Now you can sell your ADU on your property? WOW, how in the world is this going to work, and will this really make sense?
I did some research on this TOPIC and this will start happening January 1st of 2024 but it seems that no one really knows exactly how this is going to work. No one has gone down the road of doing this and no one has closed a deal yet in CA yet.
Here is a quick overview and I will circle back around next year after some deals close and get more intel. I will have to get someone on the podcast ASAP that knows more as well.
ADUs come in all shapes and sizes as we know. Converted garage, storage room, patio room, basement, section off part of a house, build an ADU and I am sure there have been some creative spaces that have been converted. California sees these being set up as a condo. Create an HOA/CC&RS and record a condo map of the property. Notify the local utilities; water, sewer, gas, electric, of the creation and separate conveyance of the unit. Each property will have to have HOA dues that cover shared spaces such as driveways, pools, roofs, utilities, landscape, insurance, and the list goes on. The property will have 2 different property taxes and you will have to get inwall insurance just like a condo.
This might seem overwhelming when you read all that must be done and set up. Once we see transactions completed, people go through the process, it will make more sense and be more comfortable for people to go through the process. In a state like CA where there is not enough housing and not enough land to keep building the state needs to come up with solutions. 42% of homeowners across the country own their homes free and clear. In a state like CA, it’s expensive to retire and live out your life. So, building an ADU on a property, for cash flow or maybe to sell, can help you retire with extra cash to make life more enjoyable.
Oregon, TX, and Seattle have already been doing this and they have had lots of success. Let’s take Seattle for example, when the law passed in 2019 the city had issued almost 1,000 ADU permits. Out of those almost 1,000, the city permitted 437 attached and 551 detached ADUs. In this report I read, they mentioned that units with more than 1K square feet sold for an average of $500k to $800k depending on location, size, style, finishes, etc.
How will this work with financing? Getting construction loans for ADUs is not competitive and expensive. I am hopeful that this will improve as time goes on and some Banks, Credit Unions, and Lenders step up to the plate. Buying an ADU and getting conventional financing is happening in other states and will be more clear in California before the start of the year. California still has to go through the process with first-timers on this, but we will be here to finance these transactions and help out. FHA/VA/Conventional/Jumbo/NON-QM will all step up to make these transactions happen for CA.
If you have a property that you are going to sell an ADU on and want to chat about financing needs please reach out and let’s get your questions answered.
