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The Backyard Hedge: Why LA Homeowners Build Small First | EP010 · ADU Adventures: Building in Your Backyard

• 0:31
  SPEAKER_00: Welcome back to ADU Adventures Building in the Backyard.
• 0:35
  SPEAKER_00: I'm James, and today I want to do something a little different.
• 0:38
  SPEAKER_00: No checklists, no step-by-step, just me thinking out loud about something I keep noticing, especially in Los Angeles County.
• 0:45
  SPEAKER_00: Here's the thing I can't stop turning over in my head.
• 0:48
  SPEAKER_00: All over LA, homeowners are building the small thing before they're building the big thing.
• 0:52
  SPEAKER_00: They're putting up the ADU in the backyard before they touch their main house.
• 0:55
  SPEAKER_00: Some of them are rebuilding after a hard year.
• 0:58
  SPEAKER_00: Some are just looking at the property differently than they have been five years ago.
• 1:02
  SPEAKER_00: But the pattern is the same.
• 1:05
  SPEAKER_00: The backyard is going first.
• 1:06
  SPEAKER_00: And when you sit with that long enough, you start to realize it isn't a quirk.
• 1:11
  SPEAKER_00: It's a strategy.
• 1:12
  SPEAKER_00: A quiet, stubborn little strategy that a lot of LA homeowners have stumbled into, and a few have figured out on purpose.
• 1:20
  SPEAKER_00: So today that's the conversation.
• 1:22
  SPEAKER_00: Why the backyard goes first?
• 1:24
  SPEAKER_00: What get for it?
• 1:26
  SPEAKER_00: And because I'd never just sell you the bright side, what it costs you if you get it wrong.
• 1:31
  SPEAKER_00: This isn't a pitch, it's more of a musing.
• 1:33
  SPEAKER_00: Uh thinking out loud.
• 1:36
  SPEAKER_00: Think of it as the long version of a conversation we'd have over the back fence.
• 1:41
  SPEAKER_00: But before I make the case for any of this, let me tell you why I get to make it.
• 1:46
  SPEAKER_00: I didn't come to ADUs from a spreadsheet.
• 1:48
  SPEAKER_00: I came to them by living in them.
• 1:50
  SPEAKER_00: I was born in Michigan Viejo, California, uh an Orange County kid.
• 1:54
  SPEAKER_00: My family moved up to the Bay Area when I was young, but Southern California never really let go of me.
• 1:59
  SPEAKER_00: I've got family there, et cetera.
• 2:01
  SPEAKER_00: And sure enough, when it came time for college, I headed right back down.
• 2:05
  SPEAKER_00: I lived in San Fernando Valley for several years, and uh that's where I met my first day to use.
• 2:11
  SPEAKER_00: Except back then, nobody called them that.
• 2:14
  SPEAKER_00: They were the converted garages, the backhouse units, the casitas, the granny flats, the unit in the yard.
• 2:21
  SPEAKER_00: And you'd find them scrolling through housing listings if you were a renter.
• 2:24
  SPEAKER_00: And I'll be honest with you, most of them were unpermitted, and a lot of them, let's say, were underdeveloped.
• 2:29
  SPEAKER_00: Sand walls, funny wiring, comfort somewhere near the bottom of the priority list.
• 2:35
  SPEAKER_00: But the idea stuck with me.
• 2:37
  SPEAKER_00: A whole separate place to live, tucked onto someone else's lot.
• 2:40
  SPEAKER_00: There was something there, something convenient, something good, and definitely an investment.
• 2:44
  SPEAKER_00: Then a few years later I moved back to the Bay Area, right after college, and I got to live in the better version.
• 2:50
  SPEAKER_00: My first real ADU was a converted water tower.
• 2:54
  SPEAKER_00: I'm not making that up.
• 2:55
  SPEAKER_00: Three levels, laundry and storage at the bottom, kitchen and bath in the middle, and a lofted bedroom area on top.
• 3:02
  SPEAKER_00: Good little place, great neighborhood.
• 3:04
  SPEAKER_00: And the best party trick of my life, telling people, oh yeah, I live in a water tower.
• 3:10
  SPEAKER_00: The neighborhood kids took one look at it and started calling it the Wizard Tower, and honestly, that name stuck and I kind of loved it.
• 3:16
  SPEAKER_00: So by the time I built my own ADU in San Jose, California for my parents and siblings, I wasn't guessing.
• 3:23
  SPEAKER_00: I'd lived the unpermitted version and the charming version, and I'd felt the difference between a space somebody threw together and a space somebody actually thought about.
• 3:33
  SPEAKER_00: That difference?
• 3:34
  SPEAKER_00: Well, that's what this episode's about.
• 3:35
  SPEAKER_00: Now, let me set the scene and let's talk about LA specifically, because LA is its own animal.
• 3:41
  SPEAKER_00: And when I say LA, I really mean the whole LA County area.
• 3:45
  SPEAKER_00: I'm talking about San Fernando Valley and San Gabriel Valley and the West Side.
• 3:50
  SPEAKER_00: I'm talking about everything.
• 3:51
  SPEAKER_00: For a long time, building anything extra on your lot in Los Angeles was a slog.
• 3:57
  SPEAKER_00: Permits, passageway rules, parking requirements, a maze designed to wear you down.
• 4:02
  SPEAKER_00: Then the rules changed.
• 4:03
  SPEAKER_00: Starting in 2017, California passed a wave of laws that forced cities to get out of the way.
• 4:10
  SPEAKER_00: And LA responded like a city that had been holding its breath.
• 4:13
  SPEAKER_00: According to the Sightline Institute, in just two years after that law took effect, ADU permits in Los Angeles surged by a factor of 30.
• 4:22
  SPEAKER_00: 30.
• 4:22
  SPEAKER_00: At one point, accessory dwelling units made up about a fifth of all permits the city issued for new homes.
• 4:30
  SPEAKER_00: That's not a trend.
• 4:31
  SPEAKER_00: That's a damn breaking.
• 4:32
  SPEAKER_00: And it wasn't just LA.
• 4:33
  SPEAKER_00: UC Berkeley's Turner Center found that statewide ADU permits jumped around 6,000 in 2018 to roughly 16,000 the very next year, and completions more than triple.
• 4:45
  SPEAKER_00: Most of that activity clustered in three places.
• 4:48
  SPEAKER_00: Los Angeles, San Diego, and of course the Bay Area.
• 4:51
  SPEAKER_00: So why LA specifically?
• 4:52
  SPEAKER_00: Why has the backyard become the smart move here more than anywhere else?
• 4:56
  SPEAKER_00: Well, there's a few reasons.
• 4:58
  SPEAKER_00: LA gave homeowners genuinely flexible rules.
• 5:01
  SPEAKER_00: In a county, you can build a detached ADU up to twelve hundred square feet, that's per LA County Public Works' own guidelines.
• 5:08
  SPEAKER_00: A junior ADU inside your own home can be up to 500, and under state law, the county has to approve or deny a complete application within 60 days.
• 5:18
  SPEAKER_00: 60 days, not the 18 month Odyssey people remember from the old days.
• 5:22
  SPEAKER_00: LA also leaned into pre-approved plans.
• 5:25
  SPEAKER_00: LA Planning runs a program where architects have already designed ADUs that the county has pre-vetted.
• 5:32
  SPEAKER_00: So you can pull a plan off the shelf and skip a big chunk in the review.
• 5:36
  SPEAKER_00: And then there's the part nobody plan for.
• 5:38
  SPEAKER_00: After the January 2025 fires, Palisades and the Eton fires, which the Associated Press reports destroyed about 13,000 residential properties.
• 5:47
  SPEAKER_00: The state moved fast on housing.
• 5:49
  SPEAKER_00: Los Angeles County's own recovery office documented that the governor issued an executive order specifically to make it easier to build ADUs, to give displaced families a place to live while the long road of rebuilding played out.
• 6:01
  SPEAKER_00: Think about what that did to the mental model.
• 6:04
  SPEAKER_00: For a lot of LA homeowners, the ADU stopped being a someday maybe project.
• 6:09
  SPEAKER_00: It became the first potential move, the thing you build first.
• 6:13
  SPEAKER_00: So you have somewhere to stand while everything else takes shape.
• 6:16
  SPEAKER_00: You build the backyard first, then you deal with the house.
• 6:19
  SPEAKER_00: And that reframe, the small thing first, is where the real story starts.
• 6:23
  SPEAKER_00: So let's talk about why the backyard first move is so financially smart.
• 6:28
  SPEAKER_00: Because this is the part that surprised even me.
• 6:31
  SPEAKER_00: And we can just stop thinking about an ADU as an expense as well.
• 6:34
  SPEAKER_00: Just for a few minutes at least.
• 6:35
  SPEAKER_00: Start thinking about it as a hedge.
• 6:38
  SPEAKER_00: Think of it as an investment.
• 6:39
  SPEAKER_00: A hedge is something you put in place to protect yourself when you don't exactly know what's coming.
• 6:44
  SPEAKER_00: And if there's one thing I can promise you about the next 10 years in LA, is that you don't know exactly what's coming.
• 6:50
  SPEAKER_00: None of us do, no matter where you are in California.
• 6:53
  SPEAKER_00: Here's how the numbers actually shake out.
• 6:55
  SPEAKER_00: The Turner Center's statewide survey of ADU owners found that the median ADU cost was about$150,000 to$250,000.
• 7:04
  SPEAKER_00: And 71% of ADUs came in under$200,000.
• 7:09
  SPEAKER_00: But a premium built to last unit will run you more than that medium, and I'll be honest about that.
• 7:15
  SPEAKER_00: But that's your ballpark for the category.
• 7:17
  SPEAKER_00: Now here's the hedge.
• 7:18
  SPEAKER_00: That same survey found the median ADU in California rents for about$2,000 a month.
• 7:24
  SPEAKER_00: $2,000 a month coming in against whatever life throws at you.
• 7:28
  SPEAKER_00: And it compounds in three directions at once.
• 7:30
  SPEAKER_00: Obviously, direction one is income.
• 7:32
  SPEAKER_00: The rent can cover a mortgage payment, a property tax bill, a kid's tuition, an aging parents' care.
• 7:39
  SPEAKER_00: Or it can just sit there as a cushion.
• 7:41
  SPEAKER_00: Direction two is qualifying power.
• 7:44
  SPEAKER_00: And this one's new and it's big.
• 7:46
  SPEAKER_00: As of an October 2025 update to its selling guide, Fannie Mac now lets you count the rent your ADU would bring in toward the qualifying for the loan.
• 7:57
  SPEAKER_00: Up to 30% of that total qualifying income.
• 8:01
  SPEAKER_00: Freddie Mac allows something similar.
• 8:03
  SPEAKER_00: Translation?
• 8:04
  SPEAKER_00: The thing you're building can help you afford to build it.
• 8:07
  SPEAKER_00: Now direction three is property value.
• 8:11
  SPEAKER_00: Freddie Mac says plainly that an ADU may increase a home's long-term and resale value.
• 8:18
  SPEAKER_00: And here's the mechanism most people miss.
• 8:20
  SPEAKER_00: The appraisal institute has laid out how appraisers can factor an ADU's rental income directly into what the property is worth.
• 8:28
  SPEAKER_00: So a unit that earns more doesn't just earn more, it can be worth more on the appraisal too.
• 8:36
  SPEAKER_00: Income, qualifying power, and value all from the one structure.
• 8:42
  SPEAKER_00: And that's the hedge.
• 8:43
  SPEAKER_00: And notice every one of these levers gets stronger when the ADU is good.
• 8:49
  SPEAKER_00: A well-built, well-designed unit rents higher.
• 8:52
  SPEAKER_00: Rents to better tenants, appraise is higher, and costs less to keep up.
• 8:57
  SPEAKER_00: The quality isn't the luxury version of the decision.
• 8:59
  SPEAKER_00: The quality is the decision.
• 9:01
  SPEAKER_00: That's why building the backyard first isn't just emotionally smart in a year like this one.
• 9:08
  SPEAKER_00: It's financially smart every year.
• 9:10
  SPEAKER_00: You're not spending$250,000.
• 9:13
  SPEAKER_00: You're installing a hedge that pays back in three currencies.
• 9:18
  SPEAKER_00: But where can a hedge go wrong?
• 9:19
  SPEAKER_00: Now I told you I wasn't going to just tell you the bright side, because a hedge only works if you build it right.
• 9:27
  SPEAKER_00: And there are real ways this goes wrong.
• 9:30
  SPEAKER_00: Let's name some.
• 9:31
  SPEAKER_00: Risk one, the surprises under the surface.
• 9:33
  SPEAKER_00: I've seen it a hundred times.
• 9:35
  SPEAKER_00: A homeowner has a the perfect plan.
• 9:37
  SPEAKER_00: And then the city flags an old sewer line that isn't up the code or a utility connection that needs an upgrade nobody budgeted for.
• 9:45
  SPEAKER_00: In LA with older properties and tight lots, the ground has opinions.
• 9:51
  SPEAKER_00: If you don't do a real property assessment before you fall in love with the design, the surprises find you.
• 9:56
  SPEAKER_00: And surprises mid-project are never cheap.
• 9:59
  SPEAKER_00: Risk two, building it cheap to save money and paying more anyway.
• 10:03
  SPEAKER_00: This one hurts to watch.
• 10:05
  SPEAKER_00: People shave the budget on the build, and then they pay for it for the next 30 years.
• 10:10
  SPEAKER_00: There's an industry analysis from the property operations firm Released, showing the reactive maintenance, the fix it when it breaks kind of cheap construction guarantees, runs about 25 to 30% more than preventative well-built system.
• 10:26
  SPEAKER_00: You don't save money, you just defer it with interest.
• 10:29
  SPEAKER_00: Risk three.
• 10:30
  SPEAKER_00: And this is an LA specific one, fire and insurance.
• 10:33
  SPEAKER_00: If you're building in or near a high fire severity zone, your ADU needs to be hardened for it.
• 10:41
  SPEAKER_00: And you need to think hard about how it changes your insurance picture.
• 10:45
  SPEAKER_00: That's not a reason to walk away.
• 10:47
  SPEAKER_00: It's a reason to plan with people who know the local landscape cold.
• 10:51
  SPEAKER_00: And then risk four is overleveraging.
• 10:54
  SPEAKER_00: A hedge you can't afford to carry isn't a hedge, it's a liability.
• 10:58
  SPEAKER_00: Build within your budget or within a budget designated to make sense for the investment.
• 11:03
  SPEAKER_00: Here's the honest through line on all four, though.
• 11:06
  SPEAKER_00: Every one of these risks is a planning failure, not an ADU failure.
• 11:11
  SPEAKER_00: The unit isn't the gamble.
• 11:13
  SPEAKER_00: Going in without a clear-eyed plan is the gamble.
• 11:16
  SPEAKER_00: Do it right, and the risks shrink to almost nothing.
• 11:20
  SPEAKER_00: Do it on a hope and a low ball estimate, and the hedge turns on you.
• 11:24
  SPEAKER_00: Now, here's the heart of it.
• 11:26
  SPEAKER_00: Let me tell you why this one matters to me.
• 11:28
  SPEAKER_00: You heard a little bit about my ADU history earlier.
• 11:32
  SPEAKER_00: The unpermitted units in the valley, the water tower, the place I built in San Jose for my folks, years of living in and around these buildings.
• 11:40
  SPEAKER_00: And what all of it taught me is that the financial case and the human case are actually the same case.
• 11:46
  SPEAKER_00: When you put a hedge in your backyard, you're protecting your options, your ability to keep a parent close, to give a kid a soft landing, to stay in the neighborhood you love when the ground shifts under you, and in LA, the ground shifts, let's be honest.
• 12:03
  SPEAKER_00: That's what control really is.
• 12:04
  SPEAKER_00: It's not knowing what's coming, it's being ready for anything.
• 12:08
  SPEAKER_00: The homeowners that build the backyard first, well, they've figured out something quietly profound.
• 12:12
  SPEAKER_00: The smallest building on the lot is the one that gives you the most room to move.
• 12:17
  SPEAKER_00: Anyway, those are the musings I wanted to get out today.
• 12:19
  SPEAKER_00: Uh why the backyard goes first, why a good ADU is one of the smartest hedges a Los Angeles homeowner or really any California homeowner can make, and why doing it right is the whole ballgame.
• 12:32
  SPEAKER_00: Thank you for spending a time with me.
• 12:34
  SPEAKER_00: And thank you for thinking about your home as not just where you live, uh, but the thing that can carry your family forward.
• 12:40
  SPEAKER_00: If any of this got your gears turning, that's all I really wanted.
• 12:43
  SPEAKER_00: And if you ever want to talk through your own project or through your own possibilities with people that have been doing this a long, long time, Actin ADU has been building for more than 35 years throughout California.
• 12:53
  SPEAKER_00: We don't just put up units, we help families think through the whole picture, the budget, the plan, the no surprises version of this whole thing.
• 13:00
  SPEAKER_00: And if that's useful to you, you can find us at actinadu.com or give us a call at 408 369 1103 for a free consultation.
• 13:09
  SPEAKER_00: No pressure, just a conversation.
• 13:11
  SPEAKER_00: That's it for today.
• 13:12
  SPEAKER_00: I'm James, and this has been ADU Adventures Building in the Backyard.