How to build an ADU in California
Thinking about building an ADU on your property in California but don't know where to start? Are you interested in learning how to get a grant of $40,000 for some of the cost of the build, or are you interested in joining a community of others who have built or are in the process of building their own ADU so you can ask questions to help make your build easier? Then this week's episode is for you. Today I interview Ryan O'Connell from @How To ADU , one of my go to sources for the latest info on anything having to do with ADUs in California and we go over all this and more.
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Full transcript of our conversation:
Josh Alexander
Are you thinking about building an ADU in California and want to understand the step by step process you need to go through to get the job done? Or do you want to know more about a $40,000 grant that California is offering to help pay for the cost of ADUs? Or how about having a community that's all about ADUs so if you have questions about the process, you have somewhere to go to get those questions answered. Well, then this episode is for you. On today's episode, I'm going to be talking to Ryan from how to ADU and we're going to be going over all this information and more. So if you're thinking about building an ADU in California, you're not going to want to miss this. So let's go ahead and get into it.
Josh Alexander
Okay, everybody, I want to go ahead and welcome Ryan O'Connell to the show today from how to ADU Ryan, thank you so much for joining me. I've been following you for a while I've been getting a lot of information about ADUs almost all my information from you. Because it seems like you're kind of on top of whatever's going on in California, in terms of the laws, the programs out there. So thanks again for joining me.
Ryan O'Connell
It's my great pleasure. I'm glad somebody shares my obsession or benefits.
Josh Alexander
Exactly. So there's a couple of things I want to go over today. The first and I think the most important thing is home prices are expensive. Interest rates have gone up significantly. So there's more and more homeowners now that are starting to say hey, instead of purchasing another home, I've got family, maybe multigenerational either I'm younger, and maybe my grandma, my parents want to move in or vice versa. I'm the parent I have younger kids and maybe I want them to take over the House and I can go live in the back house somewhere and save some costs, keep the family together, those type of things. So they're kind of starting to wonder, okay, is adu right for me, and, and so how to actually even get started in the process of seeing if I could put an adu on my property, and kind of what that looks like. So I just wanted to see if you can kind of walk us through some of your best practices that you've come across and all the time you've been dealing with ADUs, and kind of what steps they might go through, and resources they might want to look into to be able to figure out if it'd be right for them.
Ryan O'Connell
Yeah, you own a house in California. And the advice is very simple to start off on figuring out what you can do. You want to figure out what jurisdiction you're in and the planning department for your your property, and you can have a conversation with them. Right and almost everybody's got a take on ad use. Most of the jurisdictions in Orange County are are following state law and allowing. And then just before you go in for that conversation, you want to read the state guidance, the the HCD, which is like our state's version of HUD, they've got a handbook about accessory dwelling units, it's free, and just skim it right just kind of know your know your rights. And as long as what the city is saying is pretty in line with what the state saying, then you're good to go. If there's anything that seems pretty out of whack, then you read that section a little more thoroughly. But that's a good way to like sandwich what you can do without picking the big fight. Right?
Josh Alexander
And are you finding that when you're talking to these plant in the city planners? Are they usually pretty knowledgeable what's going on? And now that I know like SP-9 is relatively new. So that's been kind of trying to get that implemented and making sure that the planning departments on top of it knows the rules, are you seeing that that's a little bit more, more fluid now and easier to kind of go through that process
Ryan O'Connell
ADUs have been real firmed up, and they've gone through multiple rounds of cleanup bills, you go into something like SB-9 and it's been law for almost a year now. But it's there's there's a lot of kinks to work out. In general, what I'll say if people don't go into city planning, unless they want to do good things, and so there'll be very open to it. And they'll try their best to figure out the laws if they don't know them already. And and yeah, you're totally it's a great, it's a great time to be talking to city staff about accessory dwelling units. Okay.
Josh Alexander
So basically, first you go to the city, you figure out kind of what isn't what's the process involved, figure out who you need to talk to first. And they're going to be kind of the one guiding you through the whole startup process of going through that now once you kind of figure out okay, if I can put an ad on my property. Next, I'm guessing you would probably want to hire engineer general contractor, someone that kind of start the design process.
Ryan O'Connell
Yeah, I like doing the city and the HCD thing first, because it's free, right? And okay, kind of a good primer, or like, you've already paid your taxes. So the city kind of works for you. Right? It's a good starting point. Like the most important thing is if you get a buddy at the planning department, like write their name down, and instead of going to the generic front desk, especially in larger cities or counties, get that individual who was like helpful, okay. But then, but then very quickly, you start spending money, you know, you talk about architects, engineers, builders. And what I would say is, take us take a pause now that you know what you can do, and take a real moment to think about why you're doing it. Right. And it sounds a little mushy and like, Yeah, but it's super important to like, it's like when you're buying a house. Why are you buying a house? What are you looking for? And then and then you might say, well, let's kind of take a peek at this. And are we doing it for housing relative? Are we doing it to save money on housing costs for that relative? Are we doing it because we're looking at rental return? And it's a it's a build and hold? Are we doing it because we're really thinking about selling the house and within the next 10 years, and we just see it as like a quicker flip, which is hard to do with an ADU. Yeah, so figuring out that out is going to, it's going to be very helpful, because you're going to have 100 decisions over the course of this process. Yeah. So I would take a step back, think about why. And then once you know that, it kind of points you in certain directions. And you might, architects are great. If you're if you've got the budget for an architect who understands ad use and understands customer service, that's a great handhold or through a project. If it's a smaller project, and you're trying to you're trying to keep things tight. Sometimes the design builder is interesting, right? Somebody's the kind of contractor who doesn't mind doing permits? Who likes drawing plants? That's okay, because he is or smaller, you don't necessarily need an architect, you got the GC engineers. Okay, those are both good options. I'm available, I do consulting calls, I tried to create as many free resources as possible, so people can see it on YouTube. And like answer the common questions, if you run into challenges, or you have a lot of good options, then it's, it becomes interesting to call me and, and we can kind of work through the best ones. But most people should just be able to self serve. That's the point of these new streamlined rules.
Josh Alexander
That's yeah. Okay. So perfect. So you get that done now, from your experience and talking to people that have been doing these. I mean, if if someone was walking in, obviously, there's 1000 different options you can do in terms of building these. But let's say you're trying to build kind of just a base model 800 square foot 750. How expensive in general you find these things to be? Are they are you looking at like 100,000 to 200,000? What kind of range pricing can most people expect for just a very basic model of this?
Ryan O'Connell
Yeah, this is a dangerous question. Yeah. I it's always a hard one. No, not the one. Yeah, no, I'm not the one that's gonna build it at this price. I like to set people's expectations. This is a six figure project. Yep. Even down in your most of you guys are in the OC, right. And like, it's less expensive there for labor. But you're still I would, I would say, you're gonna be happy if your product starts with a two. And if you can, if you can get into the ones you should be very happy. Okay. Things that can help with that are if it's a conversion of an existing space. And it's an easy conversion, which isn't always a given, you know, like, if it's got a slab with some footings. And it's, and you can keep the walls, you can keep the roof that every time you keep something that's actualizing some say. And then and then. So having set that expectation for all that, and like it can be very expensive, even just the permits, you know, something goes wrong with utilities, or, you know, an upgrade on the panels, suddenly, suddenly your costs go up by 715 1000. And you're like, what? Yeah, that's why I like to set that expectation. Yeah. Having said that, I have a Facebook group. It's free call Hatay the year where there's homeowners and and it's, and they're talking about pricing all the time. I see people in SoCal finishing for 100,000 150,000. On on the regular, so completely possible, but I never want to set that as like the baseline X. Yeah. Because cuz it, you know, there's also people finishing at 300. So yeah,
Josh Alexander
exactly, depending on the finishes and the complexity of the project and how many problems you run into, it's always going to be, and that's the same when I talked to contractors, it's the same thing, it's one will quote you this, and then one is going to be 50,000, more than 100,000 more, and there's always going to be a range. So just want to see kind of the range that you were seeing on there.
Ryan O'Connell
One other thing is like, let's go back to that, why if somebody comes at me, and they say, I'm building it for a family member who's like, my, my adult child is moving back to California, they can't afford a place, they're gonna start, they're gonna sign a one year lease and pay 3000 a month in rent. Okay, do you save money and spent four extra months on your project and spent 12,000 and red plus lock that kid into a one year lease? Or do you or do you But you say, actually, I should invest that in myself. And and it's in the long run, I say, or, you know, a variety of other outcomes. It's often like a time of money conversation. You can finish these projects real cheap as an owner builder. You can invest 40 hours a week in the project, subbing it out and like vetting your own people, and you get a real low price tag, but like what cost sometimes Yeah, so.
Josh Alexander
Okay, give it take and yeah. And so kind of the last question I have on that side of things is, from what you've been seeing in terms of like the timelines on these is this Something if someone wants to do this, they can say, hey, I can get this done in a few months, is this going to be with all the permits and stuff? Are we looking at like a year or more? What kind of are the average timelines, you're seeing what these ad used from, when they decided to start talking to the city planner, to kind of going through and getting it fully constructed ready to move in?
Ryan O'Connell
It's pretty typical to take a year, the moment you submit a permit, it starts to clock with the city planner. And it's supposed to be that they reply in 60 days, okay, the laws are getting even tighter about that. But we're not seeing a lot of enforcement about that. So I used to talk in like, yeah, right, in 90 days for the city. And that includes like a round of comments where they can make some corrections, you have a week to pick them up and send it back. So like 90 days for the plants permits, and that's a good outcome, sometimes those longer. And then, and then it's pretty straightforward. These aren't there's not a ton to these. So yeah, so the builders can can get going pretty fast. If if you're a priority, because you're paying. Yeah. And if you're trying to skip expected to take a little longer, maybe it goes up to that nine to 12 months. Yeah,
Josh Alexander
gotcha. Okay. So that's how it makes sense. A marathon? Yeah. Oh, yeah, definitely. It's just like any kind of renovation project, it's almost tenfold because you're, you're building an entire structure. So always things that can go wrong. Okay. So I mean, I think I give people at least a basic understanding of some of the very general stuff. So you talk to the city first. And some of the cities I've seen too, especially with like SB nine stuff starting to come out there. They have like plans that are ready, permitted and ready to go. So they say, Hey, if you want this size, start ready to go. Here's the design, that's gonna knock off some time, I'm assuming in terms of because everything's already ready. Approved at that point. Yeah,
Ryan O'Connell
yeah. Some programs exist at local levels. And that's always amazing. They vary and how pre approved they really are. Okay, but generally, they do cut down the timeline. The most extreme example is in like San Jose up here. I've seen people go in and basically get it over the permit, they get over the counter, they get a permit within a week. Okay. And that's wild, right? That's yeah, that's really fun. Very hard. I don't know of anything that fast down south yet, but there's just some jurisdictions doing a great job. Okay. And the other thing that to talk about in that vein is like, there's state approved and federally approved housing, which isn't for every project, but if you're thinking about return on investment, a lot of the time manufactured house, like what we used to call mobile homes, they can be a really interesting way to get this project done with minimal disruption on a budget, they affect the value of your property differently than something that stick built. Right, they'll be appraised differently sometime, the lending options are different. And some Yeah, but But you put it on a permanent foundation, and it's a house. It's, it's not like up on up on blocks or anything. Right. So yeah, so there's some really interesting options that are state approved and federally approved, too. And there's title 24 options. They're state approved a lot of prefab modular companies that are that are kind of doing similar things.
Josh Alexander
Yeah, that's kind of yeah, my next question, because I've That's seems to be in terms of cost savings, at least a lot of money is flowing into those module type of homes and trying to get those companies off the ground. Like, I think it's box box, double. It that one is not in California yet, I believe, but they are trying to get in here. There's a lot of other places that are trying to kind of pop up where it's basically you're you're fooling the walls in shipping it. And then a lot of it's already done. So you're basically taking a crane, putting it together, saving some costs on it, but it's going to be this is what you get, you're not really able to alter it too much, except for maybe some of the finishes.
Ryan O'Connell
Yeah, so no comments on that specific company? Because it doesn't I don't I don't have a thing I can comment on in California. Yeah, yes. But modular companies in general, what I would do to set expectations is say the biggest savings is in disruption on site. So like all that construction happened somewhere else that's guaranteed. Yeah, it's only four and a foundation, doing some site prep in your yard. And then the the install day. The places where I would set expectations are some of them are cheaper, and some of them aren't. Some of them are a little faster, but some of them aren't. Like there's the same supply chain effects everything. So when costs go up on timber, it doesn't matter whether you're building it out of state or here or whatever off site on site. Lumber got expensive. And similarly, if your windows are delayed by 14 weeks, on site construction or off site, they're all buying the windows from like, like three or four manufacturers. So yeah, just just be careful about about that. Because the one thing is guaranteed as less on site disruption. So if you're living there, you got tenants you care about like that's, that's a really good factor to consider. But for savings, careful. Anybody who says like, Oh, I'll get you a whole Out of spare, like, half the number that Ryan said was really good.
Josh Alexander
Yeah, watch out for that. figure out, well,
Ryan O'Connell
that's a, it's another great time to go to the planning department, you go, Okay, I'm gonna get a permit, I want to figure out my permits with your unit. Can you send me the documents that I need to take to the billing department and the planning department to get this unit installed? And the company will either be like, Oh, we take care of that. And let's start the conversation. So that's the contact info. Or they'll send you the docs. If they don't, if they're like, ooh, first put down 10 grand you're like,
Josh Alexander
yeah, and move on to the next one. Yeah. Okay. Well, I think that's some great information, like I said, on the Getting Started process. So the second thing I wanted to bring up because it's becoming more and more of a talking point. And it seems like California is obviously trying to really encourage people to build these ad use is this new adu grant program, which I think there's $100 million in this program altogether. And it basically is allowing people that qualify to get up to $40,000 to be able to help with the costs, or some costs of building these ad use. Can you kind of speak to a little bit about what that program is about? And maybe some of the knowledge you have based on the conversations and what you've been finding out so far?
Ryan O'Connell
Yeah, of pleasure. So I'll start by saying this thing changes, like every day. We're talking
Josh Alexander
on your YouTube channels. And you're like, that seems like every time I see it, there's a change here, a change here. So it's a very flowing process.
Ryan O'Connell
Yeah. So like, hopefully, we'll put a link in the description or something where you have the most up to date information. It is a program being administered by Cal HFA. The State agency, right. And that's the best place to get authentic information, right. Callie, Jeff A is allowed to give out this 100 million to homeowners who are increasing housing production by building an adu or a adu. And they've got some rules. So there's some income requirements. You can't be over a certain income level, but they're pretty generous. Well, I should have looked at the Orange County limit, but we'll Yeah, yeah,
Josh Alexander
yeah, I think Orange County has like to 235,000, I believe is the limit on your income.
Ryan O'Connell
And the applicant just has to be somebody on the title. And at this time, so and then you show your tax your first few pages, your your 2021 Tax Return to validate that income that you stated. So there's a lot of situations where you could get you can be eligible for the grant, even at moderate income or above. So that's then you get 40 grand toward pre developing costs, basically soft costs. And again, this is changing what what gets included and what doesn't. But every project has 40 grand and soft costs, unfortunately, you'll you'll find a way to spend it. And that can include paying down points on the loan or other non recurring closing costs. So there's a lot, there's a lot of ways to use that 40,000. I'm not beating many people had to give some of it back. Yeah. And yeah. And then there's a variety of entities that can approve, they can qualify you for the load. Okay. So even though Callie HFA holds the money, they're going to, they're not going to administer the entire thing. So they have a bunch of lenders, and you could go to those lenders get a construction or renovation style loan that qualifies you for the grant. And Kelly Tuffy likes that because they can put the money in this controlled escrow account that's related to the grant the loan, and they know that it's going to be administered properly by that control. If you don't want to use one of those lenders, or you have passionate matches or whatever, there's there's some nonprofits and some cities and some different entities, they can also work with you to qualify for the grant. And they're listed separately on that website. The one that 90 plus percent of people have used is called HPP. Cares. And you can work with any kind of lending or any kind of cash, you break, but you have to fund the account. So you're gonna be like, Oh, I did my math, and my product is gonna cost 150 grand. And they're gonna say, okay, 40 or 33 is coming from the state, and then you fill it with the other the remaining cash. And so you kind of you put your cash in this controlled fund, it's not in your bank account anymore. And so that's how the grant kind of works.
Josh Alexander
Okay, and have you So sounds like you've been working with or talking to some people that have been using this as it seemed like, it's a pretty easy process. Is there a lot of red tape involved is it's like, it's like you said it's evolving. So it seems like it's there's always a little bit of slight changes here and there. But How hard are these to get if you do qualify based on your income?
Ryan O'Connell
What I'll say is, it's not it's not easy. It's not like there's no strings attached, because you'll have to go through processes, right? Whenever you get an invoice if you want to pay directly from the F script from the escrow you've created. Now, there's a process where before you could just write a check now you gotta send like to an invoicing department, and like that, that add steps, and that can add time just to be realistic, right? Having said that, like, I'll go pretty far out of my way for like a $5,000 grant. So if you tell me, you know, 40,000, even with some fees, even if it comes down to less than, like 30,000 or 35 money so like I'm willing to put up with quite a bit of paperwork. That's that's kind of my view on that it but it's but it is time. It does add time and process. And I've spoken to some homeowners who are in very specific situations and you got to talk to a financial advisor about your situation, right? Today. It's it's taxable, the 40,000. And you get a 10 994. It be, you know, something, I talked to somebody who is funding their adu in cash, it was a large project, it was a $300,000 project. And, and it's mostly from cash and a little bit from a HELOC. Their cash is it's in a 3% savings account. And the HELOC is at a 7% rate. I'm like, you're gonna pull three, you're gonna you're gonna stop getting 3% on that chunk, you're gonna start paying 7% interest on the whole HELOC not just the amount you need at the beginning, because you're funding this account, you know, buddy that I don't know I'm not sure I'm not sure your CPA, I'm not sure mom, but like, go go think about that map. Yep. Because that starts to get expensive to touch and third 35 or whatever that so then it's
Josh Alexander
okay, perfect. And yeah, so I'll post that the link in the description or comment section, depending on where you're watching this. So if you want to check it out, get more information about it, you can see that but it's definitely a program that if you can take advantage of which a lot of people do qualify for definitely something to look in as part of the process of you going through and planning this. So with with that last question on the grant, when in the process, should they be going through and doing that? Should we be talking to the city planner, and looking at that grant at the same time? Or when in the process? Do you think it'd be best for them to kind of start that process of applying for it?
Ryan O'Connell
It really, this is going to depend a lot, right? So I'm a big believer in do do little baby steps on planning, budget and finance all at the same time. Like find out what you qualify for find out about what you can do find out about what it costs, and you move everything forward a little bit at a time, because it's an iterative process development is like you're gonna, you're gonna backtrack, you're gonna step forward. It's a start start. But but at the same time, there's a bit of a rush, because the grant is finite is 100 million from the state. Yeah, and like, right now, you know, some portals are opening and closing as they try to calibrate, because there's been such a search for grant requests. So like, keep an eye on it. But don't, don't delay because you want to you want to, you want to educate yourself as quickly as possible. Now, having said that the state of California loves distributing money effectively, right? That's one of the hardest things. So the fact that this grant is going very quickly, as long as it should result in the creation of a bunch of ad use. At the end of the year, the state is going to pat itself on the back and it's going to give, it's going to free up more money. And maybe it's for this program, maybe it's for another one. But whatever exists in the future, the momentum is for more putting giving homeowners the ability to create their own housing, because it's been a really effective way to increase production in California. And that's what the state wants. That's what it will fund.
Josh Alexander
Okay, perfect. Well, I think that's a good starting point for people to understand about that process. So the last thing I wanted to discuss before I let you go today, was the new community that you have basically come up with that you're starting. So can you kind of talk a little bit about that. So people that might be interested to learn more about ADUs, what is this community that you're developing? What does it use for who's kind of the ideal person for this? And just kind of let me know how people can effectively use this community?
Ryan O'Connell
Yeah. So I think one of the things I've learned by working with hundreds of homeowners through this process is that it is a it's a high friction process. It takes a year or more. Some people have been planning it for two years and saving up and the laws change every year, a new bachelor's is going into place in January. So I know a bunch of stuff because I'm very grateful that this is my full time job. I get to be obsessed with ideas and help people. But but very quickly, you get three homeowners from a specific part of a specific part of California. And they know more about that one city that I do they have the buddy at the planning department. It sounds like I need to put a community together where people are actively building ad use, you get access to each other, your high achiever, you're you're gonna do this. And so that's a that's a special community. You can I'll put another link in the comments in the description. And that's a way to to belong to a group of people who are actively pursuing their projects. The people that works for is either homeowners who are doing their one And they want to see other people go through the process. Because there's a lot of hurry up and wait. Like you'll, you'll make all these big decisions, you'll put in your permit application, and then you'll sit around for 60 days. And it's great to actually spend that time alert, seeing other people talk about their project and then go, how would I act in that situation, if that happened to me, and you'll be much more fluid when stuff happens. The other people that works for our kind of serial investors who are we're trying to stay on top of things. But they've got fingers in a lot of pies, that that there's, there's quite a few of them in there. That's beneficial to the homeowners, because you get to look over and go like, Oh, man, that guy's on a six day deal. He doesn't. And that's that's kind of how the group works. It's, a monthly fee. And right now I'm doing for 14 days free. So, it's a good way to test the water, check it out, see the free resources that you get, as soon as you enter the group, you get a lot of access to me and the group and the webinars. And at first anyway. And yeah, it should be really fun. It's a good example of like, all these new laws coming in into January, it's it's not just that there's 12 changes that include to story ad use and this and that, it's that those changes now have to be implemented at the local level. And so like we'll be, we'll be learning and churning as we figure out how to actually where the rubber hits the road. And that's what the group is for.
Josh Alexander
Okay, well, yeah, that's, that sounds like a perfect marriage, the two things were that's one of the biggest issues is like city by city. It's hard, even though what we discussed is to figure out exactly the right process to go through what is approved, what's not approved. So having those resources on the ground for individual counties and digital cities. Sounds like kind of a no brainer. And I'm surprised that no one's really created this community before. So thank you for creating that one. Because it is a giant resource for people that are looking to try to get into this adu. But maybe be a little apprehensive because there is a lot of stuff to learn as you're going through the process. So to be able to use others as kind of your soundboard as well as What mistakes did they make? How did they do it better? How did they go about it the most efficiently way possible. I think it'd be perfect for anybody trying to look to do this adu and get one on their property, or even figure it out. If it's the right thing for them. They can go in there and browse, talk to people. And that might help them determine kind of like we've talked at the beginning of the conversation, what is your real goals what you really want to go to the ATU because it's a process, it takes a while, and it's really going to be worth it at the end for you. So that makes perfect sense. I will definitely put that in the link as well. So you guys can check that out. Sign up for the free trial, see if it's right for you. Anytime you think about making an adu, make sure that you reach out to Ryan. Ryan, what is the best way for people to follow you besides the community if they want to learn more about ADUs? I try to put
Ryan O'Connell
a lot of free resources out there. So YouTube it's called How to adu tiktoks called How to adu. I got the website up to your ad here. And there's a there's a free Facebook group too. It's it's got a lot more going on. Right there's there's 19,000 homeowners in there talking all day about different projects. But but that's a wonderful resource, a great place to dip your toe in the water. And then if you ever want to be in a circle, then you know how to do it. But by that gotcha. I really appreciate you talking about all of this with your Thanks, Josh. Yeah, absolutely.
Josh Alexander
So I'll go ahead and make sure I link all that stuff in the bio as well. So you guys can go ahead and check that out and check them out and follow Him. Because if you want to know how to adu in California, right, it's a great resource to be able to go through and get the very basics to understand exactly what you're doing. So Ryan, thanks again for joining me today. I really appreciate it. I learned a lot and hope some of my viewers will be able to reach out to you and be able to get this process started so we can create more homes in California. So until next time, everybody, stay healthy, stay happy and I will see you on next week's show. Bye everyone.