Clarifying the Complexities of Condo Conversions
Until recently, ADUs could not be sold separately from the main home. This meant that homeowners who invested in building an ADU could not recoup their costs by selling it to another buyer, or use it as a stepping stone to homeownership for themselves or their family members.
That is about to change with Assembly Bill 1033 (Ting), which was signed into law by Governor Newsom on October 4, 2021. This bill allows homeowners in participating cities and counties to sell their ADUs independently from their primary residences, following the same rules that apply to condominiums. This process is called condo-ization, and it involves dividing the property into separate units that can be owned by different parties.
First things first, let’s unravel the intricacies surrounding the conversion of Accessory Dwelling Units (ADUs) into condominiums under California’s Assembly Bill 1033, or AB1033. We want to emphasize that this transformation alters the legal and financial landscape of the property, necessitating separate conveyance and financing.
We just wanted to start by emphasizing that you know once you convert an ADU to condominium it is, even though it looks the same, nothing changed physically. It is not an ADU anymore; it’s a condominium.
Navigating the Maze: Understanding ADU Condo Guidelines
As AB1033 was being discussed, there was from some side conversations, we noticed some real confusion over the condominium guidelines. AB1033 or the new California ADU Condo Law introduces a labyrinth of guidelines, prompting discussions within organizations and local agencies. From full condominium project reviews to limited evaluations, the process can be daunting. However, for detached condo units or small-scale projects, it can be made simple.
As a homeowner interested in converting your ADU into a condo for sale, here are some things you should know:
- You will need to obtain approval from your local jurisdiction to condo-ize your ADU. AB 1033 does not mandate that all cities and counties allow this option, but rather gives them the authority to decide if they want to adopt an ordinance to enable it. Check with your local planning department to see if they have adopted such an ordinance, or if they plan to do so in the future.
- You will need to comply with all the requirements and regulations for condo-ization, such as creating a subdivision map, recording a declaration of covenants, conditions and restrictions (CC&Rs), establishing a homeowners association (HOA), and obtaining a public report from the Department of Real Estate (DRE). These steps can be complex and costly, so you may want to consult with a professional such as an attorney, an engineer, or a real estate agent who has experience with condo conversions.
- You will need to meet all the standards and criteria for building an ADU, such as size, height, setback, parking, design, and utility connections. AB 1033 does not change any of the existing rules for ADU construction, which vary by city and county.
- You will be able to sell your ADU to anyone who qualifies as a buyer, subject to any restrictions imposed by your local ordinance or your HOA. For example, some jurisdictions may limit the sale of ADUs to low- or moderate-income households, or require that they be owner-occupied. Some HOAs may have rules about who can live in the ADU, how it can be used, or how much it can be sold for. Make sure you understand these limitations before you list your ADU for sale.
- You will be able to benefit from the increased value and equity of your property. By selling your ADU as a condo, you can potentially earn more money than by renting it out or keeping it as part of your main home. You can also use the proceeds from the sale to pay off your mortgage, invest in another property, or fund your retirement. Additionally, you can help create more affordable housing opportunities for first-time homebuyers who may not be able to afford a single-family home in California’s expensive market.
Motivations for Converting to Condos: Exploring Financial Incentives
Despite the added expense and tax implications, homeowners find compelling reasons to opt for condo conversions. The ability to separately own and finance units offers newfound flexibility, particularly for families seeking to navigate shared ownership and mortgages. Moreover, the option to sell individual units to alleviate debt adds another layer of financial freedom.
“If you’re a homeowner, you can separately own and finance things. It is awkward even for family members to co-own one property with one legal description with one mortgage…”
- Separate Ownership and Financing: Converting your ADU into a condominium allows you to separately own and finance the property. This can be advantageous for family members or friends sharing ownership, as it avoids the complications of co-owning one property with a single mortgage.
- Debt Payment or Investment: Selling your ADU condo enables you to pay off debts or invest the proceeds elsewhere. This can be particularly beneficial for homeowners looking to eliminate mortgage payments, fund retirement, or invest in other properties.
- Affordable Housing Opportunities: Converting ADUs into condos can create more affordable housing options, especially for first-time homebuyers who may be priced out of the traditional single-family home market. By offering ADU condo conversions at lower prices, homeowners can contribute to addressing housing affordability challenges.
Use Cases of AB1033: Catering to Diverse Housing Needs
Consider the diverse array of users benefiting from ADU condominium conversions. From families seeking multi-generational living arrangements to young individuals entering the housing market, AB1033 accommodates various housing needs. Additionally, friends pooling resources to purchase property together exemplifies the law’s versatility in fostering homeownership.
One of the fascinating aspects of AB1033 is its potential to cater to a diverse range of users. It’s not just developers and real estate investors who stand to gain; everyday homeowners, families, and friends can also reap the rewards.
Consider the scenario where an ADU condominium is sold to family members. Picture a multi-generational household looking to create separate living spaces while maintaining close proximity. AB1033 offers a legal framework for dividing property ownership and financing, ensuring each family member has a stake in their own slice of home.
Similarly, young members of the family may find ADU condominiums a viable entry point into homeownership. With soaring housing prices, the prospect of purchasing a more affordable condo unit within the family compound becomes increasingly attractive. AB1033 opens doors for the younger generation to establish roots without breaking the bank.
Friends pooling resources to purchase property together is another emerging trend. ADU condominium conversions present an opportunity for co-ownership without the headaches of joint mortgages and legal entanglements. Each friend can own their unit independently, fostering a sense of autonomy and financial responsibility.
In essence, AB1033 democratizes homeownership, offering a pathway for individuals and families of all backgrounds to achieve their housing goals. Whether it’s creating separate living spaces within a family compound or entering the housing market with friends, the law’s flexibility and accessibility pave the way for a more inclusive approach to homeownership in California.
AB 1033 Updates to Look Out For
With the passing of AB 1033, homeowners in California now have the opportunity to convert their Accessory Dwelling Units (ADUs) into condominiums, unlocking a range of benefits. However, navigating the process requires staying informed about updates and understanding the steps involved. Here’s what you need to know:
- Participating Cities: Not all cities and counties automatically allow ADU condo conversions. Some jurisdictions may choose to opt-in to AB 1033 by adopting an ordinance enabling this option. It’s crucial to stay updated on which cities are participating in AB 1033 to determine your eligibility.
- Asking Your City to Opt-In: If your city has not yet adopted an ordinance to enable ADU condo conversions, you can advocate for it. Engage with your local planning department or city council to express your interest and provide information about the benefits of AB 1033. Collaborating with community organizations or attending public hearings may also help raise awareness and support for this option.
For detailed guidance on implementing AB 1033 and navigating the approval process, refer to Casita Coalitions: “AB1033 – HOW TO IMPLEMENT NEW STATE ADU CONDOMINIUM LAW.” This resource provides information for local agencies to implement AB1033 and may help homeowners get insights how to convert their ADUs into condominiums.
