Most of us would like to live close to our loved ones. We’d love our children to raise their own families nearby. We also would prefer to spend our golden years in the place we call “home.” But the continued rise in the cost of living, particularly in California, makes that a tough dream to achieve.

In 2018, more people left the Golden State than entered – the second year in a row for this negative trend, according to the US census. A recent survey found 53% of residents and 63% of young adults were considering leaving because of the high cost of living.

Bay Area rents continue their strong upward trend. In May 2019, the median rent for a 1-bedroom unit reached $1,975. Two-bedroom units average $2,800 per month.

Now consider the cost of nursing home care, which now averages $86,000 per year across the state and a staggering $125,000 in San Francisco.


How ADUs Can Help

All these factors present a unique opportunity for Bay Area homeowners in the form of auxiliary dwelling units, or ADUs. For reference, read our article “New ADU Housing Bills Could Add Significant Value to Your Home”.

ADUs — also referred to as in-law units or granny flats — are additional living quarters on single-family lots that are independent of the primary dwelling unit. The separate living spaces are equipped with kitchen and bathroom facilities and can be either attached or detached from the main residence.

Some of the most common uses for ADUs are:

  • Housing older parents or grandparents independently
  • Low-cost housing for adult children
  • Long- or short-term rental income


Multigenerational Living Options For ADUs


Worrying about the health and safety of an aging parent living far away is a major stressor for everyone involved. Having mom or dad just a few steps out the back door provides convenience and alleviates anxiety. ADUs allow elderly individuals to maintain their independence and offer families the privilege to care for them while saving money otherwise spent on nursing home care. 


In high-cost regions like the Bay Area, many people are building ADUs to give their children the opportunity to stay in the place in which they grew up, raise their own families, and/or save money for college or for an eventual down payment on their own home. In some cases, as parents age, they will move into the ADU and make the primary residence available to their grown children.


In his 2013 book How to Retire the Cheapskate Way, Jeff Yeager tells of a couple in Washington state who are planning to age in place by raising their single-story house to accommodate a new apartment beneath it. Yeager recounts how the couple loves their charming, village-like community and would like to stay there indefinitely. As they age in place, they will have several options: to live in the new ground-floor apartment and rent out the rest of their house, or live in the house and rent out the new apartment below.

This mentality is shared by many who are looking for cost-effective alternatives to leaving their increasingly more expensive neighborhoods.


What does it cost to build an ADU and what is its rental potential?

A leading ADU builder in Northern California ran a detailed financial projection on building, financing, and renting out a 1-bedroom, 1-bath, 400-square-foot unit in San Jose.

The all-in cost to build this (fully loaded) ADU is projected at $161,358. Financed at 90% loan to cost, this creates a monthly payment of $560 over a 30-year period.

The projected rent for the unit is $1,554/month.

After the projected monthly loan payment, increase in property taxes and insurance, plus a few other expenses, the anticipated net return can be $900/month.


Can We Help?

Whether you are looking to care for your aging parents, help your grown children save money and afford living close to home, increase the value of your property, or generate extra income, an ADU is the perfect vehicle.


For more about how an ADU may benefit you, please contact Julie at 650.799.8888 or to schedule a free consultation.