Is Detached Bedroom The Same As An ADU?

With the recent rental crunch, many families in Los Angeles are looking for ways to help out relatives who may be amongst the housing insecure. It could be an adult child who maybe can’t afford a place of their own yet, but is craving more independence and privacy. It could also be a parent who needs a little more looking after, but still wants the privacy of having a place to stay that is separate from the main house. 

If you are such a homeowner, you may not know that there are options available to you that will not only help out your relatives, but will also add value to your home. 

Two such options are building an accessory dwelling unit (ADU)/garage conversion or a detached bedroom. Knowing the difference between these two units and the costs involved in construction can help you make an informed decision about what would be best for your family’s needs and your budget.

What is an ADU in Los Angeles?

An accessory dwelling unit, or ADU, is also sometimes referred to as a garage conversion, granny flat, or tiny house. It is basically an apartment that is built on your property. It can be built in a converted attached or detached garage. It can also be new construction on your property. Whatever the construction, an ADU includes a bathroom and a kitchen. 

Under current California law, any homeowner may construct an ADU on their property. It is considered a single family home and may be rented out as such. 

What is a detached room in Los Angeles?

A detached room is what it sounds like. It’s a room completely disconnected from a bigger house. This is just an addition to the existing house. And, some may call it accessory structures. It can have a small kitchenette and a bathroom, but it is not built at a fully-functional separate apartment. Its major purpose is for the use of the family members, be it a workshop or a studio.

A detached room is considered to be a part of the house, whereas an ADU is built to be a stand alone housing unit. 

If you currently have such a room on your property, it can be converted into an ADU under current regulations. 

What is the difference in cost in construction?

An ADU will cost anywhere from $90,000 to $120,000 to construct. This covers everything from architectural plans and permits to construction and labor. These prices apply whether the ADU is being constructed from a converted garage or new construction. 

A detached bedroom will cost anywhere from $55,000 to $75,000. The price will go up if you include a bathroom or a kitchenette. 

Why would you want a detached room and not an ADU in Los Angeles?

While ADUs are all the rage in Los Angeles, it may not be the right fit for you. ADUs are single family dwellings and are usually built to be rented out. While you may use that ADU as housing for a family member in need, it could be a little more than you want. 

Detached rooms, which don’t have a full kitchen and don’t have to have a bathroom, may be more in line with your needs. 

Let’s say you have an elderly relative who needs a little more TLC. You may not want to put them in an expensive home and have strangers watching over them, but you still want to give him or her a little privacy. A detached bedroom may be just the thing. It provides privacy, but doesn’t include a kitchen that could be a recipe for disaster. 

You may also be thinking of creating some kind of retreat for yourself at your house. With so many people telecommuting now, a detached room may be just the thing to get some privacy and some work done. 

How can I pay for my ADU or detached room in Los Angeles?

With any kind of large home improvement project, you want to make sure you get your funding in place before planning your construction. That way you have an idea of your budget before you get started. So, how do you pay for an ADU or a detached room? You basically have three options:

Home Equity Line of Credit

As a homeowner, you can borrow against the value of your home. One of the most common ways to borrow against the value of your home is through a home equity line of credit, also known as a HELOC. This is a line of credit secured by your home that gives you a revolving credit line to pay for large expenses. 

To qualify for an HELOC, you need to have equity in your home. That means, the amount you owe on your home must be less than the amount your home is worth. You can usually borrow up to 85% of the value of your home, minus the amount that you owe. As you repay your HELOC, the amount of available credit is replenished, meaning you can borrow that money again, as needed. 

Cash-Out Refinancing

Another way to pay for your home improvement project is through what’s called a cash-out refinancing of your mortgage. With a cash-out refinancing of your mortgage, you will get a lump sum payment. How? 

Basically, you replace your current home mortgage with a new one. This new home mortgage would be higher than your current home mortgage. Then, you can take out the extra money and use it towards your ADU or any other home construction. 

This is a great option when interest rates are low, especially if interest rates are lower than they were when you purchased your home. Also, the money you collect from a cash-out refinance isn’t considered income, so you don’t have to pay taxes on it. Instead of being considered income, the cash out is considered to be a loan. 

Construction Loan

Yet another option is a construction loan. One of the many benefits of building an ADU is that it increases the value of your property. That makes it appealing to banks, who may give you a construction loan. With a construction loan, you would refinance with a mortgage that reflects the house's estimated value after you construct your ADU. Many lenders provide mortgages that cover up to 80% or 85% of the remodeled home's value.

With a construction loan, your bank will first assess the value of your property. Then, an appraiser will calculate how much they believe your home will be worth after an ADU or other addition is built. The bank will also take into consideration how much it will cost to convert your garage. Once all those factors are determined, the bank will provide a certain percentage of that difference for you to finance the cost of construction. 

With a construction loan, the bank plays a larger role. The bank approves the general contractor selected by the homeowner. Then, the bank releases money at various stages in the construction process, which may involve an inspector verifying the progress. While these inspections may involve fees, this approach protects both the bank and the homeowner, who may not be familiar with how to oversee a major home construction project.

Still have questions about financing your project? Maybe you still have questions about ADUs and detached rooms? Whatever your inquiry, give us a call. Our lending and construction professionals have the experience and know-how to help you get started today! Call at the number above.