The Benefits of Accessory Dwelling Units, In-Laws, and Backyard Cottages

Building an Additional Dwelling Unit in Berkeley and Oakland

Are you considering an investment property to supplement your income? You may not have to look any further than your backyard. In response to our housing shortage, Oakland and Berkeley have eased restrictions on parking requirements, allowing many homeowners the possibility to build an accessory dwelling unit (ADU). An ADU is a unit, that is often separate from your primary residence. You can use these units as a rental, in-law, office, or guest room. Building an ADU can supplement income, help pay the mortgage, or give seniors more financial stability heading into retirement.

How much will it cost you?

Costs for new construction in the San Francisco East Bay often range between $250 to $300 per square foot. Conservatively, permits for the structure will account for 8% of the budget. According to Kevin Casey from New Avenue Homes, an online platform for managing any design/build project, for $180,000 you can build a one bedroom unit with a 5’x7′ bathroom, washer/dryer, desk area, and a kitchen with 15′ of counter space. Remember, costs will vary based on the complexity of the design and the grade of the finishes.

Financing the ADU Construction

Even if you’re short on cash, you may still have options. You can finance construction with a renovation loan. A renovation loan takes into account the after renovation value. The two most common renovation loans are the FHA 203K and the Conventional Fannie Mae HomeStyle. You can use both loans for home purchase or refinance.

Since construction budgets will vary based on the size, scope, and municipality, it is easier to think in terms of the monthly payment per $100k in renovations.

$100,000 @ 4.5% equals a monthly payment of $507.00

The project outlined above translates to a monthly loan payment of around $1000.

You will trigger a property tax reassessment when you get permits for the unit so you must check with the municipality building department to account for the overall project cost.

Well-located studios in Oakland and Berkeley can rent for over $2000/month in our current market. Because of this, if you are willing to take on the responsibility of being a landlord, the return on your ADU investment is likely greater than the majority of investment properties you can buy in the Bay Area.

Contact Devin Ratoosh from The Ratoosh Group to learn more about rental rates and how an ADU will impact your home’s value. Email Devin at Devin@RatooshGroup.com

Considering financing for your ADU? Contact Tim & Kris Floyd to learn about your options.

Learn more about the requirements for building an ADU in the City of Berkeley

Learn more about the requirements for building an ADU in the City of Oakland

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