Hot New Trend For Real Estate Investors: Accessory Dwelling Units (ADUs)

More than 161,548 Californians experience homelessness on any given day. That’s according to a report by the U.S. Interagency Council on Homelessness. The numbers, naturally, will continue to rise because of the high cost of living. Strict housing laws and the prohibitive cost of building housing has exacerbated these issues.

Today’s legislative overhauled laws that made it even more difficult to implement creative problem solving for the housing crisis. Yet now, one of the most promising concepts for adding housing is through making Accessory Dwelling Units (ADUs) more affordable and feasible. They don’t need to be only on very high-end properties anymore. They can be located on most single-family lots and the fees have been decreased dramatically.

Katherine Anderson, a real estate and homebuilding expert with more than 38 years’ experience in the housing industry, saw an incredible niche for expanding the preconceived notion of an ADU and knew the idea could help homeowners add to their property for a fraction of the previous price without the red tape and added fees.

Soon thereafter, she then launched Perpetual Homes.

“There’s a reason why we have these housing issues in California,” she told California Business Journal. “We are short two million units in California and there is a huge demand. Even when you try to develop apartments with a percentage of affordable units, they cost about $600,000 a unit to build.

“That isn’t sustainable.”

There have been many efforts to deploy solutions that focused on creating smaller dwellings to help solve the housing scarcity, such as Operation Tiny Home for veterans. But not everyone is able to adapt to the tiny-home life and still, the ADU fees and space requirements for a full-sized home on an existing lot were exorbitant.

Katherine Anderson, CEO, Perpetual Homes

“I saw this opportunity being able to provide very nice, high-end cottages at an affordable price,” Anderson says. “I did a lot of research, and I came across different options with the highest quality. We decided to do manufactured housing and I applied to become a dealer with Skyline Champion. They allowed me to do custom designs with my own plans and we came up with some great options and built a model. People love our quality and the price.”

One look at the Perpetual Homes photo gallery will tell you these are not your granny’s granny flat. The homes are modern luxury with a variety of exterior structures and model-home interiors. Everything is full-sized and made of sustainable materials. ADUs can range in size from a 430 square-foot one-bedroom, one-bath unit, to three-bedroom, two-bath, 1,200 square-foot plans and custom sizes can be discussed. They have bathrooms, heating, air conditioning and laundry areas available. A décor center lets buyers pick out their high-end flooring, cabinets, countertops, tile, etc. just like any other new-home build.

“ADU fees used to be over $100,000 for under 750 square feet to build on most lots,” Anderson says. “Several laws passed in 2020 at the state level to override the most limiting local city and county ordinances. These center on reducing required setback space from fences or lot lines, eliminating the need for fire sprinklers in most situations and lowering impact fees if under 750 square feet. Setback laws used to require 20 feet rear setbacks and 5-15 side yard setbacks, but now both rear and side yard setbacks only need to be 4 feet.”

Assembly Bills 68 and 881 relaxed these ordinances statewide. Other elements eased include removing the minimum-lot-size requirement, reducing parking requirements and shortening the time frame for getting site plans reviewed by cities and counties. Additionally, Senate Bill 9, signed into law by Gov. Newsom in September 2021, is a revolutionary approach that will allow single-family homeowners to add an ADU to their property and then do a “lot split,” which would allow them to parcel two lots with homes as opposed to one.

The primary requirement is that the owner must live in either the main house or the ADU for at least three years before they can do the split. There are many caveats so make sure to research the details but it could prove an excellent investment for many current homeowners.

Perpetual Homes handles everything for the build including permits, utilities and the foundation. The firm also does full project management and helps arrange financing.

“We do everything from A to Z,” Anderson says. “We have five drafters and an architect. We research where the sewer lines are, where the water and power connect, and we submit to the city and/or county to get your permit approvals. We’ll even do Geotech reports if the city or county requires them. We are probably the most experienced ADU builder, in terms of entitlement, in California.”

Custom stick built homes require 13 on-site inspections; however, since Perpetual Homes are built in a factory, most of the inspections are done in the factory, resulting in the need for only two on-site inspections.

“It’s a great investment,” Anderson says. “It helps many of our clients pay their mortgage and the return on investment is 15 to 18 percent plus. We have one client that rents their ADU to traveling nurses and others have it for parents who travel part of the year. The multifamily element is the most popular right now – young adults starting out, older parents coming to live or homeowners aging in place. Some decide to move to the ADU and rent out their main house.”

There’s also a new CalHFA grant for $40,000 for low-to-moderate income levels. If you qualify, you can put the money towards an ADU and it does not have to be paid back.

“It’s really rewarding to see how we’re able to help family members in particular,” Anderson says. “We have so many ways we can customize for their needs and a portion of each sale goes to help the homeless crisis in California.”

Even if you’re not in the market for a full ADU – or want to start small – Perpetual Homes offers an “office shack” option, which can be an office, art, music or yoga studio, she shed/man cave, kids’ playroom, gym – whatever you’d like – as a separate dwelling.

This article was edited and published by Rick Weinberg, California Business Journal’s Founder, Publisher and Editor-in-Chief. Click here for Rick Weinberg’s biography.