Accessory Dwelling Units — How to Convert Your Garage Into a 2nd Income Source

What Is an Accessory Dwelling Unit (ADU)?

Ever wondered if you could use your home to generate an additional revenue stream? Well, one easy way could be through an Accessory Dwelling Unit (ADU). An ADU is essentially a legal term for an auxiliary housing unit on your property. ADUs can act as secondary homes or spaces that have their own living area, kitchen space, bathroom and separate entrance.

An ADU can be built as a standalone structure or be connected to the main house/building. ADUs have come to be known as granny flats, mother-in-law units or even carriage houses. Typically connected to a common power and utilities connection as the main housing structure, ADUs can be easily accessible and are considered as part of the home or property.

While this ‘separate but together’ situation can seem a bit confusing at first, ADUs have proven to generate savings for a lot of homeowners and in some cases have also shown to be highly profitable.

The good news for Californians is that any single-family home can convert their legally built garages into apartments

ADUs aren’t a new phenomenon – people have been converting real estate on their property into a kind of attached housing space for almost a century. Following World War 2 however, residential areas in the United States were zoned in a way to limit population density, and slowly, ADUs fell out of favour. Nowadays, following social pressures like the housing crisis and a desire to diversify income sources, ADUs have slowly come back into popularity.

ADUs can vary in size and shape. Any attached or semi-attached structure can be converted into an ADU. This could include for example:

  • Converting your garage into a living space
  • Converting your basement into an apartment
  • Turning a backyard shed into a small cottage

Regardless of the type of structure, an ADU is considered to be a part of the property on which it is built. The owner cannot sell an ADU separately and is the owner of the ADU as well as the main home.

Most homeowners look to convert their garages into an ADU. In this article, we will look at how, garages specifically, can be converted into an ADU and potentially serve as a secondary source of income.

Things to Watch Out For:

ADUs can be built for many reasons – a leisure room for the family, as a creative space to use, but the most common reason for having built an ADU is to gain an additional source of income via rent, or to save on costs by housing an extra family member.

But before you make the decision, you need to be aware of the legal requirements, the costs attached, the taxation laws etc.

The good news for Californians is that any single-family home can convert their legally built garages into apartments. Many garages are illegally built in the first place. Homeowners are not allowed to convert these structures into ADUs. For example, a garage might be built too close to power lines in the neighbourhood, thereby increasing the risk of fire, or be built with materials that are prone to collapse under specific environmental conditions that are likely to occur (high humidity, ice etc.) in the area.

To legally convert a legally built garage into an ADU, homeowners, need to comply with fire safety regulations, housing codes, building regulations, and your local zoning codes. You also need planning permission before you can start converting your garage.

Many people have been known to have converted their garages illegally, i.e. without the appropriate permissions and/or without following the right codes and regulations. While this might save on upfront costs, the liabilities and risks attached to non-compliant construction are very high. For example, a garage converted into an ADU without following the necessary regulations may not contain the necessary structural components to withstand the event of an earthquake and put those living in it at fatal risk. Alternatively, fire hazards in illegally modified structures have known to take place. All these risks, coupled with 100% liability for damage and any subsequent costs (medical, fines) should make it a daunting prospect.

Ensuring a safe structure is paramount. In fact, the State of California encourages you to legalize even existing, illegal ADUs. A voluntary process, homeowners are encouraged to submit their existing illegal or undocumented ADUs’ building plans to the state department and formally register them as a part of the property. This can be done if the building plan meets all the legal requirements regarding safety and liveability as per the California Department of Housing and Community Development.

There are other considerations as well. In Los Angeles, for example, your garage must be 10 feet away from your main house to qualify for conversion. Additionally, it cannot be directly under high voltage lines and upon conversion, you need to maintain space for two cars on your property (this includes your driveway). More commonly, provisions include an owner occupancy requirement for at least one of the homes on the property, as well as minimum lot size and the number of occupants allowed within a dwelling.

In general, it is important to understand that there are local regulations to understand and comply with before committing to converting a garage into an ADU.

What Is Next & How Can You Start?

Garage conversions can be expensive and typically cost upwards of $100,000. While these costs are steep, they include the costs attributed to permissions, planning, conversion and consultancy. In some cases, depending on rental rates in a local area, the payback period can be fairly quick. ADUs have been known to pay for themselves within 3-4 years and any rental income beyond that is profit. Additionally, an ADU significantly increases the value of your house on the market. Additional space is treated as extra square footage and directly contributes to potential rental income as well as property value. Clearly, there is a reason ADUs are gaining in popularity.

ADUs are complex projects and require the expertise of an experienced structural engineer and perhaps an interior designer. As mentioned in the previous section, compliance with local jurisdiction is extremely important if you want to build a profitable ADU.

This is where Design Everest can come to your aid! Contact us now and we will provide you a FREE Consultation with a quote. You can learn more about ADUs and garage conversions! We also provide virtual on-sites and virtual consultations. We can have the experts on our team help you understand the legal and financial implications and help you build that attached space you’ve been thinking about.

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