06/26/2021
Check out this new article I wrote about Multifamily ADU Development.
Can ADU’s Save The California Multifamily Industry?
In the Covid era, governmental regulations and mandates have been causing quite a bit of anxiety among apartment owners. But in the middle of all this turmoil, an amazing thing has happened. California has passed the most aggressive multifamily housing legislation in the country. These new laws will help apartment owners earn more income than ever before! This all happened when the new ADU laws, particularly SB-13, went into effect on January 1st, 2020. This now allows multifamily property owners in the state of California to add three or more additional ADU rental units to their properties for additional income.
The primary impetus of the ADU legislation is the state's dire housing shortage. We live in a capitalist society, and the rules are very simple. It’s all based on supply and demand. That ratio is completely out of whack in California. There is a severe housing shortage and it continues to get worse. This is causing many negative effects with one of the most prominent ones being the dramatic rise of homelessness.
According to California Census Data, there are 3,829,515 multifamily properties in the State of California. The great majority of them could add a minimum of two new living units. That could mean over 6 million new housing units.
To give you an example, on a small scale, if you own a duplex you can now add two new detached ADU units and an additional ADU conversion of existing non-living space. Guess what? This means your duplex now becomes a five plex. Just imagine the difference in the ROI on that arrangement.
There are multiple qualifying challenges that the property must meet, but it applies statewide
and the great majority of properties will, in fact, be able to take advantage of this new
opportunity.
There are two separate areas of this multifamily opportunity. There’s a 25% rule which simply means an owner can add up to 25% more converted space units based on their existing unit count. The convertible space must be non-living space. An amazing aspect of this law is there is no limit to the potential number of new units that can be created. If you have a 4 unit property you can add one new unit, but say you have a 100 unit property, that means you can add 25 new units!
Some examples of non-living spaces would be a recreation room, boiler room, storage room, or yes garages. They all count towards that space. In addition, any property regardless of the number of units on it can add two detached units (Some local jurisdictions will only allow one or the other option). This formula is very aggressive and will give many owners the opportunity to significantly increase the cash flow on their buildings. The concept is very simple. You get to build additional rental units on land that is free. Yes, that’s right, it’s free because you already own the land. The cost is already spoken for.
As a result, the ADU development ROI couldn’t be simpler to calculate. It’s simply the cost of construction versus the rental income or the cost of construction versus the equity increase in value that the new square footage will generate. This is truly a win-win-win scenario. All the while you will be helping to solve one of the greatest problems facing the state of California. It’s a supply-side housing shortage.
The State government has been paying attention and this time didn’t just ask for more money from taxpayers to solve the problem, instead, they incentified the market. Now ordinary homeowners and multifamily property owners are encouraged to invest and profit in their own properties. Now instead of property owners having to pay more taxes (money out), they instead can create more money IN! Because this is a statewide law it will encourage unit production everywhere, so it is fair.
One of the key components of the new legislation is in regards to the parking issue. For cities to
prosper, they must grow. But absent vacant land to build on, cities must become denser.
Traditionally vast amounts of parking have been included in that development formula. In this
new ride-sharing economy, owning (and parking), your own car is much less necessary. This, in
turn, allows city planners to require less parking. ADU’s do not require parking as long as the
property is within 1/2 mile of mass transit. This includes a bus stop. Existing properties typically have a small amount of vacant space. With no need to accommodate parking that space can be optimized as living space. If you can fit it, you can build it.
Possibly the only upside to this housing crisis is that finally government leaders are
being forced to think “outside the box”. They have, and now multifamily owners can both
prosper and be part of the housing shortage solution at the same time.
Help yourself and help California grow and prosper, now and forever. Build ADU’s and build them now.
Seth Phillps aka Mr. ADU
www.ADUgold.com
213-784-4447
[email protected]
Your ADU Experts Featured ProjectCulver City ADUHere at ADU Gold, we consistently push the boundaries to get the most out of limited ADU space. This project was the first 2 Story w/Rooftop deck ADU ever constructed in the city of Los Angeles or perhaps anywhere. Because of its unique design, it se...
