Accessory Dwelling Units in California
Accessory dwelling units (ADUs) go by a few names: an in-law house, granny flat, carriage house, backyard cottage, and more. They are increasingly popular with homeowners looking to provide a living space for family members or to generate monthly rental income.
With a housing crunch affecting much of California, the state government has a strong policy encouraging the construction of ADUs to provide more affordable housing options. Just this year, a new set of laws went into effect that incentivize building ADUs and remove many of the legal barriers that may have stopped homeowners in the past. Here is a quick rundown on accessory dwelling units in California.
What Is an ADU?
An accessory dwelling unit is an independent living space that is added on to an existing property with a single-family dwelling. An ADU can be a detached building, or an area of the original house that has been repurposed as independent living quarters. The latter type is known in California as a Junior Accessory Dwelling Unit (JADU).
State law allows for a maximum ADU size of 1200 square feet or, in the case of a JADU, no more than 50% of the square footage of the original house. For example, if the original house is 2000 square feet, a JADU may not exceed 1000 square feet. Local laws may relax this restriction, however.
Changes in State Law
For a variety of reasons, not all counties and municipalities have been friendly to the idea of allowing homeowners to add an ADU to their property. In order to discourage the practice, local governments could enact restrictive zoning laws, make it difficult to acquire a permit, and more. Similarly, homeowners’ associations could prohibit ADUs via their covenants, conditions, and restrictions (CC&Rs).
New state laws have made it much harder to prevent a homeowner from building an ADU. For example, local governments can only restrict the construction of ADUs based on availability of water and sewer service, and the impact on traffic and public safety. If an ADU permit application has not been acted on within 60 days, it is automatically approved. CC&R’s cannot unreasonably restrict or effectively prohibit the building of an ADU. Homeowners considering adding an ADU should find it much easier now.
Accessory Dwelling Units and Property Taxes
For most homeowners, one of the most important questions is how an ADU will affect their property taxes. The short answer is: it will raise your property tax, but not as much as you might be thinking. The value of the new addition will be added to your overall property value, but it will not trigger a reassessment.
For example, if the assessed value of your property is $200,000, but the actual market value is $500,000, building an ADU valued at $100,000 will bring the total assessed value to $300,000, not $600,000.
Besides navigating the new laws, building permits, government incentives, tax implications, and rental agreements, homeowners should also consider creating an LLC to protect their assets. If something goes wrong and a renter takes you to court, all of your assets are potentially at risk; an LLC can help reduce this exposure. It may also help you benefit from more tax deductions.
Think of building an accessory dwelling unit on your property? A consultation with Hoffman & Forde can help you do it faster and more cost-effectively, as well as minimize your legal exposure.