack
Posts: 2993
Joined: Thu Jul 14, 2011 3:09 am

Re: Adu anyone?

Post by Riggerjack »

Well, right now you are looking at a market working through a large set of C19 supply shocks.

Today is NOT the day I would recommend to start this process.

For instance, when I built in 2009ish, 7/16 OSB had been close to $10 sheet a year before. In 2009, it was $5/sheet. It's $28.05 as of today. It will return to around $10 at some point. The same thing is happening with all construction materials and labor. Many 300% price changes this year.

In the meantime, I am watching skids of used lumber selling at auction for prices higher than last year's retail new price.

I'm not surprised by the prices you are seeing. Though I would be very surprised if that estimate you received didn't have some allowance for cost differentials not in the estimate. There will be some way to pass the changing costs on to you, the customer. This isn't a scam, it's just a business necessity. But it can be scammed.

Good luck.

aptruncata
Posts: 55
Joined: Thu Jun 14, 2012 11:14 pm

Re: Adu anyone?

Post by aptruncata »

Riggerjack wrote:
Tue Dec 22, 2020 4:42 pm

For instance, when I built in 2009ish, 7/16 OSB had been close to $10 sheet a year before. In 2009, it was $5/sheet. It's $28.05 as of today. It will return to around $10 at some point.
That is wild. Thanks again for your input, it is much appreciated.

Riggerjack
Posts: 2993
Joined: Thu Jul 14, 2011 3:09 am

Re: Adu anyone?

Post by Riggerjack »

If you go to any forum where people are going through this process, the stories are worth your time.

Garage journals dot com has a section dedicated to builds. Owner builder dot com, the same.

I'm sure there are dedicated forums for urban construction, but I am not aware of a specific example.

The point being that this (residential construction) is a small world, with it's own rules and exploits. Reading the stories of those who have gone before you, is very likely to be helpful to you.

Gilberto de Piento
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Joined: Tue Nov 12, 2013 10:23 pm

Re: Adu anyone?

Post by Gilberto de Piento »

Would a tiny house on wheels solve the problem with less money and hassle? Locally an ADU is one thing for zoning (a second house on the lot) while a tiny house on wheels is another (is built to get around the rules).

Riggerjack
Posts: 2993
Joined: Thu Jul 14, 2011 3:09 am

Re: Adu anyone?

Post by Riggerjack »

The urban code solution to tiny homes is a restriction on temporary living spaces to 180 days per year.

This is to keep people from living in RVs full time.

One cannot restrict supply, if one leaves such a large loophole. And a primary driver of urban planning is supporting home values. Restricting the addition of living spaces is the way they achieve this objective.

But the tiny homes are getting popular. If code allows it, an RV pad with hookups is going to be far cheaper than an ADU.

Downside is a tiny home that appeals to aging folks, and the difference in selling price of the home + RV pad vs home + ADU.

Western Red Cedar
Posts: 173
Joined: Tue Sep 01, 2020 2:15 pm

Re: Adu anyone?

Post by Western Red Cedar »

@aptruncata

If you're really set on going the detached ADU route, there are a lot of organizations that try to assist individuals through more of a DIY process. As @RJ said, probably not the best time due to the price of materials.

The Incremental Development Alliance is a non-profit focused on nurturing "small-scale developers" in North America. They don't focus exclusively on ADUs, but you can check them out. You can probably do some internet searches or ask around locally to find local organizations. ADUs are a pretty hot topic right now and a lot of local policy makers see them as an important component of their housing strategies.

https://www.incrementaldevelopment.org/

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