Here’s what California homeowners need to know about ADU law.
Continuing my series on retiring without saving through real estate, I’d like to discuss a significant bill set to take effect on January 1, 2024. Specifically, I’ll delve into how accessory dwelling units (ADUs) can contribute to your retirement income. But before we delve into the specifics, let’s backtrack a bit. What are ADUs?
Prior to 2020, ADUs were typically required to be owner-occupied. This requirement remained in place until the current law was set to expire in January 2025. However, there have been recent changes in Assembly Bill 1033, which I find particularly intriguing.
Under the current law, an ADU essentially serves as a rental unit, but that has changed. With Assembly Bill 1033, you can request utility companies (e.g., gas, electricity, water) to provide separate meters for all utilities. Simultaneously, you can record a condominium map covering common areas such as driveways and exterior walls, effectively converting the ADU into a condominium.
“ADUs essentially function as condominiums attached to your property.”
In this scenario, you can sell the ADU separately from the main house. This legislative change opens up opportunities for various homeowners, particularly those from the baby boomer generation. Many of them are sitting on substantial home equity but are reluctant to sell due to low interest rates. Despite this, they still want to downsize.
With Assembly Bill 1033, these homeowners can take advantage of their equity by building a separate ADU, up to 1,200 square feet, and sell it independently. Alternatively, they can rent it out, explore lease-to-own arrangements, or even sell it to their children. The additional income can be a valuable resource for retirement, nursing home expenses, or assisted living costs.
This legislation, Assembly Bill 1033, essentially permits ADUs to be conveyed like condominiums. It represents a neutral and impactful piece of legislation that affects housing in California significantly. If you have questions about this topic, please call or email me. I am always willing to help.