Rafael Pozas Reveals The BIGGEST Mistake You're Making With Building ADUs

Thank you guys for being here. The background story is part of the presentation, but I can start with that.

Yeah, all right.

Well, here to talk about ADUs. I'm a second-generation builder. My father started the real estate development in Brazil, late '70s, and the ADU journey that I'm here to share with you started back then. As a matter of fact, it started before I started working in the construction business because when we build the high-rises there, every floor that we finish, we celebrate with a big barbecue. And my father, every time there's a barbecue, I was 10 years old, I was going with him to celebrate. So I started construction, I can say, with 10 years old, visiting job sites. Well, after that, I learned in a company how to design and build residential apartments. And when I graduated in international business, I'm not an engineer, I'm a general contractor, but the engineer of the family was my father. I just took care of the business side of our company. When I graduated in international business, I lived for 3 years here in California in 2002 and learning to do my own stuff, starting my own business, and I started doing granite countertops. San Diego for 2 years. And after that, I got an invitation to be a partner of the company in Brazil. So I returned to Brazil to run the development company there as a partner. And then we did a couple of buildings together. But in the meantime, because I had the experience here in the United States, My professor in the university invited me to speak, to share my experience, and I liked it. So I did my master's degree and became a real estate professor in Brazil for a few universities, uh, and then I split my time doing the developments during the day and the teaching the night. I'm telling the story because, uh, I One of the universities I was working had a connection with USC, University of Southern California. And then my wife and I always had these plans to come back here, to live here. We had 2 young children. And then through this connection, I came here for real estate training and I got involved with the training. And we decided to move here. So in 2017, we moved, the 4 of us, my 2 children and my wife. And then I got here, uh, and you can teach— how's the sentence— new tricks to old dog never learn new tricks. So I knew construction and real estate, so I started researching what was going on here and, uh, There's my first time that I saw this shortage of housing we have here in California. People complaining about lack of land. There's no land available. There's no— the construction is super expensive. And they say, hey, from my perspective, the most important resource in real estate development and construction is the land. It's the most valuable resource. And I saw this ADU laws, SB 1069, and basically there's a lot of land available, but just in the hands of a few people. Because when California was developing, it was a rich state, so they set up a lot of single-family homes and not so many multifamily zones. So it ends up that the state grew, a lot of people still coming. Surprisingly, there's still more people coming to the state than getting out of state because of the dream of the better job, the innovation, immigrants coming a lot. So we have still this scenario. So the cities grew a lot, but with not enough multifamily zones and end up that people start building illegal second houses in their lot because they could afford to live with the mortgage in their home. And when the legislators start to work on this law, there was 350,000 illegal ADUs in Los Angeles before 2017.

Wow.

People just putting a house there because most of the lots were about average 10,000 square feet lot with a 10,000 square feet house on it. So there is a lot of land available, but again, in hands of a single person, not in a bigger community. So they create the law, of course, because they want to collect the tax money. With that, they create a lot of incentives. And when I saw that, I basically thought the state is giving the homeowner the task to supply the housing inventory. But the homeowners, they're not builders, they're not developers. They don't know, they have their own lives, their own jobs. So I thought it would be a good idea to create a company to help them to build the ADUs. And that's when I create PlusHome. Plus Home was created to design and build ADUs. But the problem when we first met in 2018, most of the people knew what was— what is a casita or a granny flat, but they didn't know about the advantage that the government is giving to homeowners to build, like waiving fees. And, and, and most of the people didn't know about the ADUs. So I did a lot of workshops in 2018, but I didn't do many ADUs back then because people didn't know about it. The big shift happened when the pandemic and the low interest rates— remember, the rates were 3%, 3.5%, and people there didn't have jobs anymore because everybody was locked inside the house. No income, people worry, and then they start refi the properties to get a better rate and putting the money to build the second house for an extra income. Then the phones start to ring and then never stop. And even though with the higher rates, people can see that, well, I have one lot, I can put another house with the same lot. This is Instantly a big gain in terms of the real estate. And I've been doing this for a while. I had a chance to build all types of ADUs because there are several types of ADUs, like attached, detached, above garage, and the garage conversion. Those are the most popular ones. We don't talk about basement units because we don't have— basements here in California. Maybe other states you can also put an ADU in a basement, but those are the most popular ones. And the plan today is to bring my experience. I'm not a CPA or a mortgage broker, I'm a builder, so I bring the perspective of someone that designs and builds the units, and I bring The 4 most popular types, because every, every ADU has a different challenge. If you're thinking about putting an ADU in your backyard, you have to be able to see how your lot looks like and what is— which is the best fit for your lot. Because in the end of the day, we are— one of the reasons we build an ADU is we're adding square footage. And we add value to our property. We want to add a second house, but we want it to look nice. We want, if we need to sell in the future, we want this seller, we want more bargain for our deal. We want more dollars per square foot. So when we sell it, the potential buyer could see all the benefits of ADU, but without hurting the unique Not unique, but the original concept of that property. It's not just put a bunch of walls there and multiply by the square footage and that's it. When you guys know more than me that if you have $1.5 million in your pocket and you look for a house, there are some parameters and neighborhoods that you're going to do it. It's not necessarily that you have double the square footage that people will spend the money in that neighborhood, if you know what I mean. So you have to know what you're investing in when you're planning to build an ADU. All right? You can interrupt me anytime you want. I wasn't planning to start like that, so I'm just kind of go like Joe asked. So I'm gonna bring some videos, I'm gonna talk about some ADUs with you, and if you want to have questions, please ask.

Thank you.

My name is Rafael Pozas. I'm the owner and founder of Plus Home Housing Solutions. We build backyard homes. Recently, the state of California approved Housing Bill SB 1069 that allows homeowners to build accessory dwelling units, or ADUs. ADUs are also known as granny flat, mother-in-law, casita, guest house, and many more. ADU sizes can be from 150 to 1,200 square feet. If you go up to 800 square feet, you'll be benefited for 4 feet rear and side setback. If you go beyond 800 square feet, you have to follow the local development standards. ADUs can be detached and attached to the house, can be above garage or garage conversion. You can also convert existing space in your house into what we call a junior ADU. Junior ADU can be up to 500 square feet. There's several ways to finance your ADU project. Make sure to contact a mortgage broker with expertise in ADU projects. You can build an ADU to create extra income with rentals. You can also build an ADU to live in an ADU, age in place, and rent out the existing house. And you can also build an ADU As a guest house for your family, convert your property into what we call multi-generation property. Open house I did, one of my customers, very nice person, She's a retired doctor. She's 80 years old, and she built the ADU to have a caregiver in the house but not in the house, like in a separate house. And the reason I'm sharing this with you is the type of ADU that you're gonna build also depends on what's the purpose of the ADU. If it's a Investment property, you have one way to do it. And if it's personal, you have another way to do it. Generally, when you do for yourself, for a guest house, everybody say it's both, but it can be both, but there's a gray area. You have to, like if you're doing for an investment property to have tenants in your house, you have to focus on privacy. Privacy. Privacy is a big deal. So for example, if you put a house in a backyard, you— and it's an investment property for tenants, you have to understand that these people will go all the way to your backyard, cross all in front of your house. Not to mention that if it's far away in the back, you have to trench for more, like if the sewer, water, And the electrician is in front. So there's a few things. Okay, this is for a tenant. So what we can do to make these tenants away from us while we're living here? So that's what we do when we meet the homeowners and talk about the purpose of the construction. This one is a guest house, and she was nice. She offered us to do a open house. So we staged— that's what you saw— we staged for 30 days and did these events to show our work. So this is— the idea is to talk about why ADUs are so popular. We kind of talked about that, and it's important again to bring this back because When we're talking about ADUs, ADU is super popular today, but we're talking about small housing. Small housing considered from 4 to 10 units, 2, 4, 10 units, because we have a lot of single-family zones, like I said, and a few multifamily zones. There's a lot of opportunities in between in terms of development. Today's ADU is a big thing, but in the near future it could be a different type of condominium with smaller houses. That's why ADU is so popular. So about some, especially for the ones that are interested in building the ADU, there's a few key ADU rules. Zoning, size limits, setbacks. Who asked about the size of the ADU? I think it was this gentleman filming. You're curious about how big your backyard could be. Generally speaking, for a detached ADU, you consider 4 feet rear and side setbacks. And 10 feet setback from the existing house. So whatever backyard you have, you put 10, 4, 4, 4, you have the space, a bay for ADU. You can go bigger than that if you put one fire— one-hour fire-rated wall in the ADU, because this 10 feet setback from the existing house is because of the fire department. So if you put 1-hour fire-rated wall in the ADU, it can go to 8. So instead of do 10, you do 8. So 4, 4, 4, 8. If you put 1-hour fire-rated wall in the existing house, you can go 6, but you have to work on the existing house. So then it would be 4, 4, 4, 6. Yeah.

Okay. What's the difference between a fire-rated and a regular wall?

It's different materials. The wood, for example, it's a special wood. Also, you can't ventilate. You have to seal all the outlets. There's special treatment for that kind of wall. But the cost, it's insignificant, the difference. But you have to— you can't put some appliance in that wall. You have— there's some restrictions. Yeah, there's some restrictions for that, but it's not a big deal. Is there any other question?

You're not an architect? No.

The architect is the one that goes through with all that? Yes, I'm not an architect, but I am the designer. Okay, I design the ADUs based on what I see the potential of adding value. I'm trying to be an architect because I love to design the small houses. I design myself in my computer. So, when we engage the architects to do the design, we know what we want already because sometimes the architect see only the design of the project and the contractor only the construction. I'll give you an example. The architects love— is there an architect here? Good, we can talk bad about it. I'm kidding. It's because I'm not, you know, I'm anti-architect, right?

Yeah.

So no, there are architects, they love to put a lot of windows, tiny windows everywhere. It costs money because the price to install one small window is almost the same as a bigger window. So why have a lot of windows if you can have one? But only the builders know the difference. So that's one of the advantages to talk with a design builder. So when you develop, when you start creating the unit, you know exactly what's going on. In terms of, oh, this is going to cost more, this is going to cost less, why don't you do this, why don't you do that? So that's— I'm not an architect. I work with architects when we know what we want. Basically, that's the way we do it. All right, so height limits, if you go up to 800, You can benefit from the rear and side like I mentioned in the video, but also there's a sweet spot in $750,000. I try to be always $749,000. Why is that? School fees and development fees. If you go beyond that, it might have more development fees and school fees are going to be more expensive. So Again, when we do the Q&A with our clients, we ask the purpose and we check the space available. Sometimes also the rental, if this is for a rental income, the size not necessarily means more money. Uh, it— generally speaking, the bigger the unit, less expensive, uh, per square foot, because the most expensive items in a house are the bathroom and the kitchen. So if you divide it for a bigger unit, less dollars per square foot.

Okay.

But more dollars, uh, overall. If you build a smaller ADU, It's going to cost more per square feet, but less dollars overall. Everybody got that? Okay. So, and that's why we sometimes— there's minimum tickets for tenants in neighborhoods. So sometimes a smaller ADU can give you a better return on investment. That's what I'm trying to share with you.

What's the cost?

I don't like to do that, but because everybody is— that's the first question that everybody asks me, uh, because again, uh, this is— cost is important, but it's a real estate investment you're doing, so you have to think about in years from now how much money you're collecting. But I'm gonna answer you, all right? You can go from $300 to $400. And again, the smaller the unit, and I'll say 400 square feet, 500 square feet, it's going to cost you more. And 750 and bigger, it's going to cost you less per square feet. Another thing that if it's for an investment property, You're not going to put tile the whole bathroom. You're going to do tile only in the shower, for example, because tile is expensive and you can do a nice bathroom just with the tile in the shower, or even just put a bathtub with tile only in the wall. So there's ways to reduce the cost, especially if you do it for— Uh, uh, real estate investment. If you do for yourself, normally what happens, people put tile everywhere, so it's go up. And the fixtures, the selections, the materials also, if you're doing for investment, you're going to choose, uh, materials that, uh, you're doing the math differently. Uh, when you do for investment also, you have to think about This is not a flipping that you're gonna sell it right away. You're gonna keep it buy and hold. So you have to manage the maintenance of that. So you have to be careful what type of material you're gonna put and what are the companies that's gonna work with you. Because if something happened, you are the one that need to give the, the, to do the support for the maintenance. Okay. Additional requirements. Parking, I think, is the— if you 0.5 miles from public transportation, and by public transportation means like just a bus stop, if you up to 0.5, you wait, you don't have to add parking. So in order to check your property Just go to Google Maps, put your address, search for a bus stop, and then it'll give you all options. So when you have to submit to the city, just copy and paste and add to the set of plans. So you can—

Did you say when it's close to the bus stop, you don't have to have parking?

1.5 miles from the bus stop distance. 0.5.

Yeah, 0.5. Yeah, go to the bus stop, you don't have to, but if you build it away, you have to have it.

Yes.

I— my property, I don't see the bus stop there, but the city say no, don't need the parking. So I don't know.

Could you repeat the questions? I'm not hearing. Repeat the questions that she's asking me. Could you do it?

Yeah, no, she's asking— she's saying that— what city is that? Costa Mesa, more than 0.5 mile, you don't have to do parking. I went to the city and my address is they don't need to park. Yeah, yeah, I saw cases in other cities that it's 0.7 and they accept it. But this is very important. You have to check that. Because if you have to add the parking, you have to set up a space in a driveway, it could be more complicated. But again, ADU laws are state laws, but every city deals differently and they create ways to give— some cities are not ADU-friendly, others are more. So some cities are super fast-track and speed up the process, Others don't. Permits, the laws or permits evolving in a good way to make it faster, but still, if you're willing to, if you want to build an ADU, you need to be patient because especially after the pandemic, there's shortage of staff. And permit process is taking a long time, and I say some cities a year, year and a half. Some are faster, some are slower. There's a few, like I said, a few cities are. It's all about the number of housing they need to provide to the state by law, and some cities are super behind. Those are the ones that are more in the U friendly, and others not so. Much friendly because they just don't, don't want it. Okay, uh, utilities, uh, the gentleman that was sitting here talking about the utilities, uh, you can— some cities require that you have separate meters, others they don't require. Okay, if the cities that require that We don't have an option, we have to do it. But when it's optional, my suggestion is to check with the companies, consult with them before you decide what to do. For example, electricity, call Edison or whatever the power company to a site visit. And with the Edison inspector, talk with them. Hey, I want to build an ADU. What do you think? What are my options? The reason I'm saying this, because people say have a second meter in the house could be more expensive because you're adding a separate meter. But sometimes it's not true because if you have to trench all the way to the front of the house and you have an alley with a pole right next to where you're going to build the ADU, the inspector will say, I can bring a cable straight to the ADU. And you don't even have to trench it because you're bringing overhead direct to the unit. So in that case, and this has happened with me in Fullerton, it was a lot more affordable to have a second meter in the ADU.

So let's say I have a pole across the street and I have an ADU. Are they going to need to run a separate line or can they use that existing line?

That's the question. That's what I suggest, to call the power company and say, hey, I want to build an ADU. Can I bring a cable direct to my unit? And say, yes, you can. So then he will tell what you have to do. Because I already relocated overhead to underground cables for one of the ADUs I built. It costs a lot. Not a lot, but more. If you put a subpanel, 100 amp, it's enough for ADU. Subpanel connect to the existing house. You have to connect with the panel, so you don't have an alternative. That's why if you're close to a pole and the guys allowed you to bring, you could have a separate meter. And the benefit for a second meter is that you can have all the bills, you can charge your tenants separately. There's ways to do it even if you connect with the existing house. There's all— nowadays you have readers that you install in your meter that you can read the usage of the ADU separate from the house. It's cheaper, but again, my suggestion is call the experts, call the power company. And I normally suggest to do, because you don't have to say to the city authorities during the permit process how we're gonna do it. You can submit the plans and while you're waiting for the approval, then you talk with the power company. There's another thing that the laws are changing. I think you heard about the electric-ready. Uh, laws. Electric ready means that you need to be ready to run all by electrician or by electricity. Even if you have gas, you need all the, the, the amps and the dedicated circuits if you run the ADU by electricity. This means electric ready. So you don't have to install it, but you need to be ready. if they require in the future. So it's going to cost a little bit more with the electrician, but some cities are requiring that.

Does that mean if you put in a gas stove, you still have to have a 2/20?

For the electric stove and for the water heater and for all the dedicated circuits for the house.

And they also require solar too?

They require solar for detached, new construction detached. That's one of the advantages to do above garage. Or attached ADU because you don't have to add solar if you don't want to. So that's an advantage. All right. So those are the types that I mentioned to you. I'm going to show briefly, talk about each one. That was the first ADU I built in Huntington Beach. There's an attached unit, as you see the house there. And the reason we did attached, because back then in 2019, the setbacks were not 4, 4, and 4 rear, 4 sides. Huntington Beach was asking for 10 feet rear setback. So with the size of the lot and with the 10 feet rear setback, We didn't have a choice, and so we attached the unit to the house. So basically, because we are adding this unit, we— this is a bathroom and this is a bedroom. This bathroom we ventilate to the roof mechanically, and we move this window to the other side, to the entrance. So by doing this, we attach the unit, and because we are attaching That's the 1-hour fire rated. We have to make it a little more—

Did you have to stay within 500 feet?

This is 500 feet, but no, no, we didn't have to. We wasn't limited on the 500. We did it because we thought, again, I always talk about this, it's about adding value to the property. You have to make sure the rest of the backyard would be nice for the house and the ADU. And this is an example, we didn't want to do that, but end up that the backyard house has his own backyard because there's 10 feet, and then we put slider windows. I think that one you visit long time ago. Yeah, sorry.

So would you do that on the one that we passed?

There's 2 windows. One, the bathroom, we ventilate. We remove the window, but we need a vent mechanic to do the ventilation. We did that, and the other, we moved to the other side because it was a corner bedroom. You see, this is, this is the entrance, the, the side. So we moved this window there. So pros and cons of an attached unit. One thing that when we attach new construction to existing, we have to do like fumigation. I recommend because we don't want to put new wood into contaminated wood. So the first thing I suggest is to do the test to make sure there's no activity, and if there's activity, to do the fumigation so we make sure it's all good. The other thing with the attached units and above garage, we're working with new construction and old construction, so that's more margin for unexpected expenses during the work. Differently than we do in a detached, From scratch, standalone, it is what it is. You just do the design, build it, it's all new. There's less unexpected work. And by unexpected work, I'm not saying that we didn't know that it's going to happen. I'm just saying that something extra that you have to do, connecting the roofs, for example, things like that, that you don't have to do it when you do it detached.

Was it really cheaper than a detached? Because you have to modify the windows, modify the roof probably.

Yeah, he's asking if this one was cheaper with the extra work that I had to do because it was unattached. In that case, no, because we had some extra work to do.

More energy costs, right?

Yeah, yeah, yeah. Okay, and especially with when people are super tight with budget And there's a good space to always, again, always with the layout, with the property value. If there's enough space and tight budget, with tight budget, even with the contingency plan that I helped to build, because there's always extra expenses at the end of the project, we have to calculate that. But when it's a tight budget, I suggest the detached. It's, it's easier because it is what it is. That's the, the cost you're gonna have.

How would you evaluate that?

Again, it's based on the house characteristic. Now, there's a multi-million dollar house with a very nice casita in the back, charming casita that adds a lot of value. But also there's small spaces that doing an attached for privacy purpose That I mentioned to you, it adds more. So it's case by case. That's why I'm bringing the 4 types, because when we go talk with a homeowner, with the Q&A that we do, we need to understand the purpose of the ADU, and then we take all the— measure all the utilities distance, because you have to put everything into account. Okay. It's like there's advantage and disadvantage for all the cases, so you need to make sure which one is the best fit for the property. And, and I think that that answer is the one that creates more value overall. Garage conversions are the cheapest one. The simple one, but it's not simple, that simple that people think. Why is that? Because the garages are built to be a non-habitable space, which means construction-wise the rules are different than if you convert for a habitable space. People say, I have a nice garage, it's going to cost a lot less to put an ADU. If it's not insulated, You have to demo the drywall and insulate and put it back and everything. Most of the garages are in the ground floor. You don't want to get flood in your ADU, so you need to step up a little bit, right, to make sure you have all the slope out of the house to make it. So there's a few challenges. I'm not saying that It's tricky, but it is what it is. But still, there's less framing, foundation is not involved. And foundation and framing, at the end of the day, are the most expensive items in the process. The garage conversion also, if we're talking about add value to the property and taking out a garage of the property, Sometimes it's not the best decision unless it's mandatory and unless it's like a college area that you're going to rent for students and there's a big driveway in the front, and then the garage conversion could be the best idea. But if you ask my opinion, I wouldn't get the property And convert the garage to an ADU because of the value of the whole thing and of the importance of parking spaces. But anyway, it's a lot of people doing this. This is my favorite one, the above garage, but also it's the more expensive one. Sometimes if you don't have enough space and you want to build an ADU, you can put an ADU above and make it nice, keep the garage. When you do the stairs to access the above garage, you also create a big storage for your house. So it's my favorite one because I'm a builder. I like to build those above garage units. This one, this balcony was the starting point of this project because my clients wanted to have a balcony because this is next to Disneyland. They want to see the Disneyland fireworks. So the balcony was mandatory, but the Edison cables were running right in the balcony direction. So this was the job that— I relocate overhead to underground because they wanted that balcony. So it was a big— it was a very nice experience to work with the city, Edison, my workers at the same— in the same day because we need to disconnect, work, and reconnect all until 5 o'clock with city inspection. So it was fun. You see there's 2 condensers there. One, because the first story belongs to the house. That's another advantage to have above garage unit. The first floor belongs to the house. It's a music studio. He's a music professor, teacher, and the garage. So the condenser, the smaller one feeds the house and the bigger one, the ADU upstairs. This is a virtual tour I did when I staged the unit, but it's, it's not showing here. That's okay. Uh, this is— if you go to my website, you can access this virtual tour. Just click there, you can see the finishes. Uh, I like to show the type of finish because sometimes people say, I have a budget, how much cost per square foot? And then I can show How much this costs per square foot? So because if you bidding with other contractors, you have to make sure you're doing apples with apples because there are a lot of different types. Three hundred to four hundred.

Question on the one that you did over the garage. Is the garage?

That's what I'm saying. The garage is still there. Uh, the— that's the, the, the— that's why I like it.

Uh, so you just put the ADU on top of the garage? The garage is there, and it looked like it was also separate from the house. It wasn't attached.

Just a second, Alex.

Uh, it's—

I can't— the virtual tour is, is working here, and I can't move the slides. You know, how can you do that?

So the garage was existing, not attached to the house?

No, detached. And then, uh, that's a good question because when people do above garage, they, they want to keep the garage. Oh, I want to do above? Okay, I'm going to keep the garage and I build above. I, I had the chance to build, uh, 2 above garage units so far. The first one I didn't know, I didn't have any experience with that. Okay, let's keep the garage. But then because we have to reinforce to put a second story on top, we end up digging underneath the edges of the garage to do the foundation for the second story. But imagine like a 20 by 20 garage and you digging underneath the 4 edges of the unit. You practically demo half of the garage by doing this. So when I built the second one, I say, hey, we learned with our experience. So we demoed the entire garage and built it from scratch. That's why it's more expensive per square feet, but in the end of the day, you have a brand new garage with a unit on top. So, but this is super personal. If you want to, you can do both ways, but you have to keep in mind that you're going to work on the garage anyways because you have to do the framing and the digging underneath the garage. But that's why it's my favorite, because you keep the garage for the house and the unit, it goes— To the garage. On the second story. In this case, there's an alley, so we face the tenants to the alley and the homeowners to the one side, so they never see each other. So in terms of privacy and functionality, this is a perfect scenario. So this is the type of thing that I'm sharing with you case by case. What is the best fit, the best layout to give privacy, rental income? Uh, at the same time, that is the virtual tour. It's not my computer. Can you help me with that? No, no, I can't move. It's going.

It's going.

This is another thing that is interesting. This is because it's an older senior resident. She didn't want any step in the shower. So when you do that, when you do the foundation, you have to do this slope. from the door going all the way to the shower and do the linear drain in the back because we're sloping down without any step. It's more expensive because you have to tile the whole bathroom, but it's, it's a lot nicer. So we're starting the tile going all the way. You see there's no step here, and for wheelchairs, and, uh, it's, it's good. In this case, do you have to tile over the entire bathroom? No, we have like 20, 30 inches after the shower because we're, again, we're sloping from here and the shower pan, we lower the shower pan because we know we're gonna slope and then we do the finish on top of it.

Isn't that like a Euro shower?

What do you mean? No, there is a door here. Yeah, yeah, the slider door. Yeah. Can you get out of it? Yeah, yeah. Thank you so much.

What?

And he ended up adding a curtain to it. It splashed everywhere.

Yeah. All right, uh, okay, I show you the 4 most common examples, but, uh, we're here to talk about how we can start this. You know, for those who already built, uh, just would you bring your experience? How do we start doing an ADU? What's the first step?

Check with the city.

Check with the city. What else?

Figure out what the purpose is.

Figure out what the purpose is. Figure out the purposes. Perfect.

Joe?

Utility companies.

Utility companies.

What else? Call a design builder. Call a design builder. Good. Best answer ever. What else? Your budget. Perfect. Yes, yes. All right, guys, uh, I'm gonna share top, uh, 10 things. Uh, you just mentioned that, but I put in the order that I think is the most important. Okay, first of all, budget. Do we have money to build it? That's the most important thing. So if yes, how much do we have? How much can we borrow to do it? That's the first question. Okay. Second, can we build in our backyard? Do we have room for that?

Okay.

Zoning. Yeah, check the permit. What can we do? Utilities. Okay, water, sewer, power, gas.

Permits.

Design purpose. See, you, you know every— you know all of this, just bring different approach. Timeline. Property value and taxes. Rental plan. Those are the 10 things that I think is a good start For you to figure out why I'm sharing this with you, because the most important thing is information. How do you get information to do that?

Research.

Research. Where? Be more specific, please.

Online.

Online. Be careful. Okay. There's a lot of companies asking your. The address of the property to give you all the ordinance and all the rules. I would recommend to, when you want to build an ADU, go to the city and talk with the city planner about what you're doing, because sometimes what they have there is different than they advertise. That's the first step. Go direct to the source with your plan. This is what I want to— even if it's not the definitive. Just an idea. Just go there and talk. That's the best way to get the information. Okay, I'll give you two examples: one easy and one more complicated. How we address the scenarios. This is a typical lot in California. The house is eight forty square feet, but let's make it. Let's say this is a ten thousand square feet lot. With a 1,000 square feet house. That's the average you see, 1,200, 1,100. That's the ratio of— and that's why ADUs are so popular. There's a lot of land here available to put more housing. So in this case, we move the existing shed, we add the unit square footage because it was just 800, the house. And then we convert because junior ADU that I didn't talk about it is when you convert existing rooms in the house to what we call a junior ADU. It's up to 500 square feet, but it can be new construction. But there's a ways to go around that. You can add the room first and a few year or sometimes the, the the plan checkers, they allowed you to do simultaneously. Just build a space and after that you convert, because the new is new when you start it. After it's there, it's existing. So you can do it in the second phase to add a junior ADU. And that's what we did in this city in San Diego. A few, 1.5 years later, we applied for a junior for the existing. But again, this you have to consult. So add the room, wait a little bit, and then you convert later. So we add 400 square feet, we put a junior ADU, and then we add the ADU in the back. So in one house became 3 units for this specific lot. It's before. Okay, the second case is, like I said, a little—

go ahead.

If it's— I heard everything, but what I understood and interpreted of the law, if the garage is attached, part of the existing structure, it can't be converted as a junior ADU. But also I heard that they convert to a junior a detached garage. So again, that's why it's important to go to the city And say, hey, I have this, can I do this? So you can have the answer. Okay.

On the previous slide, you did a junior ADU. How do you access that? Do you have to go through the house?

No, the client, they— the junior ADU purpose is for a guest house for a family, so they didn't put the access to the Outside. But normally, yes, if it's another rental for investment property, you put the door to the side.

So the purpose of that was because they're getting a bathroom and a kitchen added inside the house, an extra one, correct?

Yeah, see that? This junior belongs to the house. Every junior ADU needs a connection with the house, but you You know those hotel doors that you block one from another? That's simple to do it. But in this case, they want to use the junior ADU for family. They basically did a guest house and a rental house. But normally you could do the access next to the kitchen and flip, probably flip the bed and the bathroom. Yeah, but that's that's what happened.

Of course.

This is the shed that we move here to there. Do I want to go back? Any other question about the other slide?

Does the ADU always have to be in the back of the property or So can you build them in the front?

You can. There's a new law.

Mine's in the front yard.

Yes.

My lot is basically that lot but backwards. My house is set really far back, so we have room in the front yard to put it there.

Yeah, normally the front setback is 20 or 25 feet setback, but there's a law that I don't remember the number. They now allowed you to go But then if you want to build on the front, you check the neighbors how far they go, because if they go more, probably there's a variance allowed you to do that. I don't know why, but based on the neighborhood layout, you can move. Because at the end of the day, the not in my backyard People, they argument that we don't want pink houses in our neighborhood. You want to make our neighborhood nice. So we start adding houses that nothing to do with the original architectural concept. There could be a problem for our neighborhood. Nobody wants that, right? So the idea is to add the unit blended with original architectural concept. If you do that, If you're successful by doing this, then when you add value to the property. I believe that. But there's different tastes for everything. This case that I mentioned that is a little more complicated, the homeowner found me on internet and called me and said, hey, I almost signed a contract to do a detached ADU in my backyard. But I need a second opinion on that. And then when he called me and he told me that the company suggests to do a detach on this amount of space here, and I said, hey, are you sure about this? There's a jacuzzi, there's a nice deck here. You're going to put a house here and you're going to enjoy your backyard here? Are you sure about this? What are my possibilities here? Hey, let's find out. First, when we did the site inspection, we checked where the utilities are. The electric panel, gas was here. The water meter was here in the front. There's no concrete here, it was only dirt, which is good if you have to trench a lot. If you have a concrete like this, it could be expensive. But in this case was only dirt, which is good. But the idea is to— there's windows with kitchen, with the kitchen in one bedroom. So, and this is a rental unit. They, they want an extra income. They want to live in a house and extra income also. This is a coastal house, so if you— there's a ladder here that he invited me to go up because he said there's a nice ocean view on top of this roof. So, uh, so when he showed me everything, I said, hey, you, if you put the house here, you have your tenants walking, you're washing the dishes and say, hey, Mike.

Hey, Joe.

How are you? How are you? How are you? Okay. So it's not a good thing, right? You never know who's your tenants. Anyway, so when we went there and did the site investigation, first of all, we came up with the above-garage unit on top of the garage. Why we're doing this? Next to the utilities, so no, basically no trench. Above garage you have a view. Tenants, they access from here and no connection with the house at all. So we start talking about this. After more work, investigation, and back and forth with the homeowner, We thought, hey, we can— because we have the ocean view, we can put— there's a flat roof here. So we say, hey, if you're willing to do the ADU here, you can put an above garage access from here and have an ADU with the ocean view if it's important. Because during the Q&A, they mentioned one day we might want to live in the ADU and rent the house. So they wanted the ocean view for them as the property owners. But then we're not happy with that because we need to investigate all the possibilities in a house. Does anyone want to guess what will be— where could be the 3rd ADU here?

Where?

We create a courtyard And then we make the tenants exit from here, so no connection. The problem is we trench here, but still you preserve the layout of the property with privacy. And this is an advantage comparing to these guys here because this is a one-story attached. Remember when I talk about the two-story, you have to spend more money. To reinforce and do the second. So like we say, you can do anything in construction, but there's some things that cost more. So we have to put all the pros and cons for every scenario.

What are the implications if we go back to your first one with the red spot and say you want to put the door at the top there, but excited— or let's say it's already at the top. This is a real scenario. So what would what would be the implications or loss?

It's in that French doors, trying to move it to beams of privacy.

So you have separate access.

I'm not sure if I if I get it. You're talking about this guy?

Yeah, that guy.

All right.

You have at the top there, you have French doors, and that's pretty dangerous.

This?

Yes, and you want to move it down to the bottom.

Yeah, this is at what— this is a ground level.

Yeah, well, that's not French doors. I'm stating a real scenario. Yeah, but what you're looking at is not French doors. Yeah, that's an aerial view. Yeah, yeah, yeah, yeah. No, no, I'm saying it does. Let's say you want to move those French doors from the top Okay, so it's a real scenario. I have, um, I have, I have an ADU just like this, and we, we have this scenario. We have French doors right here. My wife would like to move it here. There's no window here. What would be the implications of taking those, closing off that wall, and moving Moving the—

I see what you're saying. Yeah, the French doors, slider doors, all types of big doors connect the ADU with the house. If there's privacy issues, you don't want to do that. You just do a window. When we do the design, we also try to put the windows where people can see each other. In this case, You can, and normally the best way to do it when we have a situation like that, we suggest to put natural fence, like give another setback of the unit and separate one unit for the other. But bringing the— you can do it, just a matter of what you have here. So if you have a room, you have a French door with the room just for the dorm.

Okay.

Because you can, if it's built already or?

Yeah, it's a 300-square-foot ADU with a full-size bath.

So I assume you have a living room here and the bedroom or a studio. It's a studio?

Yeah, it's a studio.

So it's all connected. Yeah, you can change for the egress purpose. You, you're good because it's one room.

Okay, I have the correct answer for you. Happy wife, happy life. Do what she says and do what she wants. Thank you, Joe.

You're welcome. See, that, that's a— that's perfect because every time I, I speak with the homeowner, only the husband, I don't, I don't spend all my bullets on that, you know. I'll wait for the boss Then because the boss always shared her thoughts, and then when you get the, the— yes, exactly. So guys, this is an example, complicated one, and that's the real case that we're working on.

Sorry, I have another question.

Go ahead.

You decided you wanted to put all 3 of those. What's the limit?

No, the limit is, uh, you can, uh, This, uh, convert this to a junior because it's attached and add a second, uh, unit, or here, or here, or here.

Right, but not—

So 3. Uh, there is another law—

3.

3. There's another law that's called SB 9. That's the lot split. I think you heard about the lot split law. There's 2 approaches for The SB 9. Split the lot in 2 with 2 different parcel numbers. It's easier to sell because for every lot you can build 2 houses and 2 ADUs. So 4 if you split. 2 houses, 2 primaries and 2 ADUs, 1 ADU for each primary house if you split the lot. But you can also do what they call the same SB 9 The two-unit development, so you don't split the lot, but you can also put a primary house and an ADU for you can have technically four, but under one parcel number. Go ahead. Yes, correct. Everything depends on the city, although it's a state law. Yeah. Go ahead.

Inside the main house envelope and a separate detached ADU. Would an ADU that was mounted on top of the house or on top of the garage but had no access to the inside of the house whatsoever, would that be counted as separate, or could it be still counted as a junior?

No, you have to connect for the junior, somehow connect with the existing house. So you would have like a hotel door that I mentioned connecting one and the other.

On top, would it count as a detached?

Yeah, you have to check if the stairs— in that case, I would do interior stairs, not exterior stairs. You see what I'm saying? You access the unit here, and then you have interior stairs all the way up.

But if the stairs are on the outside, is it a detached?

Then it could be considered, depending on what the city planner will interpret it, but yes.

So because I closed off the wall between the ADU and the house, that becomes detached? No.

To consider attached, I think it's 10 feet. You know when you have a garage and a house and there's a porch, like a connection? If it's 10 feet minimum, it's considered attached. But my tip for you is check the deed of the property. Normally the deed says attached garage, detached. It's hard to, to beat that argument if you have in the deed. And when you purchase a property, read if the garage is attached or detached. It could be separate but connected by a 10-foot-wide porch.

Going back to the SB 9, ending up with 4 or more units, is the permitting process a lot harder for that?

It is because it's newer. Remember Uber when it started, right? People, hey, the cabs, taxi, blah blah blah. And time passed and it became more natural. That's exactly what happened. The ADUs and the SB 9 is an evolution of the ADU laws, and there's more laws coming in favor of the the housing. So yes, it's new, but it's more and more people doing the SB 9. For my experience. When you do a lot split is when you have a good front of the property, so you can do 2 exact rectangulars to have 2 houses with front and back. I saw people doing a unit in the back, splitting the lot in the back, that you have a right-of-way created right of the way to the lot in the back, but try to sell it, right? It's going to be complicated. Any more questions? Well, uh, again, uh, the secret is information, okay? That's the most valuable resource. I asked how you get information. Research, you said. Go to the city counter. Normally, uh, architects is a valuable resource. General contractors is a valuable resource. source, but you're always afraid to talk to them and give a business to somebody else. So you stay in that situation that you want the maximum information, but you don't want to commit with them. So you have to be creative. And based on the experience we had, we create what we call the ADU Property Report that is totally separate From the project itself. It's when we help the homeowners get the information. It costs nothing practically. And better, the good thing, I can't pitch. It's not allowed to pitch here. So I'll be briefly— when you pay for the report and you move forward with us, you get 100% refund of that investment. It's just to show mutual commitment. With the project. But the report is a 10-page report with everything we just discussed, like the 2 design options and what is the best fit for the property. And, and, and by the— my experience taught me that it would be the best route to do it. In other words, information is what will give you the best decisions on on this type of project? Basically, to maximize property value, avoid permit delays, control costs, optimize design, finance, reduce construction time, attract better tenants, and peace of mind. That's the most— the ADU process journey is not an easy thing to do, especially if you live in a house. If you're a homeowner, it's not a simple thing to do, but the more information you get, it could be less painful to do the work. This is not my file, this is the TV, but this is what the report looks like, the digital and the paper. Go ahead.

Are you How do you find an architect or a general contractor?

Excuse me?

How do you find an architect or a general contractor?

You can Google search. I would, if you're looking for a good one, I suggest you to get one with experience in ADU projects. Every general contractor can build an ADU. Licensed general contractor can build an ADU, but someone with the expertise that knows the obstacles of the different types that I just shared with you. Same thing for the architect. Normally, the general contractor needs an architect to do the work. One can refer to another and vice versa. We do all, so And we work with architects.

So if we sign up with you, you have an architecture in there, your price, including the architecture price?

Yeah, so we offer the report, okay, and we do the report, and then with the report we present the proposal for the design engineering permits. All stamped, ready to go to build. If you approve that design proposal, we credit the report, the full report to you back, and then we do the design.

So we don't have to pay extra for that?

No. Then when the plans are approved, stamped, ready to go, we then can bid the project based on the approved plans. So what we do, we give an estimate, an accurate estimate based on the plans. For the construction contract. If you sign the construction, then we credit you part of the design. So we preserve the fidelity because at the end of the day, we want to build it.

But do you pay before it's finished?

Like they go by step by step? Yeah, the design, the report is the report itself. It takes like 15 to 20 days with all the interviews and site visits.

You're talking about once they start building like foundation, you pay the money upfront or wait for them to build?

No, no. When the proposal, we break down all the proposal based on the trades like foundation, framing. We give you a timeline for how long it's going to take. In Wix, and the timeline in Wix comes with the money that you pay. So what you pay is what you get because you see the progress. You wait until they're finished to pay. Yeah, I get paid from the homeowners, but I manage the payments to my employees and subs based on their progress. Because this is an important thing.

You're not paying the money upfront, right?

But based on the progress, then the timeline that I provided to you. Because what happens with most of the general contractors, you can't give too much money to the general contractors because they look for the money in that week. So if you pay too much, they're not looking at you, you're not interested anymore, so they chase where they can get more money for that week. So in other words, you keeping a short leash to, okay, you want money from this job, you have to do the job and I'll be here with you and I'll pay on time. But what happened, if you have too much money and not progress, you'll be stuck.

What are your thoughts on Good question.

Yeah, they're, they're, they're basically the same cost of a stuck build. The advantage is that they manufacture in the facility, so there's no city permits. It's a state permit. The only thing you have to permit is the when you do the foundation and connect the utilities, you need a city permit because you do the connect the utilities, you put a foundation, then you bring the house and plume just put on top of it. That's the it's a different process, less painful for the homeowner because you deal with the construction just for a short period of time. But If you're talking about add value, blend the ADU with the house, do the integration, the nice layout with the landscape and everything, it's hard to match a prefab house with the old cottage-style house. So aesthetically and the value, I don't think it's a good idea. I think the prefabs are very good if you have a raw lot in the desert, or you can lot split and put 4 units each. Then you just do a nice landscape and then you put 4 equal prefab. That I think it's going to be good. Some prefabs you can, for example, Laguna Beach, there's not every place that you can drive the truck with the house to. There's some limitations on transportation as well.

The boxable house is very cheap, you know, right? The boxable house is very cheap. Yeah, really, really cheap. Yeah, but I'm not sure, is that— look, it's like a mobile home.

The boxable is like a mobile home, right?

I don't know, it's like, like it's on a chassis type deal and you have Is that what you're saying?

The boxable house, I don't think—

The one that is open like this, like that I saw on the internet.

Yeah, I thought that not good insulation like a real home. Yeah, it can be very cold, like in the mobile home. Yeah, very hot.

Yeah, I'm all for add value. My happiest day is when homeowners say that their guests Didn't know there was any ADU there. It's, oh, I almost couldn't believe there's a second house here in your, in your house. That is the best compliment I can ever have because we set up well, we add value. And also, Joe, correct me if I'm wrong, nowadays if it's well integrated, the, oh, you have a guest house on an ADU, it could be a plus for the sale.

You mentioned that your plans are pre-approved by the city, so basically—

That's a very good question because there are now, this year start to, the cities allowed you to pre-approve plans. In January they started that. It means that you can submit your own plans and have 85% approved, so you only have to deal with 15%. But we have our plans. We submit to a few cities our set of plans, but we don't have them yet. But the the you're you're ask a very good question because if you what what's your city? What's the city or Mission Viejo? Let's say you have a house in Mission Viejo. We want to build an ADU. When we do the reports, the first thing I'll do. I'll check if there's pre-approved plans in the city of Mission Viejo, because even if it's not mine, I'll check with my experience if the pre-approved ones are okay to put in your property. If they're okay, I say, hey, do this. Don't do my own plans because you speed up the process. You make a lot faster.

But you approve your plans to city for pre-approved.

Yes, and and that's this is it's going to be a passive income for most of the design builders because if you have pre-approved plans in in in cities, the homeowners and that's what you should do if you want to build a you go to the city and say hey do you have pre-approved plans here let me see it if you like you the city will put you in contact. With the designer.

It's not free?

No, you have to pay. But again, if we're doing set of plans, like we're doing a 2-bedroom, 1-bedroom, a studio pre-approved, we have a set of plans for each, but we're spending just once. And then we run to— the problem is you have to run to all— in Orange County, there are 34 cities. So you have to pay fees for 34 cities to pre-approve. It takes time, but it's gonna happen. Whoever has pre-approved plans, we're gonna run the game. Very good question.

On the Orange County website, there's pre-approved ADUs. Does that apply to all cities?

No. There's unincorporated areas run by the county, there's only— that's all. Those are the only that counted. But the city, City of Orange, City of Orange, Santa Ana, there's a few cities, Newport Coast, North Tustin, there's a few unincorporated areas that run by the county, and then yes.

What's your range? What areas are you working in?

North San Diego, South, uh, yes, and north and south Los Angeles.

You work in Orange County?

I—

the reason I do this is because I, I, I check my jobs personally every day, so I need to cover the, the area. I don't want to work far away from my jobs.

How about Orange County?

All of Orange County. We are in Elizoviero, located in Elizoviero. Any other question? Thank you so much, guys. Appreciate it.

What's the M240 for?

I honestly, no, I don't know yet. I don't know, but I if you email me. Because what I suggest you, I'm a member of a nonprofit called Casita Coalition. I do. Casita Coalition, they advocate for small housing and they know everything about it. So I suggest you to— this is another workshop. It's pretty much the same, but we're bringing a CPA. to address more the tax and finance questions because I'm not the expert. So I invite her to join me to talk about, about more this. This is going to be in HERA Hub Irvine on the 29th.