Learn how to use SB 9 to get a free ADU.

Have you been dreaming of a way to build an ADU on your property without draining your savings, cashing in all of your home equity, or taking out risky, high-interest loans? With a little help from Homestead and California Senate Bill 9, you can turn that dream into reality.

Why Build an ADU?

Accessory dwelling units—also called granny flats or casitas—offer a wide range of benefits for homeowners looking to expand the value of their property. When utilized as a rental property, an ADU becomes a source of perpetual income for the homeowner. While perpetual income is something everyone can appreciate, it is especially valuable for retirees and other individuals on a fixed income.

ADUs can provide seniors a safe way to age-in-place, as their smaller, single-story floor plans make them easier to navigate and outfit for ADA compliance. They also open up many possibilities for multigenerational living, as a backyard cottage is perfect for keeping aging relatives or adult children close while still maintaining privacy.

Regardless of how they're used, ADUs always increase property value—often by 18% or more.

How to Fund an ADU

Considering all of the potential rewards to be gained, it's not surprising that ADUs require a substantial financial investment. Converting an existing structure (like a garage or shed) into a granny flat starts at around $150k, while a new-construction ADU costs anywhere from $200k to $500k or more.

Construction loans, home equity loans, and home equity lines of credit can all be used to fund renovation projects like ADUs and JADUs (junior accessory dwelling units), but they often necessitate high credit scores and low debt-to-income ratios. Some homeowners choose to pay for an ADU with a cash out refinance, but in order to fully fund the construction process, you'll need to already have high amounts of equity in your home.

ADU Assistance Programs

Some organizations and government agencies offer grants and special loans for ADU construction. The California Housing Finance Agency’s grant program can be a helpful asset to homeowners considering a construction loan to fund their project. The CalHFA ADU grant reimburses qualifying homeowners for up to $40,000 worth of predevelopment expenses. It won’t cover the full cost of ADU construction, and it’s only available to homeowners who make 80% or less of their area’s median income, but it’ll help!

Many cities offer regional ADU financial assistance programs. Much like the CalHFA loan, the funding they provide is rarely enough to fully bankroll an ADU project. Many of these assistance programs are still in their pilot stages, which means they can only accept only a small handful of applications ever year.

Unless you get assistance from an ADU program--or have hundreds of thousands of dollars in liquid assets or available home equity--building a granny unit can feel out of reach.

Conclusion

Whether you decide to rent it out to tenants or keep it in the family, an additional dwelling unit expands your property's economic potential while adding much-needed housing supply in a highly competitive real estate market. If you don't want to split your lot but still want to build an ADU, there are other financing options available. They won't be free, however, and they often come with debt, interest rates, and the risk of losing your house if you default on your loan payments.

When you partner with Homestead and SB 9 to split your lot, you'll receive a big lump sum upon sale of the second lot. With that money, you can fully finance your ADU: debt-free, interest-free, and with no risk of losing your home.