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Find out what's the best ROI for your property, based on our analysis. Explore whether you should build a small ADU, Tiny Home on Wheels, or even split your lot and sell the entire backyard (SB9).
Accessory dwelling units, also known as ADUs, are popping up in the Los Angeles area faster than ever. Thanks to new legislation, Angelinos can now add living space for family or rental space to their single family home much easier.
Accessory dwelling units are a category of construction that adds additional living space to an existing structure, like a single family home. You can now purchase a prefabricated ADU or build a custom ADU on your single family lot.
ADUs can accommodate new family, office space, or even become a rental unit.
In LA, an ADU can be added to an existing home for any number of uses. For example, some Angelinos are turning their backyard into a gold mine by adding an ADU and using it as an AirBNB rental unit.
To combat homelessness, California has enacted legislation that encourages homeowners to take advantage of the friendly ADU climate. In California, nearly two-thirds of all residential housing is classified as single family.
Especially in urban areas like Los Angeles, housing availability falls short of the expected demand. To ease this looming housing crisis, homeowners are now encouraged to subdivide their single family residences and add an accessory dwelling unit, or ADU.
Through easing of restrictions, loan assistance and closing costs reimbursement, Angelinos may now have a money making machine in their backyard and not know it.
If the thought of adding an ADU scares you, be assured it's never been easier to purchase and install an ADU in Los Angeles. Los Angeles is so ADU friendly Angelinos can avoid much of the hassle, complexity, and effort normally associated with installing an ADU.
The first step in purchasing an ADU is to determine what you need the ADU for and what your options are. Are family members moving in? Can you add to your existing home or will the ADU be free standing?
The property location of the ADU can significantly affect the cost. For example, if you want to turn a garage loft into an ADU, you can reuse most of the existing structure to help keep the costs down.
Conversely, adding a stand alone, custom ADU with upgraded features may require utilities and services separate from the home. Building a custom, free standing ADU in LA will incur site prep and foundation costs as well, which can represent 10% - 20% of the total cost to build the ADU.
Fortunately, modern technologies have made adding an ADU simple and cost-effective for LA buyers in all price ranges.
The first step is deciding which ADU design is best for your situation. Are you working from home now and need more room? Is a relative coming for an extended stay, or are you looking for the gold mine mentioned earlier?
Here are a few common ADU types and what they offer:
Prefab ADUs take much of the time and effort out of the design process, saving you money. Prefab ADUs do not require architectural design services or structural engineers, so the initial costs are less. Prefab ADUs are built off site and delivered ready to install.
Prefab ADUs are primarily built in a factory setting, so you will often have several design options available. Prefab ADU builders let you choose your interior materials, finishes, and colors to make your ADU unique.
Often you will have your choice of exterior materials and colors and roof design as well. With a prefab ADU, you can select your countertops, kitchen and bath cabinets, and floor coverings to suit your needs.
Prefab ADUs are installed quickly because much of the construction is done off site. Often the site prep and setup efforts are minimal. Due to their pre-construction, prefab ADUs are not as affected by cost overruns and weather delays as a custom ADU might be.
Custom ADUs are usually designed to take advantage of the lot and the specific needs of the occupant. Custom ADUs can take any size or shape, providing nearly unlimited design options. Custom ADUs are often the most expensive ADU to build due to the unlimited choices of materials available.
If functionality is most important for you, a custom ADU will probably suit your needs best. Custom ADUs are designed for the occupant, as opposed to off-the-shelf prefabricated ADUs. Prefab ADUs tend to appeal to a broader range of buyers, but offer fewer options.
Occupants needing special amenities like a wheelchair ramp often prefer to have a custom ADU professionally designed and custom built. Wheelchair ramps, lifts, and other amenities are priceless to the occupant(s), so cost is often secondary to functionality in custom ADUs.
If you prefer to have your ADU less conspicuous, a custom ADU can often be designed to match the existing home. A custom ADU can be built around the existing structure for a more seamless appearance.
Custom ADUs can also be detached from the home, but designed to match the exterior. Custom ADUs can be constructed to match nearly any existing exterior, like siding or brick. As such, custom ADUs can be designed to look original to the home and less like an addition.
Financing an ADU in LA is easier than ever. Standard financing, like home equity loans and refinancing first mortgages are available to fund your ADU. However, due to their popularity, ADUs in LA can be financed in less conventional ways, like home share agreements.
Due to rising interest rates, some ADU purchasers opt to keep their existing mortgage intact. ADUs can be financed using home equity loans, a home equity line of credit (HELOC), or by selling a financial interest in the ADU, known as a home share agreement.
In this scenario, the entire property is refinanced with a new mortgage based on the value of the home. Unfortunately, now is not a popular time for refinancing due to rising interest rates. Most homeowners will already have the lowest interest rate than they can now get, making this option the least attractive.
Home equity loans are a popular way to finance an ADU in LA. Property values in LA typically rise over time, increasing the homeowner’s equity. Home equity loans (also known as a secondary mortgage) do not affect your existing first mortgage.
Home equity loans are paid out in a lump sum and repaid in regular installments over the life of the loan, which is typically 5 -15 years. Home equity loans are secondary to the original mortgage, so the loan will usually have a slightly higher interest rate to represent the additional risk. Most home equity loans will have a fixed interest rate over the life of the loan.
A home equity line of credit, (also known as a HELOC), functions much like a home equity loan. The difference is that a HELOC is not dispensed in a lump sum, as a home equity loan would be. With a HELOC, you can borrow against your credit line in small increments as you need the money.
However, most HELOC loans include a variable interest rate to mirror the prime lending rate at the time you borrow the money. If the variable rate goes up before you repay the loan, your monthly payment will increase as well.
A modern form of ADU financing in LA, known as a “home share” agreement, can be attractive to homeowners with considerable equity in their homes. Home share agreements sell a share of the value of a home to an investor for a cash payment up front.
In this arrangement, the investor buys a percentage of the resale value of the property when the property is sold, so the cash is not a loan that must be repaid. The homeowner literally sells an interest in the home’s value and uses it to fund the ADU.
However, If the property loses value over time, investors may lose their investment when the property sells. In theory, since the ADU will also add value to the existing property, property values should increase with the addition of the ADU.
Because LA property values tend to increase over time, home share agreements that fund an ADU in LA are becoming more common.
The California Housing Finance Agency was created to help low to moderate income homeowners. CalHFA services CALHFA subordinate loans, like a second mortgage, to keep people in their homes. Qualifying LA ADU owners can apply for help with down payments, as well as deferred monthly payments.
CalHFA also makes a reimbursable grant available to help defer predevelopment costs like site prep, design work, permits, surveys and fees. These expenses must be non-recurring and considered part of the normal closing expenses, but up to $40k per project is available. You can click here to begin the application process.
In California, there are nearly three occupants for every occupied housing unit. Only Hawaii and Utah have a higher occupant density. The California Housing Opportunity and More Efficiency Act, also known as SB9, was enacted in late 2021 to help solve this California housing crisis.
Senate Bill 9, referred to as SB9, removes the zoning and variance requirement normally needed to allow single family residential lots to be subdivided (with minimal restrictions) into two lots.
SB-9 is a big deal for LA ADU buyers. Before SB9 was passed, adding a separate living space to a single family lot was prohibited unless a zoning variance was awarded to the homeowner.
Before SB-9, adding an ADU to a single family property was permitted on a case by case basis, so not every Angelino qualified.
SB-9 allows LA homeowners to subdivide their single family residence into two lots, and each lot is approved for two residences. SB-9 in a ministerial law, meaning it applies automatically to every homeowner in every city in California.
Especially in LA, local municipalities can request certain design standards be met, but these standards can not supersede the intent of the SB-9 legislation and prevent the installation of an ADU.
As a result, California leads the nation in support of ADU construction and reduction of homelessness.
Once you have determined where your ADU can go, you can assess each option from a different perspective, depending on what’s most important to you. For example, turning a garage loft into a granny flat is probably best if your main concern is the upfront cost.
ADU floor plans can take nearly any shape depending on the available space and the lot. Prefab ADUs for example, are available in 1, 2, and 3 bedroom versions and will comfortably fit most properties.
ADUs built in LA can be used for family members, AirBNB rentals(if the home was built prior to January, 2017), or just to add additional space to grow into. Determining what your options are will help narrow down your choices before investing. Here are a few popular ADU designs and how they differ:
Attached ADUs are integrated into the existing home. Attached ADUs often share components with the existing home, like the roof or a breezeway. Attached ADUs require the services of professionals, like architects and structural engineers because you will have to modify the existing home.
Free standing ADUs are not integrated into the existing home. Free standing ADUs can be site built or prefabricated in a factory.
A site built, free standing ADU can take full advantage of the characteristics of the property. For example if the property slopes, a two-story ADU may be practical because it can double the square footage, while investing only once in the foundation and roof.
Site built ADUS in LA are popular because they offer the most design options in most cases. Site built ADUs can be designed for the space instead of modifying the space for the ADU.
Prefab ADUs are very popular in LA because they are quick to install, very well constructed, and are available in several floor plans. Prefab ADUs do not always require an attachment to the original home, so construction costs are often less.
Prefab ADUs often share utilities and other services with the home, but many prefabs do not require modification to the home itself. You’ll want a licensed electrician and plumber to inspect your home’s existing systems to determine if entirely new services will be needed for your ADU.
Junior ADUs are a new category of ADU design. JADUs are like a custom or prefab ADU, except JADUs are limited to 500 square feet in size and do not require a dedicated bathroom. JADUs are generally the least expensive ADU type, primarily due to the size limitations and smaller plumbing requirements.
Permitting an LA ADU involves a preliminary plan check fee ($208.00), a 3% development service center charge, and a 6% systems surcharge fee. Other permitting fees may also apply for professional services, like electrical and HVAC inspections.
Fortunately, the popularity of ADUs in LA has attracted forward thinking builders and manufacturers to Los Angeles. Generally, when designing your ADU you will have the option to add to your existing home or add an entirely new structure to the property.
Here’s a list of custom ADU builders serving LA and their specialties:
Windrich Group- Located in Calabasas, CA. May offer in-house design services.
SDCasitas- Located in National City, CA. Experts in using the SB-9 law to full advantage.
Supreme Remodeling Inc.- Located in Los Angeles, CA. Specializes in hillside custom ADU construction.
Cal-ADU- Located in Los Angeles. Specializes in all types of ADU design and construction
Here’s a list of prefab ADU builders serving the LA area and their specialties:
United Dwelling Located in LA, United Dwelling specializes in underused spaces.
Plus Hus - Located in Santa Monica, Plus Hus offers a 16’ by 20’ structure for $67K.
Cover - Offers design services, permitting & installation of your LA ADU for a fixed price.
Connect Homes - Located in LA, Connect Homes offers 15 prefab LA ADU floor plans.