[Building ADUs: Part 1]
A resident of Buena Park, Orange County, is building a 1,000-square-foot accessory dwelling unit (ADU) to provide him with a stable income in retirement. However, he was surprised to learn that he would have to pay way much more for building-related fees to the city. This amounted to $28,000 in taxes and administrative fees, more than 10% of the total cost of the project. He used a home equity line of credit (HELOC) to finance the construction, but the additional costs have left him frustrated.
With the boom in ADU construction across the state, some homeowners are facing unexpectedly large payments to the city for building ADUs, requiring homeowners to be cautious.
In addition to the cost of construction, there are additional costs associated with building an ADU, such as taxes and administrative fees, that can be costly to overlook. These costs vary by city, so it’s important to check with your local government before you decide to build an ADU to avoid any surprises.
In the example case of Buena Park, the owner would have to pay plan review fees, building permit fees, and impact fees. Except for the impact fee, the rest of the costs are around $2,000. The impact fee is also waived for projects under 750 square feet. However, if you’re building an ADU larger than 750 square feet, the fee increases proportionally with the size.
In the case of Buena Park, the education and water and sewer taxes would be $4,750 and $1659, respectively. The park tax, which is used to build amenities, is nearly $17,000. Combined with the other fees, his total payment to the city government is over $28,000.
“Many Korean Americans are building ADUs to have a fixed income in retirement,” said Paul Kim, CEO of Kiba Remodeling, ”and more and more builders are building ADUs of 750 square feet or more for higher rental income.”
“Development fees, such as park taxes, tend to be higher in suburban areas than in urban centers,” said Cesar Rincon of Rincon Investments. ”Buena Park, Fullerton, Anaheim, Irvine, and Valencia are some of the cities with high development fees.”
“Before deciding to build an ADU and paying for it, it’s helpful to research how much development fees will be beforehand so that you can budget accordingly,” said Geunwoo Yun, President of URD.
However, not all local governments in Southern California charge high development fees, experts said. In the city and county of Los Angeles, government permitting and administrative processing fees can range from $5,000 to $8,000.
It’s also important to note that property taxes can rise after an ADU is built. Building an ADU increases the value of your home, and therefore your property taxes increase.
ADU valuation is often based on the cost of construction. For example, if your home is valued at $1 million and you spend $300,000 to build an ADU, your property tax bill would be based on $1.3 million total worth.
BY WONHEE CHO, HOONSIK WOO [cho.wonhee@koreadaily.com]
