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#20 ADU Expert Explains How to Build Your First ADU (Joseph Peretz) · Own More Doors

0:00
SPEAKER_00: What's up everyone?
0:00
SPEAKER_00: Juan Weezar here with the Own More Doors podcast.
0:03
SPEAKER_00: This specific episode was first shared on our YouTube channel, Sage Real Estate.
0:08
SPEAKER_00: Check it out.
0:08
SPEAKER_00: And we're excited to bring it to you here.
0:11
SPEAKER_00: We hope you enjoy the interview.
0:13
SPEAKER_00: So you're currently a homeowner, but you really want to become a multi-unit homeowner.
0:18
SPEAKER_00: Well, the fastest way to do so is by building an accessory dwelling unit in your backyard or doing a garage conversion.
0:25
SPEAKER_00: And if you're someone who's looking to add value to your property, I tell you what, it is much cheaper to build an ADU in the rear yard than to go off and buy a duplex.
0:34
SPEAKER_00: Much, much cheaper.
0:36
SPEAKER_00: So uh in today's show, we're gonna cover the entire process from start to finish, the timeline, what are the first steps, and what it's gonna cost you to build your first ADU.
0:46
SPEAKER_00: Hi, I'm Juan Weezar, and today we spoke with Joseph Peretz with Neo Builders.
0:52
SPEAKER_00: He is a specialist in building these ADUs.
0:54
SPEAKER_00: This is what he does day in, day out.
0:57
SPEAKER_00: So we're gonna pick his brain and we're gonna find out how you could go about building your first ADU.
1:02
SPEAKER_00: So let's dive right into it.
1:03
SPEAKER_00: Hey everyone, we're super excited today.
1:05
SPEAKER_00: We have Joseph Peretz here, live in person, ADU specialist.
1:10
SPEAKER_00: Joseph has built over 50 ADUs.
1:13
SPEAKER_00: He was smart, he's been riding the wave of the last three years.
1:17
SPEAKER_00: This explosion, this big interest in accessory dwelling units.
1:21
SPEAKER_00: We got some questions for him.
1:22
SPEAKER_00: So, Joseph, thanks for being here.
1:24
SPEAKER_00: Thanks for having me, everyone.
1:25
SPEAKER_00: Joseph, how would you best describe an ADU?
1:28
SPEAKER_00: Because as much as you and I use the words in our industry, explain to people what an ADU even is.
1:35
SPEAKER_01: So, what ADUs are is our accessory dwelling units.
1:38
SPEAKER_01: They started off on single-family homes and it meant accessory to the single family home, right?
1:44
SPEAKER_01: So you might add either onto the garage or a new construction onto the first property.
1:49
SPEAKER_01: Now we see them all over, including on commercial units and multifamilies.
1:54
SPEAKER_01: Again, usually they're going to be secondary to the main property.
1:58
SPEAKER_01: They're not official units yet, but that's kind of where we're going.
2:02
SPEAKER_00: So there's been this large interest, especially in California.
2:05
SPEAKER_00: Now I know other states are now getting into the accessory dwelling units, but in California specifically, there's been this pressure at the state level to the cities to build more housing.
2:16
SPEAKER_00: A little bit of data.
2:17
SPEAKER_00: In the last three years, um, in Los Angeles alone, ADUs made up 20% of all the newly built homes.
2:24
SPEAKER_00: So it's making a small debt.
2:27
SPEAKER_00: It's not going to solve everything, but tell us why are people investing or building ADUs?
2:33
SPEAKER_00: Like what is the main motivation for someone to say, I want to build one?
2:37
SPEAKER_00: Sure.
2:37
SPEAKER_01: So I think the main motivation is obviously rental income.
2:40
SPEAKER_01: A lot of people have homes and a lot of people have garages or a lot of space in the backyard.
2:45
SPEAKER_01: They see it as a chance to rent it.
2:47
SPEAKER_01: A lot of people were housing people unpermitted.
2:51
SPEAKER_01: For example, there are a ton of people that are having their parents or younger kids living in their garage.
2:58
SPEAKER_01: So they see a way of making it legal.
3:00
SPEAKER_01: And once those parents and younger children leave the house, you know, now they can officially rent it.
3:06
SPEAKER_01: But I think a lot of people are putting housing into the private sector.
3:10
SPEAKER_01: We gave the government a lot of chances to put uh housing in the in the beginning.
3:15
SPEAKER_01: We put a lot of taxes to make housing important, and the government didn't do the best job.
3:21
SPEAKER_01: So now we're able to privatize it and we're letting single-family homeowners really house people.
3:28
SPEAKER_00: The ADU has has really exploded, in my opinion.
3:33
SPEAKER_00: And a lot of people do look at it from an income perspective, but there's other uses.
3:37
SPEAKER_00: You know, I we've seen where people are like, my mother's gonna move down and we're gonna build an ADU in the back.
3:43
SPEAKER_00: Or our daughter's gonna go to college, but we don't want to pay for her to move, so she's gonna be able to live in the back and have her own space.
3:50
SPEAKER_00: Other people have built offices in the back, studios, and they've all gotten permitted under these the the ADU process.
3:57
SPEAKER_00: Talk to us about the the process of getting started with an ADU.
4:03
SPEAKER_00: Like, does every building qualify?
4:06
SPEAKER_01: 99% of single family homes in California qualify.
4:10
SPEAKER_01: A big, big chunk of uh multifamily uh qualifies.
4:15
SPEAKER_01: Some properties are easier, some properties are harder.
4:18
SPEAKER_01: Let's talk about the single family home.
4:19
SPEAKER_01: The easiest single family home is gonna be in a big city like San Diego or LA that have a ton of ADUs.
4:26
SPEAKER_01: You know, the easiest project is probably a garage conversion that's attached.
4:30
SPEAKER_01: A detached garage is very easy as well.
4:32
SPEAKER_01: Doing an addition to a detached garage gets a little bit more challenging.
4:36
SPEAKER_01: Doing a new construction in the backyard gets a little bit more challenging, but most houses qualify.
4:41
SPEAKER_01: The main thing that I want to look at is just because your house qualifies for an ADU doesn't mean you should build an ADU.
4:46
SPEAKER_01: You talk a lot about a lot about the um parents and the younger children that live in the ADU.
4:53
SPEAKER_01: Um, this is really important, but I I look at things by numbers.
4:57
SPEAKER_01: So is your house worth less than$750,000?
5:01
SPEAKER_01: Maybe it's not a good idea to build an ADU, or maybe you have to build it.
5:04
SPEAKER_01: Is it worth between$750 and$1.5 million?
5:08
SPEAKER_01: Your house is prime time for an ADU.
5:11
SPEAKER_01: Is your house worth more than$2 million?
5:13
SPEAKER_01: Well, then, like you say, you're gonna do a pool house or you're gonna do an office or you're gonna do a backyard um hangout spot for the family.
5:20
SPEAKER_01: So different use cases for different properties.
5:22
SPEAKER_00: Some folks are gonna ask, hey, Joseph said if my house is worth$750, which by the way is is is the median sales price in the city of Los Angeles.
5:30
SPEAKER_00: So that's that's the median home price for a single family home.
5:34
SPEAKER_00: Why?
5:34
SPEAKER_00: Because I know they're gonna ask, why would Joseph say it's probably not a good candidate?
5:38
SPEAKER_01: Sure.
5:38
SPEAKER_01: $750,000.
5:40
SPEAKER_01: Remember, I'm a contractor in LA, so it's important to kind of think about it from the Los Angeles perspective in my perspective.
5:47
SPEAKER_01: But$750,000, let's say average house is$1,500 square feet.
5:52
SPEAKER_01: I take uh$750 divided by$1,500 square feet, it's about$500 a square foot.
5:58
SPEAKER_01: On a garage conversion, you're probably looking when you when it's all said and done, including your architectural plans, your city fees, your construction, your finishes, your appliances, you're probably looking at the$250 to$300 range.
6:10
SPEAKER_01: So again, if your house is worth$500 a square foot, it's comparable, right?
6:14
SPEAKER_01: Because you're spending$350, you're spending$300 a square foot to add more square footage.
6:19
SPEAKER_01: So it makes sense, although we're not getting full value of what we're spending on the ADU, but we're getting around 75%, right?
6:26
SPEAKER_01: So it makes sense if your house is worth$300 a square foot.
6:30
SPEAKER_01: But if your house is$2,500 square feet and you know it's still worth$750 a square foot, it just doesn't make financial sense because you can go take that$100,000, that$150,000, even that$250,000, and go buy a secondary property.
6:46
SPEAKER_01: Then you have to ask yourself, is it worth it to have one property with two units or two properties with one unit each?
6:54
SPEAKER_00: So I think it really depends.
6:56
SPEAKER_00: Yeah, and you know, Joseph, you you bring up a good point.
6:58
SPEAKER_00: Here at our channel, we teach people how to build wealth through real estate.
7:01
SPEAKER_00: So adding an ADU for us, it's you couldn't have done a better job.
7:06
SPEAKER_00: I mean, adding an ADU is how you build wealth.
7:09
SPEAKER_00: And going back to some of your numbers, even stats from the city of Long Beach, they're they're telling us that the average ADU costs about$275 a square foot.
7:19
SPEAKER_00: So for anyone out there, if you're thinking about possibly doing this, if you're anywhere between$275 a square uh foot or$300 per square foot, but new construction sells for$600 a square foot.
7:33
SPEAKER_00: So from my perspective, I don't really care what the home is worth.
7:37
SPEAKER_00: For someone who's already committed, maybe has a low tax basis, means like the tax is really low.
7:42
SPEAKER_00: You don't have to go buy new land.
7:44
SPEAKER_00: You get to build on that land.
7:46
SPEAKER_00: And so I always think, listen, it's pretty simple math.
7:49
SPEAKER_00: If it's gonna cost you$300 a square foot to build, but ultimately it's$600 a square foot in value all day long.
7:56
SPEAKER_00: That's how you build wealth.
7:57
SPEAKER_00: And so um, from my perspective, yes, buying more always better.
8:02
SPEAKER_00: And obviously, that's what we teach here.
8:04
SPEAKER_00: But from right now, I I think two things to always add value to real estate, and the very first thing that comes to mind is ADU.
8:12
SPEAKER_00: Always.
8:12
SPEAKER_00: And I'm not saying that it's easy or that the process is simple.
8:16
SPEAKER_00: I mean, I think it's affordable based on what the value ends up being worth.
8:20
SPEAKER_00: But Joseph, talk to me about I'm a homeowner, I love this idea of creating passive income with this rear unit.
8:30
SPEAKER_00: I love that pretty much you're gonna um double your money.
8:34
SPEAKER_00: It's what you're doing, you're gonna double your money.
8:36
SPEAKER_00: Uh, I love all that.
8:37
SPEAKER_00: Walk me through the first step, the second step.
8:40
SPEAKER_00: What should someone do first?
8:41
SPEAKER_01: Sure.
8:42
SPEAKER_01: A couple of steps.
8:43
SPEAKER_01: First of all, uh, you want to see, you want to have an idea of what you can do on your property.
8:48
SPEAKER_01: I would talk to a professional, maybe I would talk to an architect or a contractor that's done a couple of these things.
8:53
SPEAKER_01: You want to kind of see the feasibility.
8:55
SPEAKER_01: Once you have the feasibility, you know what you want to do.
8:58
SPEAKER_01: You have to go do architectural plans.
9:00
SPEAKER_01: At the same time as architectural plans, you really want to get funded.
9:04
SPEAKER_01: So it's kind of, you know, chicken versus the egg.
9:07
SPEAKER_01: Do you do your architectural plans first or do you do your financing first?
9:11
SPEAKER_01: I think it really depends on whether you have equity or whether you know you're going to get this money.
9:16
SPEAKER_01: If you know you're gonna get this money, you can kind of hold off on this, start your architectural plans, submit them to the city, and then at the same time use those architectural plans to go get a bid from one, two, three, four contractors.
9:28
SPEAKER_01: Once you have those bids, you finish up your financing, then you start building.
9:33
SPEAKER_01: I mean, again, it's it's a basic construction, whether it's uh uh demolition, foundation, framing, electrical, plumbing, HVAC, there's a really strict order and we have building inspectors that kind of help us with that uh space.
9:46
SPEAKER_00: How are people financing this?
9:48
SPEAKER_00: Because you said, hey, you gotta go get the financing.
9:50
SPEAKER_00: Now, now, so let me just give some examples.
9:52
SPEAKER_00: Someone might have the money in their savings, and so, okay, they don't need a loan.
9:57
SPEAKER_00: Some people might decide that, hey, we have a core uh, you know, half million dollars in equity.
10:02
SPEAKER_00: Uh, I'm gonna get a line of credit, and I'm gonna use that, which by the way, I do recommend because I think it's gonna pay for itself.
10:09
SPEAKER_00: And so that is a good strategy.
10:10
SPEAKER_00: Should you have the equity?
10:12
SPEAKER_00: You've done over 50 of these locally here.
10:14
SPEAKER_00: How are people telling you that they're financing it?
10:17
SPEAKER_01: I think a lot of them are doing cash, right?
10:19
SPEAKER_01: A lot of them have a lot of cash that they've been saving up.
10:21
SPEAKER_01: They've been saving up for retirement, and then they understand that this is my retirement.
10:26
SPEAKER_01: Instead of putting it into a 401k, I'm putting it onto the property I live in.
10:30
SPEAKER_01: So I can also hold my property.
10:33
SPEAKER_01: I can have my property and I can pick and choose who I'm renting it to.
10:37
SPEAKER_01: I think that's the big one.
10:38
SPEAKER_01: The second biggest one is obviously doing a HELOC loan.
10:41
SPEAKER_01: Once you do a HELOC loan, again, depends on how much equity you have.
10:45
SPEAKER_01: Usually you could take out 70 to 80% on your loan.
10:49
SPEAKER_01: We're having kind of an issue with interest rates and ADUs because originally what we people were doing was they were taking out either a construction loan or a line of credit.
10:58
SPEAKER_01: They were building these ADUs and they were getting the entire property refinanced.
11:02
SPEAKER_01: But we can't really do that if you have a really low interest rate.
11:05
SPEAKER_01: We try to figure out financing in the best way possible for you.
11:08
SPEAKER_01: Um, but again, HELOC loan, pay it in cash or get a construction loan and pay this thing off really quick.
11:14
SPEAKER_00: Got it.
11:15
SPEAKER_00: Talk to us about a timeline.
11:18
SPEAKER_00: Okay, because you said, hey, the first step is that we need plans.
11:21
SPEAKER_00: Okay, so that's obvious.
11:23
SPEAKER_00: If you're gonna build anything, of course you need plans.
11:25
SPEAKER_00: Uh, you need to hire a contractor to do it.
11:27
SPEAKER_00: One can do it alone, but I may not recommend that you do that the very first go-around.
11:30
SPEAKER_00: Maybe get some experience with you.
11:32
SPEAKER_00: So plans is the first step, but on average, what should we tell these folks?
11:37
SPEAKER_00: How long is it gonna take to build an ADU?
11:39
SPEAKER_01: If it's a normal garage conversion on a single family home, I would say it's gonna take you about six months.
11:44
SPEAKER_01: That's gonna be three months of architectural plans and city permits, and then three months of construction.
11:49
SPEAKER_01: Although it can be much quicker and much longer, depending on the city.
11:54
SPEAKER_01: I'll give two really small examples.
11:56
SPEAKER_01: The first example is actually a property we just did.
11:59
SPEAKER_01: Uh, we have a bunch of videos on it.
12:01
SPEAKER_01: We got our permit in two weeks.
12:04
SPEAKER_01: The way we got a permit in two weeks is because it was a very simple garage conversion and there was no clearances, right?
12:11
SPEAKER_01: So there's no issues with the actual property.
12:13
SPEAKER_01: Like I say, uh there's a lot of properties that can build ADUs, but not all of them should because of some clearances.
12:19
SPEAKER_01: There was no school within 500 feet from us.
12:22
SPEAKER_01: There was no fire hydro within 500 feet away from us, there was no pole within 500 within uh five feet away from us.
12:29
SPEAKER_01: Um, it was just the perfect structure.
12:31
SPEAKER_01: The structure recently had a new roof, it had beautiful foundation, and it had beautiful stucco.
12:36
SPEAKER_01: So the whole process, two weeks for plans, we started right away.
12:40
SPEAKER_01: It took us two months to build it.
12:42
SPEAKER_01: They were in and out in three months with a tenant.
12:44
SPEAKER_01: But a different process.
12:46
SPEAKER_01: We had a school right next to us, we had a fire hydrant right next to us, and the poles were touching our garage.
12:53
SPEAKER_01: It took us almost eight months to get a permit, and it was in LA County, which is a little bit troublesome, and the foundation was bad, the roof was bad, and the steckle was falling apart.
13:03
SPEAKER_01: So it was basically new construction.
13:05
SPEAKER_01: It took us another four months to build it.
13:07
SPEAKER_01: So it really depends on your actual property and your actual garage.
13:11
SPEAKER_00: The way that I'm hearing this, best case scenario, it could be you know as quick as three months, but in his worst case scenario, it wasn't a year or two years, which we know some projects could certainly take, it was eight months.
13:24
SPEAKER_00: And so if you're interested, I I don't believe that the time is that long.
13:28
SPEAKER_00: It's not.
13:29
SPEAKER_00: There's there's a couple different ways that someone could build an ADU.
13:33
SPEAKER_00: Now, so someone could do a detached, detached accessory dwelling unit.
13:38
SPEAKER_00: That means it's not attached to your um your property.
13:41
SPEAKER_00: There's the garage conversions, and then there's the junior ADUs, which typically what you're doing is carving out a space of your existing home and making a junior ADU.
13:51
SPEAKER_00: Which one is most popular?
13:53
SPEAKER_00: And so the so the folks understand the process, which one is least expensive?
13:58
SPEAKER_01: The most popular in Northern California is going to be a new construction ADU in the backyard, no garage conversion.
14:06
SPEAKER_01: There's more land in Northern California than Southern California.
14:09
SPEAKER_01: Um, and it gets a little bit colder, so they actually use their garage, not just for storage and trash.
14:15
SPEAKER_01: In Southern California, the garage conversion is winning by all means in LA and San Diego.
14:21
SPEAKER_00: Interesting.
14:22
SPEAKER_01: Most expensive is gonna be the detached ADU, uh, new construction, because usually it's gonna be much bigger than a garage.
14:28
SPEAKER_01: Usually it's gonna be taller, and obviously it's new construction.
14:32
SPEAKER_01: So you can build it any way you want.
14:34
SPEAKER_01: You can obviously do it for cheap, but you can also spend a ton of money, and I've seen people spend a ton of money on ADUs.
14:40
SPEAKER_01: The next one is a garage conversion, detached versus attached, because a lot of people have garage conversions uh attached.
14:46
SPEAKER_01: The garage conversion that's detached is more expensive than attached.
14:50
SPEAKER_01: Attached is always much easier and much cheaper.
14:53
SPEAKER_01: But the junior ADU sometimes they cost$20,000,$30,000.
14:56
SPEAKER_01: For example, if you have a three-bedroom, two-bathroom, you know, in the valley we call them Cinderella homes, and you have your master bedroom with a bathroom in the back, um, and it's almost kind of detached, or sometimes we have houses with additions and you have kind of like this big L shape in the back, those are gonna be the easiest.
15:15
SPEAKER_01: You already have the bedroom, you already have the windows, you already have the bathroom, all you have to do is put in a small kitchen, and sometimes you don't even have to put in the kitchen.
15:22
SPEAKER_01: You can get these things done with just architectural plans and a little bit of TLC.
15:26
SPEAKER_00: So the reason why they created junior ADUs, it's so let's just say, well, this would be the scenario, it would be uh empty nesters.
15:33
SPEAKER_00: So the kids have moved on, they're in college, they've, you know, they've gone and gotten their own places, and you have this massive house.
15:39
SPEAKER_00: Um, you don't want to sell the house because it's it's where you know, like, and trust, and you love being there, and you have the lower tax basis, which we have here in California.
15:46
SPEAKER_00: So, for a lot of reasons, you don't want to sell it, but it's too much house for you.
15:50
SPEAKER_00: So that's where the junior ADU comes in.
15:52
SPEAKER_00: So you're not building additional square footage, although you can, and what you're doing is pretty much slicing it up and just putting up a wall, and then having someone like Joseph's company come in and do some plans.
16:04
SPEAKER_00: And so that would be the easiest way to do it.
16:06
SPEAKER_00: Not everyone likes that option because you are sharing a wall with your potential tenant or family member, uh, which some may or may not like, but it is an easy way.
16:15
SPEAKER_00: So, again, there's ADU, there's garage conversion ADU, there's junior ADU.
16:21
SPEAKER_00: And someone's gonna ask, so I'm gonna ask you, can someone do all three?
16:26
SPEAKER_00: Yes, of course.
16:27
SPEAKER_01: You can easily do a new construction in the back, whether it's gonna be 400 to 1200 square feet, and then you can slice up the back, steal your master bedroom, and now all of a sudden have three units.
16:37
SPEAKER_01: You can actually do more with SB9.
16:39
SPEAKER_01: SB9 is a totally different game as of 2022, where you can do four to six units on a single family home.
16:46
SPEAKER_00: So that's even better.
16:47
SPEAKER_00: So the SB9 program uh was recently launched, it is different than the ADU law that was passed.
16:54
SPEAKER_00: And what they were trying to do at the legislation level is for certain properties, now a lot of long each properties didn't work this way, but in other parts of Los Angeles, larger lots, it's possible to split the lot and then you're able to actually end up with a total of four units, the existing house, and then three others.
17:10
SPEAKER_00: Now, not all of them are considered ADUs, but you have a single family home and two ADUs is the way that it would be broken up.
17:15
SPEAKER_00: The program did not take off as they thought.
17:18
SPEAKER_00: So, what typically happens um is when laws get passed and it doesn't really catch on for one reason or the other, the legislators will go back, amend, correct, see what went wrong so that they could relaunch it again.
17:30
SPEAKER_00: And that's what I expect.
17:31
SPEAKER_00: It is gonna come back in some cities, it's gonna be a terrific program.
17:34
SPEAKER_00: Is it possible?
17:36
SPEAKER_00: People do ask me.
17:38
SPEAKER_00: I love my garage.
17:39
SPEAKER_00: I don't want to get rid of the garage, I love putting my car in it, I love the storage or my gym.
17:44
SPEAKER_00: Can I put an ADU on top?
17:46
SPEAKER_01: You can.
17:47
SPEAKER_01: It's just very expensive.
17:48
SPEAKER_01: And again, it has to be the right project.
17:52
SPEAKER_01: Um, I actually have a house that uh I used to for a long time live on top of the garage.
17:58
SPEAKER_01: We have the garage being an ADU, we had the single family home here, and we had a junior ADU on top.
18:03
SPEAKER_01: It takes the right property because number one, uh, it should be attached.
18:08
SPEAKER_01: If it's detached, you can still do it.
18:10
SPEAKER_01: It's just much more challenging because of foundation issues.
18:13
SPEAKER_01: And also has to have right setbacks.
18:15
SPEAKER_01: So basically, you have to have four foot setbacks on the garage in the rear and in the side.
18:21
SPEAKER_01: And if one of your property, one of your garage walls are sitting on the setback, the project is basically gone.
18:29
SPEAKER_01: Because on your second floor, you can keep the garage the same, but on the second floor, you need to be four feet away from the property line.
18:35
SPEAKER_01: So if your garage is 20 by 20, it's 400 square feet, it's perfect for a one bedroom, one bath.
18:40
SPEAKER_01: But the second you go second floor and you're at 16 by 16, you're at less than 300 square feet.
18:45
SPEAKER_01: It's too small to spend all that money.
18:47
SPEAKER_00: So make sure you have the right property for that project.
18:51
SPEAKER_00: We're seeing a lot of our investors, you know, we sell a lot of multifamily, and we really believe from going from a homeowner, you own a single family home, you're adding an ADU.
18:58
SPEAKER_00: So now you're technically a housing provider, which is really what you've become.
19:02
SPEAKER_00: What I'm seeing at the fourplex level is the city of Long Beach, and I'm not saying every Long Beach is gonna allow this, but if you have a four-plex and if you have enough space, they're allowing up to two ADUs.
19:14
SPEAKER_00: So multifamily is different.
19:15
SPEAKER_01: On single family home, you can have one ADU and one junior ADU for this conversation.
19:21
SPEAKER_01: On multifamily, you can have always two new construction ADUs plus 25% uh of your unit count to be made if they're from storage.
19:32
SPEAKER_01: So I think it's really nice.
19:34
SPEAKER_01: Like, for example, if you had 16 units, you can build two new ADUs and then four more ADUs.
19:38
SPEAKER_01: So having 22 units.
19:40
SPEAKER_01: For the fourplex, like you said, I really like the two units.
19:43
SPEAKER_01: It makes a lot of sense.
19:44
SPEAKER_01: Whether you're gonna convert the garages or you're gonna put them on top of the garages, it both really makes sense because when we talk about multifamily, we don't really talk about price per square foot, we more talk about price per door or price per unit.
19:56
SPEAKER_01: So it's always going to be cheaper to add two units than to buy two more units.
20:01
SPEAKER_00: Correct, correct.
20:02
SPEAKER_00: Um, in the city of Long Beach, surprisingly, I don't know why this is.
20:06
SPEAKER_00: I had one of our fourplex clients and he said, I'm gonna build um an ADU above my garages.
20:13
SPEAKER_00: Sure.
20:14
SPEAKER_00: The city said, We will not allow that.
20:16
SPEAKER_00: They wanted the garages to be converted, so which I thought was backwards.
20:20
SPEAKER_00: Why would you want to eliminate the parking and not allow this person to build on top of the um on top of the garages?
20:27
SPEAKER_00: So in some cities, they may not allow that.
20:29
SPEAKER_00: What year was that?
20:30
SPEAKER_00: I last year, 2022.
20:32
SPEAKER_01: Okay, so yeah, so there's big news actually, as of November of 2022, you can build up to 25 foot height limitation.
20:41
SPEAKER_01: This is huge because you're talking about something that's called RFA.
20:45
SPEAKER_01: It's getting very specific, but basically, if you build a big chunk of your land, there's a percentage that you can keep building, right?
20:53
SPEAKER_01: And then building on top of the garage, they don't allow it because of height.
20:57
SPEAKER_01: So we used to have 16-foot height limitation, meaning you really can't do two-floor ADUs or garage and ADU on top.
21:05
SPEAKER_01: But now we have 25-foot height limitation.
21:08
SPEAKER_01: This has radically changed what we can do, especially on multifamilies or developed properties, because now we can actually do two floors.
21:16
SPEAKER_01: Is this statewide or it's statewide, but uh again, like we say, there's on a state level, the state says something like SB9 or multiple units.
21:26
SPEAKER_01: And then when it comes down to the cities, the cities can pick and choose what they like and what they don't like.
21:31
SPEAKER_01: And the way they kind of make a decision on what their city is going to look like is by putting city fees on top of that unit.
21:39
SPEAKER_01: So maybe they'll allow it and maybe you can pressure them and push the needle towards the project you want, but then all of a sudden you have$50,000 in city fees compared to the garage conversion that's gonna cost you$3,000 in city fees.
21:53
SPEAKER_01: So they really pressure it depending on what they want.
21:55
SPEAKER_00: All right, so what they're trying to do is corner you into making a decision to give them more.
22:00
SPEAKER_00: They believe is better for their city by giving you lesser fees.
22:03
SPEAKER_00: Speaking about fees, I know you work in a lot of cities.
22:06
SPEAKER_00: Um, on average, what can a someone expect in terms of fees at the city level?
22:12
SPEAKER_00: Single family home.
22:13
SPEAKER_01: You're gonna look at a thousand to a thousand, a thousand to two thousand dollars uh for the ADU, including everything from BOE's, B O A's, uh, your permits, DWP.
22:24
SPEAKER_00: Let's explain BO BOA, DWP.
22:27
SPEAKER_00: Let's just, yeah, just just just so that folks understand, because I don't want to lose anyone.
22:31
SPEAKER_00: I I want I want the folks to believe that this is a achievable and and financially feasible option to become a housing provider, either for your own family or for someone who's looking to live in a new place and does not want to leave Southern California.
22:46
SPEAKER_00: Sure.
22:47
SPEAKER_00: Yeah.
22:47
SPEAKER_01: I always think that you should hire a professional because they're gonna make it super easy for you.
22:52
SPEAKER_01: Nothing is too hard to get something approved.
22:55
SPEAKER_01: But for example, you have to do your architectural plans and you have to submit them to the city.
22:59
SPEAKER_01: But when I say the city, it's a lot of different processes.
23:03
SPEAKER_01: The first is going to be planning.
23:05
SPEAKER_01: They have to approve it, zoning has to improve it, uh, building and safety has to uh approve it.
23:10
SPEAKER_01: And then you have all of your clearances.
23:13
SPEAKER_01: So clearances come in a lot of different um ways.
23:17
SPEAKER_01: For example, how far is your sewer?
23:19
SPEAKER_01: Can the sewer handle the new unit?
23:23
SPEAKER_01: Um, are you close to a fire hydrant?
23:25
SPEAKER_01: Are you close to a fire department?
23:26
SPEAKER_01: Are you close to a police department?
23:28
SPEAKER_01: Um, how close are you to a school?
23:30
SPEAKER_01: How much are your school fees gonna be?
23:32
SPEAKER_01: Because now you're adding a unit to the school system.
23:35
SPEAKER_01: Um DWP is giving us a lot of issues right now.
23:38
SPEAKER_01: Um that's the Department of Water.
23:40
SPEAKER_01: DWP is Department of Water and Power.
23:42
SPEAKER_01: And basically, if you're within five feet away from an electrical pole, um, they're so backed up that it's gonna take you four months to get your ADU approved.
23:51
SPEAKER_01: So you might get everything approved with building and safety, and you might be one away from getting a permit, but until all of these uh subsections approve your plans, you're not gonna start construction.
24:02
SPEAKER_01: Um, and then again, everyone takes fees.
24:05
SPEAKER_01: So DWP doesn't take a very high fee.
24:08
SPEAKER_01: Um, you know, getting a separate address, you have to get a separate address.
24:11
SPEAKER_01: It only costs$79 in LA.
24:13
SPEAKER_01: It doesn't cost a lot of money.
24:15
SPEAKER_01: It's just, you know, it takes time to get those things approved.
24:18
SPEAKER_00: Joseph, a lot of cities, with the pressure from the state, really uh demanding that the cities ease up on their zoning, on their building requirements, and allow uh builders to build.
24:30
SPEAKER_00: Okay.
24:31
SPEAKER_00: So with with that, a lot of cities, Long Beach included, Los Angeles included, they've they've come out with like preset plans that someone could buy at a very low level.
24:41
SPEAKER_00: So what so what this means is in some cities, you could go into the city's building and safety department and ask about ADUs, and they actually have plans.
24:50
SPEAKER_00: And if there's a model you like, um, you could get those, which would be fast-tracked.
24:54
SPEAKER_00: What are your thoughts about that?
24:55
SPEAKER_01: That's a really good question.
24:57
SPEAKER_01: In the beginning, I always thought it was kind of a joke because on a state level, the state hired uh a lot of architects from AIA, Architectural Institute of America, to design these beautiful ADUs that were on the cover of magazines.
25:11
SPEAKER_01: But they were costing so much to build that whenever someone said, Hey, I want to build this ADU from this specific architect, I was I was telling them it's gonna cost them$600 a square foot.
25:21
SPEAKER_01: So they went crazy.
25:22
SPEAKER_01: But then the state and the cities allowed smaller architects and smaller draftsmen to design ADUs.
25:29
SPEAKER_01: I've seen a lot of them and I've worked on a lot of them, and they look really good and they're really efficient.
25:35
SPEAKER_01: The problem is that it's only for new construction because they don't have any of them for the garages, because every garage is different.
25:43
SPEAKER_01: Um, and it has to be exactly the way the architect designed it.
25:47
SPEAKER_01: So if you want to have any differentiation, if you want a little big, bigger doors or bigger windows or a different kitchen, they're not gonna approve it.
25:56
SPEAKER_01: So again, if you find a model that you really like, I would definitely uh speak to that architect and speak to your city about getting that one approved, but make sure you're okay with not changing the things on the plans.
26:07
SPEAKER_00: Now, Joseph, by no means am I under the misconception that everyone is in favor and loves this idea of ADUs.
26:15
SPEAKER_00: Now, there's people that do not like them.
26:17
SPEAKER_00: In fact, I've built one here in the city of Long Beach, and we we were one of the first to ever do a factory built one, and we were in the news, which I like from obviously marketing perspective, but on next door we got blasted.
26:31
SPEAKER_00: Well, that we're ruining the neighborhood, that we're bringing in college kids because it was right by the uh Hal State University of Long Beach, and that we were gonna ruin their parking situation, that the house was not built to code.
26:48
SPEAKER_00: And the ideas went on that we were simply ruining their neighborhood.
26:52
SPEAKER_00: Two years later, this little ADU sits in the back.
26:56
SPEAKER_00: We we met we do have students living there because they walk to the college across the street.
27:00
SPEAKER_00: Naturally, that's a natural tenant.
27:03
SPEAKER_00: All those concerns of parking, ruining the neighborhood, uh, people loitering now.
27:09
SPEAKER_00: None of that has happened.
27:10
SPEAKER_00: And by the way, none of that, none of those concerns have I seen in any of the neighborhoods that I've that I've been around or my clients have built properties.
27:20
SPEAKER_00: It's it's it's this fear of you're changing what I'm used to, and I believe it's gonna be super bad, so therefore it's bad.
27:26
SPEAKER_00: But I'm asking you, is it really that bad?
27:29
SPEAKER_01: I don't think so.
27:30
SPEAKER_01: And I'll answer quickly with a story.
27:33
SPEAKER_01: Basically, in 2017, my family was forced to build an ADU.
27:38
SPEAKER_01: I would I personally was living in a garage that was not allowed and it was illegal.
27:44
SPEAKER_01: I was living on my uncle's property, I had a party, the cops came to my party, and then the next week I had building and safety knock on the door and say demolish the entire structure.
27:53
SPEAKER_01: So I was actually forced to build an ADU.
27:56
SPEAKER_01: I was the first uh home on the property on the entire street to build an ADU.
28:01
SPEAKER_01: This is 2017, and everyone got mad at me.
28:05
SPEAKER_01: I had neighbor I had a neighbor actually smash a window.
28:08
SPEAKER_01: It was that bad.
28:10
SPEAKER_01: Um today there is 22 houses on that street and there's 16 ADUs.
28:16
SPEAKER_01: So I think we change with the time.
28:18
SPEAKER_01: Um, I think that a lot of things are hard in the beginning, but we're five years down the line.
28:24
SPEAKER_01: I'm not getting as much hate as I was getting in the beginning.
28:28
SPEAKER_01: I think a lot of uh owners want this, and we're making a lot of value on these homes.
28:34
SPEAKER_01: You know, we're talking about we're talking about in 2017, all these houses were worth around 650k.
28:40
SPEAKER_01: Now they're all well over 1.3, 1.4.
28:43
SPEAKER_00: And two things.
28:44
SPEAKER_00: And I would say some people are gonna say, well, that's appreciation and granted, but I I guarantee you that if you are adding an ADU to your property, whether it's multifamily or single family, you are changing the value immediately.
28:59
SPEAKER_00: Every investor that I work with, every single one of them will say, I'm a value add buyer.
29:06
SPEAKER_00: Now, so for those of you who don't understand what that is, it's simply saying I want to buy something that from what we're seeing, we could quickly make changes and add value at a very short period of time.
29:18
SPEAKER_00: The number one way that you could add value to any property, should it fit properly, is building an ADU.
29:24
SPEAKER_00: 100%.
29:25
SPEAKER_00: And and so I'm in favor of it.
29:28
SPEAKER_00: I've not seen any negative uh issues with it outside of providing housing.
29:33
SPEAKER_00: I've seen I've had people who have been able to retire sooner because they could count on that income in the back.
29:38
SPEAKER_00: I've seen folks uh not have to put up mom in a in a um in a nursing home because now she could live in the back and we could see her.
29:47
SPEAKER_00: Or maybe mom's gonna move in and help raise the kids while you're off having your career.
29:52
SPEAKER_00: Another thing with value add, okay, because investors were buying real estate and it's expensive here, and we're trying to maximize the value.
30:00
SPEAKER_00: So there's there's two ways to do it.
30:02
SPEAKER_00: Well, there's a lot of ways to do it, but there's two smart, quick ways to do it.
30:05
SPEAKER_00: One is build an ADU, the other one is to uh Airbnb one of the units.
30:11
SPEAKER_00: Is it possible, Joseph, to build an ADU for Airbnb purposes?
30:16
SPEAKER_01: Yeah, it's not allowed to build an ADU for short-term rental.
30:20
SPEAKER_01: All cities and on the state level, they want you to uh rent out ADUs 30-day minimum.
30:26
SPEAKER_01: But you know, it doesn't stop a lot of people for doing a lot of things.
30:29
SPEAKER_01: Um, I've seen a lot of units on Airbnb that are not permitted structures.
30:33
SPEAKER_01: So I would say renting out your uh ADU is at least better than renting out a detached garage that's illegal.
30:40
SPEAKER_01: Um obviously every single city is gonna have their own rules and every state is gonna have their own rules.
30:46
SPEAKER_01: So make sure that you're that you know what you're doing when it comes to these things.
30:50
SPEAKER_01: You really don't want to short-term rental or even rent unpermitted units because if someone gets hurt in there, um you're gonna get in big trouble.
30:59
SPEAKER_01: And you know, when you look at the Airbnb laws, they strictly say that if someone is not allowed to rent this for short-term rental, you need a permit and you need all these things.
31:08
SPEAKER_01: So just clarify with your city before you do anything.
31:11
SPEAKER_00: What one of the reasons why some cities don't want you to use it for short-term rental is the whole purpose of this, the reason they passed the law was to build housing.
31:20
SPEAKER_00: And so obviously, if you're building short-term rental housing, it's not really fixing the housing problem.
31:25
SPEAKER_00: It's it's to fix the housing problem.
31:26
SPEAKER_00: So, for some of you who are wondering, well, that's not fair.
31:29
SPEAKER_00: I'm building this, I'm building this, I'm spending the money, the investment in building it.
31:32
SPEAKER_00: Why can't I do what I want?
31:34
SPEAKER_00: That's the reason why is that the city is really wanting you to bring in a 12-month tenant, although you can go month to month, but realistically, they're trying to ease the housing shortage that we have, and that's why they don't do not want you to use it for Airbnb or short-term rental.
31:48
SPEAKER_00: Yeah.
31:49
SPEAKER_00: Joseph, we can't thank you enough for your time, for your knowledge, your tons of experience.
31:54
SPEAKER_00: We love what you're doing on social media.
31:56
SPEAKER_00: So make sure to follow him on Instagram, on YouTube.
31:59
SPEAKER_00: How can people connect with you?
32:01
SPEAKER_00: What is it that we're offering that you could like to tell us about today?
32:05
SPEAKER_01: Sure.
32:06
SPEAKER_01: So we have a YouTube page that we're really focused on.
32:08
SPEAKER_01: Um, I'm basically trying to teach homeowners how to build their own ADU garage conversion.
32:14
SPEAKER_01: Um, and that's gonna be everything from demolition to uh foundation to framing, electrical, plumbing, HVAC.
32:21
SPEAKER_01: I'm gonna have a video on every single one of the steps to building an ADU that's not gonna only allow homeowners to save a ton of money on their property, but really know what to ask, what not to ask, and be an informed buyer when it comes to building units.
32:37
SPEAKER_01: You can definitely check that out on YouTube.
32:39
SPEAKER_01: Um it's a 25 video YouTube series, and we'll link it down below.
32:43
SPEAKER_01: Other than that, I do free consultations.
32:45
SPEAKER_01: I'm happy to uh take a 10-minute phone call with you and brainstorm with you.
32:50
SPEAKER_01: I also have a course coming out and how to build an ADU and how to get your own plans approved.
32:56
SPEAKER_01: And I do consultations, um, paid consultations for an hour.
33:00
SPEAKER_01: So you can definitely book that.
33:02
SPEAKER_01: I think really homeowners need to be educated because it is a big purchase.
33:07
SPEAKER_01: And you know, you guys do a really good job of educating homeowners.
33:11
SPEAKER_01: I try to do a really good job of educating people that are building, and I think focus on education, you will learn a ton and you will build wealth as you move forward.
33:21
SPEAKER_00: Okay, so there's our interview.
33:22
SPEAKER_00: A few takeaways.
33:24
SPEAKER_00: The process could be as fast as three months or maybe eight months.
33:28
SPEAKER_00: In terms of cost, go into it knowing that you're probably gonna be about$275 a square foot up to$300 a square foot.
33:36
SPEAKER_00: Now, can you do it cheaper?
33:38
SPEAKER_00: Possibly, but just go into it being conservative and just having that budget much higher than you think.
33:44
SPEAKER_00: If you could do it for less, that's great.
33:45
SPEAKER_00: But the timeline, three to eight months, that's not that bad.
33:49
SPEAKER_00: I would suggest check with your city's building and planning department first, get some information from them, reach out to Joseph and see how you could get started on your first ADU.
34:00
SPEAKER_00: Additionally, if you are someone who wants to build an ADU and you want to look into potentially um getting a cash out refi, please make sure you check in with us, our Lending Arm Sage Trust Mortgage.
34:11
SPEAKER_00: We could certainly assist.
34:13
SPEAKER_00: So there you have it.
34:14
SPEAKER_00: Make sure to like, comment, and subscribe.
34:16
SPEAKER_00: And I just have a big thank you to all of our subscribers.
34:19
SPEAKER_00: I love your comments.
34:21
SPEAKER_00: I love you checking in with us, calling us, giving us referrals.
34:25
SPEAKER_00: Continue that until next time.
34:27
SPEAKER_00: See you soon.