Home addition: what you need to know

You need more space. You are considering a home addition. There is a house hack that you need to know about.

7min read
by Olesia Chikunova, ADU Specialist.

home addition

You have most probably seen me writing previously about accessory dwelling units (ADUs). Why am I writing about regular home additions today? Well, ADU is a house hack for an addition that you might not know about.  This is a good example of how our construction concierge can save you money even before you start working with us.

Before a major remodel, undertake a small construction project.

I say to everyone planning a major remodel, build an accessory dwelling unit first. Read on why it is not as crazy an idea, as it sounds initially.

 

TLDR of ADU advantages over a regular addition (both add space and increase property value):

  1. Flexible use for a lifetime – suitable for family members, extended family and even strangers when the family has no need for additional space any more;
  2. Does not have the same tax consequences as a traditional home addition for those who bought home 10+ years ago;
  3. Trains you on how to tackle major construction projects on a small scale without disturbing the life of the main house;
  4. You can live in it while you are doing that remodel in the main house and save on rent.

ADU has many advantages as a solution to add space.

More Pros. Less Cons.

You will not be spending less or more per square foot, this is not the point.  Labor is expensive, cost of materials has increased, this Bloomberg article has done a good job describing the situation. If you are thinking about a major remodel in California today, you must be either brave or pretty desperate. Or both.

There are two other line items that most miss until it is too late. 

What additional expenses will you incur with a home addition?

One is the cost of additional upgrades to the main house, often required by the city as part of the project. The second is a tax increase on the whole house after you are done with your major remodel. ADUs do not trigger any of it.

Well, #1 is not entirely true. You might need to upgrade a distribution panel to accommodate an additional load from an accessory dwelling unit, or do some work to clean up the sewer system. When you think about it, both sound as side benefits that let you avoid unforeseen expenses down the road. For those new to construction, unforeseen=have to be fixed urgently=homeowner is a hostage=expensive. Additional benefit: these items do not have the same amount of impact on the main house and everyday life of its residents, as updating all plumbing and electrical fixtures might have.

As for #2, when you decide to add a room to the main house, and do some improvements to it that an Assessor office calls “substantially equivalent to new”, it qualifies as re-appraisable new construction, i.e. higher taxes. If you bought your property more than 15 years ago and are still paying the taxes based on that value, this might come as a very unpleasant costly surprise. Think of a difference between taxes on a home appraised at $300,000 and one appraised at $3,000,000. Feel the difference. And now think of it as an annual expense.

Side benefit of an ADU as a home addition

If you were thinking of moving out of the house for the length of remodel, you will save money on rental too. Renting is an expense, ADU is an investment that shows up as increased property value as soon as you are done with construction.

Attached or detached?

Detached is a way to go when you have enough space for the backyard cottage and backyard itself.

When the space in the backyard is at the premium, there is another option – an attached accessory dwelling unit. If you do not like the idea of an attached unit for sound insulation reasons, linking your new space with the help of a breezeway might be an interesting solution in restricted space if the city allows.

 

When investing in an ADU is not a good idea

While ADU is a the most versatile housing solution, there are situations when they do not work. One example will be a zone with high fire hazard risk. Another – when you have an easement that runs across the property and does not let place the right size unit with respect to all required setbacks.

 

Sometimes an ADU or an addition looks very costly – even on a flat lot an ADU can set you back $200,000, now on lots with slopes you will need another $100,000+ for the foundation work, and then some more for hauling away that extra soil that you will dig out. Expensive. But you still need extra space. In this case, ask yourself, if you could take the amount of money that it will cost to build an addition or ADU and sell your current home, would you be able to buy a house of your dreams?

To sell and move? Or to stay and build?

The current market is ruthless not only to first time home buyers. Everybody is talking about Californians leaving the State, and yet California real estate remains as hot as ever. Real estate investors and house flippers compete with first time home buyers. Former luxury condo dwellers compete with those who want to upsize their current homes. I have friends with budgets ranging from $1.5M to $3.5M who cannot find what they need.

Is home addition the right move?

To sell and move? Or to stay and build? Know thyself. What sounds easier: packing and unpacking in a new place or living on a construction site in a familiar environment?

 

And when deciding between a move or a home addition, do not forget the closing costs associated with selling and buying real estate. Check here for all costs associated with building an ADU.

 

Side note for first time home buyers: please read home inspection reports. This is a potential source of major maintenance expenses. I see people making emotional decisions and closing their eyes on problems with foundations, termite inspections, wiring. There is no doubt, this stuff will catch up with you when you are living in the house. And this is exactly why more than 60% of first-time homebuyers regret their home purchase decision – they underestimate maintenance costs.

Ask the right question. Ask the right person.

My experience tells me that to get the right answer, you need to phrase the question correctly. So, if you come to an architect to discuss the home addition, this is exactly what you will get: a discussion on a way to enlarge an existing house that will take months to pull a permit for.  Let us take it one more step back, you will start by looking for an architect to help with your home addition, so the pool of references that you have will include just that: professionals versed in home additions. A limiting factor for your options in today’s market.

 

I know about it from personal experience. I have been doing my local construction project before I became familiar with the benefits of ADUs, and certainly before I became a certified ADU Specialist.  None of the people I talked to mentioned ADUs. And believe me, I talk to a lot of professionals.

Look for professionals with ADU experience.

Now as I am involved with ADU professionals across the country, there is one takeaway – you need to find people who have done ADU projects before. It is still, what they call, a fairly young “cottage” industry. A builder who has an ADU to show is a rare bird. If anyone tells you they have built hundreds – run away. There is only one company I know that has been doing it long enough, but they had never answered my emails, so I cannot mention them in good faith (what if you read this, reach out to them and they won’t answer your emails either…).  All other companies are making their baby steps.

 

I have spent last year interviewing ADU professionals in 20+ live events. I have interviewed companies that were mentioned in newspapers as ADU builders before they built their first unit. A Working Group of the Casita Coalition, the only statewide, multi-sector organization that brings together all key players to remove policy barriers for small homes, is starting to build an ADU Registry. Here is what we all agree on – when vetting your ADU builder, ask if they have built homes before in your neighborhood. Talk to their clients. Study the way they make their estimates.

 

Or let our construction concierge do the work for you.