Plus One ADU Program: Explore the Benefits Today

Plus One ADU Program combines no or low-interest construction financing grants or capital loans for homeowners to convert or build ADUs on their properties. Expanding your living space contributes to community housing options and offers flexible living space. 

ADUs have become popular as they offer solutions for affordable housing. These tiny, self-contained living units can be used in various ways, including rental incomes, home offices, or housing for family members.

Financing Your ADU With RenoFi

However, financing the ADUs can be a cost burden for homeowners. RenoFi is a new way to finance an ADU project. ADUs not only increase your home’s value after renovation - i.e. when the project has been completed - but can also generate rental income. However, ADUs are costly. If you don’t have enough equity in your current home, funding ADU construction with a home equity loan is impossible.

For example, let’s say your current home value is $500,000, and your outstanding mortgage balance is $400,000. You are planning on adding an ADU and expect the value of your home to increase to $640,000. Your current loan-to-value ratio (LTV) is already at 80%, which means that most home equity loans are out of reach because that’s the maximum LTV they allow. So, your borrowing power using your current equity is $0.

RenoFi, on the other hand, would allow you to go as high as 150% LTV of your current value or 90% of your after renovation value, whichever is lower. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 by using the after renovation value of your home!

Get started with your RenoFi loan here

Costs Covered by the Plus One ADU Program

Before you submit your Plus One ADU loan form, you need to understand the costs of building the ADU. Generally, the cost implications depend on the location, size, and materials. Here are the key points:

Permitting and Design Costs

You need to get ADU design from a professional who can be a designer, engineer, architect, or drafter. Some experts have in-house designers, and they understand the zoning code. With this, they can come up with an appropriate layout.

The design professionals will offer various services, including interior design, project management, and total project expenditures. Doing zoning research and taking measurements will add to the design costs. 

Professionals produce a layout, including floor plans, elevations, site plans, and approval. You should note that permit and design fees differ depending on your chosen designer. A reliable designer team will submit the project details to the municipality, making your work easier. The application should be in line with the local building guidelines. 

There might be structural clarifications or modifications suggested by the city staff. It could be clarifications on the floor plan, placement for egress, or changing window size. Usually, designers or architects may not charge you for such common revisions. 

Building Costs

The Plus One ADU Program essentially helps you meet the building costs. Labor costs are as substantial a financial burden as material costs. The scope and size of the project and the project’s location impact labor costs. Some construction companies pay hourly, while others offer fixed fees. Site preparations and excavation will add to your building costs. 

Material costs play a substantial role in the overall project expenditures of building your ADU. Plumbing fixtures, flooring, appliances, and finish materials add to the final price. However, appliances, countertops, and cabinets should be budgeted separately from the contractor bids. This is because, as a homeowner, you’ll have the mandate to choose these materials. 

Several key components affect the cost of finish materials for your ADU. Windows, doors, exterior materials, and plumbing fixtures are a significant portion of the cost. You may need to consider the material’s maintenance needs, aesthetic appeal, and durability.

Your ADU may call for various flooring options. You can get tempted to have granite countertops and hardwood cabinets. However, wood absorbs moisture, so it needs to be treated and sealed. Carpet is a preferred option over hardwood or laminate in bedrooms due to the comfort it offers. Besides, it wears out slower since you use the bedroom less frequently than the living room. 

When choosing materials, you may need to consider your style. But if you’re building the ADU for rental purposes, you may consider a style that can impress tenants. 

Consider investing in hardy materials that are easy to clean and withstand frequent use. So, which are the best materials? In this case, laminate or vinyl can be an ideal option. High-end flooring can also be a good choice if you plan to charge a higher rental fee. 

Your goal should be to have a budget-friendly option that mimics its feel and look. Think about your property’s worth and whether you want to sell it in the future.

Once you consider these costs, you’ll make an appropriate application for the Plus One ADU Program. 

Consider ROI

Is your ADU a worthwhile investment? Well, this depends on the purpose of building the tiny unity. According to a realtor survey conducted in 2021, about 32% of homeowners build ADUs for rental income. About 60% build ADUs to host aging parents. Now, are both options worth it? 

Let’s look at each option. 

Having your parents living alone in a two-story building at the top of a hill is plain dangerous and unmanageable. You’ll have to make several trips to the house to check on them. Alternatively, taking them to an assisted living home costs about $55,000 annually. 

However, building an ADU for aging parents gives them comfort and saves them the cost of assisted living. If taking them to an assisted home is the only option, you can rent the ADU to defray the costs. 

An income-producing unit on the principal property’s site helps you pay your bills without working. ADUs are excellent sources of passive income, and since they’re becoming popular, they’re becoming more lucrative. Research on local rents on Airbnb, VRBO, RentCafe, or Craigslist. 

You’ll realize that ADUs offer privacy and are more appealing than apartments. For instance, in California, ADUs were meant for long-term housing. However, you can rent it for short-term housing like an Airbnb. 

You can use rental income from the tiny home to fund other projects and pay utility bills, among other purposes. If you work remotely, utilize an ADU as a home office and save the costs of paying for an office space.

So, as you apply for ADU funding, consider its return on investment. 

Benefits of the Plus One ADU Program 

Plus One ADU Program is designed to make the construction or conversion of ADUs effortless. The program promotes density in a community-friendly way while addressing affordability issues. This approach provides housing in established estates while helping you maximize your property’s potential.  

Let’s explore an array of benefits. 

Passive Income

In an environment where the cost of living keeps soaring, having an extra source of income will save the day. Building a tiny dwelling with the help of the Plus One ADU Program gives you added living space to earn rental income. 

A well-built, two-bedroom small house can fetch you around $4,000 monthly. Maintenance costs are potentially low since the floor space is small. When the ADU is financed, the ROI is more than 15%, which is impressive and compelling. 

In some states like California, you can rent your tiny unit for Airbnb, which has a higher return on investment. 

A newly built ADU instantly adds an appeal to your property. It boosts the resale value of your home and can also be written off the taxes. Income from rent attracts buyers who may have extended family to live with. A property with an ADU appraises higher than the one without due to the improvement costs. 

You can also construct ADUs in several properties if they adhere to the zoning guidelines. The best thing is that you can customize these units to suit your needs and those of future tenants. 

Flexible Living Space

Once you construct an ADU, you’ll experience flexible living. As earlier stated, more than 60% of property owners build ADUs to host the aging parents. Living independently with seniors in the same compound provides flexibility, privacy, and comfort. You can offer your help without interfering with their living style. 

On the other hand, the seniors live comfortably without feeling lonely. An ADU also serves as a space to host extended family members who cannot afford to pay rent. 

You can also build your ADU to accommodate your teenage son. Paying your son’s one-bedroomed house at $3,000 per month translates to $36,000 per annum. Defray the costs by letting your child live privately within the principal property’s site. Apart from saving you some bucks, you can easily monitor and guide them as they navigate life. 

Affordable Housing

Everyone desires to live in an established community. Others envision living in controlled spaces but cannot afford them. This is where ADUs come in handy. The tiny units give people the opportunity to live in established estates inexpensively. 

Professionals like accountants, doctors, or travel nurses are increasingly moving into ADUs because they provide a sense of dignified living. Privacy is also another selling point of ADU. Sometimes, tenants use the tiny units as their homes and offices. 

With the high cost of living, downgrading helps save on various bills. ADUs are ideal for people who want to downgrade their living. As a homeowner, you can also downgrade and live in the ADU as you rent out your principal property. Living in a small home is convenient and cost-effective. 

Besides, residents might share utility costs with the principal residence depending on the construction design. For instance, the efficiency of shared walls can lower utility costs. As a homeowner, you can also use the rental income to offset your home ownership cost. 

Environmental Sustainability

Climate change has become a global concern, and any effort to minimize carbon footprint is embraced. ADUs use few materials, meaning they have a lower impact. These units also have a substantial potential for green living. 

Many of the building materials and appliances used for building ADUs are durable. These appliances perform better and last longer than their conventional counterparts. This means they consume less energy while performing optimally. 

Extra gas heat pumps and insulation materials used may be expensive, but they save you on energy costs. As you construct an ADU, electrify everything to reduce the energy use. 

With the funding from the Plus One ADU Program, you can forego gas gadgets and appliances for electric ones. Electric appliances can operate on green energy. A better alternative is a solar panel. 

With better financing, you can opt for electric induct cooktops that use electromagnetic energy. These are vastly enhanced cooktops that cook better and faster than gas. Their efficiency means less energy costs and no air pollution. 

An electric heat-pump water heater is costlier than a gas tank. However, choosing the former gives you comfort, efficiency, and cheaper options in the long run. 

Water usage is a significant concern globally, especially in drought-prone areas like Los Angeles. Fortunately, you can limit water use indoors by installing a low-water appliance in the ADU. Fixtures like motion-controlled taps and faucets and low-flow shower heads are highly recommendable. 

Reduce, reuse, recycle. Use this old slogan when building an ADU through the Plus One ADU Program. Utilize secondhand or recycled materials as much as you can. Fiberglass is the industry standard insulation, but definitely not the only option. Wood fiber, cork, mineral wool, and cellulose are great alternatives. 

Improved Community Density

ADUs are increasingly becoming popular in the real estate realm. The approach is helping jurisdictions attain housing goals by improving density in established neighborhoods. Single-family estates are getting densely populated without compromising the existing design or look. 

The density can create an interconnected and vibrant community. More businesses can crop up, leading to economic gain. 

Eligibility of Plus One ADU Program

The initiative’s eligibility hinges on whether your property meets the set zoning requirements and regulations. It depends on the available space for ADU without exceeding density limits. Ensure your property’s eligibility is verified with the local planning department. 

After verification, you can choose one of the pre-approved design templates. This ensures that your tiny home plan conforms with the building codes. 

Conclusion

Funding can make or break your ADU project. That’s why choosing the Plus One ADU Program should be a priority. The program can partner with other financial institutions to provide better loans on favorable terms. Your attention to detail is highly required in the application process. Remember that the program has deadlines for applications, so don’t miss the dates. 

The journey of building an ADU should not be complex. With RenoFi loans, you can borrow against the estimated future value of your property. This boosts your borrowing capacity by accessing larger sums at lower rates. 

Reach out today, and our dedicated team of loan officers at RenoFi will help you explore financing options. 

RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.