Assessing the Viability of Accessory Dwelling Units (ADUs) as an Investment Opportunity for Real Estate Investors in California and Nevada
Accessory Dwelling Units (ADUs) can be a good option for property investments in California for a number of reasons:
- Increased Rental Income: ADUs can provide homeowners with a source of rental income. With California's housing crisis, demand for housing has increased, and ADUs can help meet this demand while also generating additional income for homeowners.
- Added Property Value: Adding an ADU to a property can increase its value. Having an ADU on the property can make it more attractive to potential buyers or renters, and can increase the property's overall value.
- Flexibility: ADUs can be used for a variety of purposes, such as a home office, a guest house, or a rental unit. This flexibility can make the property more attractive to a wider range of buyers or renters.
- Reduced Carbon Footprint: ADUs can be built to be environmentally friendly and energy-efficient, which can reduce the property's carbon footprint and operating costs.
- Favorable Regulations: California's recent changes to ADU regulations have made it easier and more affordable for homeowners to build ADUs. This includes reducing fees, eliminating parking requirements, and loosening restrictions on size and height limits.
Attached ADUs:
- Must share a wall, roof, or foundation with the primary residence
- Must have a separate entrance
- Must have a kitchen, bathroom, and living/sleeping area Cannot exceed 50% of the existing living area, up to a maximum of 1,200 square feet
Detached ADUs:
- Must be located in the rear or side yard, with a minimum setback of four feet from the property line
- Must have a separate entrance
- Must have a kitchen, bathroom, and living/sleeping area Cannot exceed 1,200 square feet
- May require additional parking spaces
Garage Conversion ADUs:
- Must meet the same zoning and building requirements as other ADUs
- Must have a separate entrance
- Must have a kitchen, bathroom, and living/sleeping area
- Must comply with fire safety standards and ventilation requirements
- May require additional parking spaces
Junior ADUs:
- Must be no larger than 500 square feet
- Must be created within the primary residence
- Must have an exterior entrance separate from the main entrance to the primary residence
- Must include a kitchenette and a bathroom
- May be created by converting an existing bedroom or living area, or by adding onto the primary residence
Height Limits:
- The maximum height for a detached ADU is 16 feet, or one story if the unit has a pitched roof.
- Attached ADUs must comply with the existing height limit for the primary residence.
Owner Occupancy Rules:
- As of January 1, 2020, local jurisdictions in California may not require owner occupancy of either the primary residence or the ADU.
- Local jurisdictions may still require owner occupancy for up to five years after the issuance of a certificate of occupancy for an ADU that is newly constructed, or that is converted from existing space.
- However, under California state law, cities cannot require owner occupancy until January 1, 2025.
Rental Rules:
- Homeowners may rent out ADUs for a minimum of 30 days at a time.
- Short-term rentals (less than 30 days) are subject to local jurisdiction regulations.
Maximum Number of ADUs Per Lot:
- One ADU and one Junior ADU are allowed on each residential lot in California.
- If a multi-family dwelling is converted to condominiums, an ADU may be added to each unit.
Parking Requirements:
- Local jurisdictions may not require more than one parking space per ADU or per bedroom in an ADU.
- Parking spaces may be provided as tandem parking on a driveway, as long as the tandem space is not blocking a required setback.