Davita and Martin McCauley were starting to think about how, in the years to come, they would care for her mother as she aged.
The McCauleys own a classic World War II-era Southern California home: a peach-hued stucco bungalow in Gramercy Park, with a grassy lawn in the front and a detached garage in the back.
They were toying with the idea of eventually moving her into their three-bedroom house, and adding a second story to make more space, when they were introduced at church to a mutual friend working for a new company called United Dwelling.
At no cost to homeowners, the company builds “granny flats” in the backyards of single-family homes, finds a tenant to rent them out to, and splits the lease revenue with the homeowner for up to 25 years, at which point the homeowner owns the unit outright.
“Garage conversions were a new concept for us,” says Martin McCauley. “But it made sense when you think about the amount of people who have garages, and if we got all of that junk out of our garage, we’d actually have about five things we actually need.”
In other words: It was a waste of valuable space.
As lawmakers look for palatable ways to accommodate density on the single-family zoned properties that dominate the region, they have loosened up regulations making it easier to for homeowners to convert their garages or build little detached backyard structures, known as accessory dwelling units.
It’s working. In the last two years, the number of ADU applications submitted the Los Angeles Department of City Planning totaled 11,045.
But ADUs can be expensive to build, about $120,000 on average, builders say, which makes United Dwelling an appealing option for homeowners who don’t have the savings, equity, or appetite to take on more debt. But they do need to be willing to host a stranger on their property.
Money was a factor for the McCauleys, but they were also interested in doing their part to chip away at the housing crisis they had been hearing so much about.
At first, the fact that United Dwelling promised no upfront costs seemed too good to be true. Their suspicions were eased by representatives who were upfront about how the company turns a profit: by keeping about 75 percent of the lease revenue. It plans to rent out units from $1,495 to $1,995 per month. At the lower range, a homeowner would pocket about $400 monthly.
Three weeks after their first meeting, the McCauleys signed a 25-year agreement with United Dwelling, and construction got underway last month.
“There’s no prepayment penalty. We can pay off the balance at any time if we want to take full ownership of it and rent it out ourselves,” says Davita McCauley. “It also solves the question of where my mom will go.”
To keep costs down, United Dwelling offers one design with no options for customization and is building in “flights” of four of five; each property is located within about a half-mile radius.
The 352-square-foot units are so small that if they were built one at a time—or far apart from each other—a full day’s worth of labor would be spent on a job that might only take an hour or two, says founder and CEO Steven Dietz.
United Dwelling has two four-unit flights underway now, including one that encompasses the McCauley residence, and has 60 more units in the pipeline. It’s targeting Gramercy Park, Morningside Park, and other South Los Angeles area neighborhoods near Expo Line stations, with sales reps going door-to-door in those communities.
The biggest hang-up for homeowners so far? “They’ve never heard of anything like this, and it sounds strange,” says Dietz. “It sounds as weird as getting into a stranger’s car and having them drive you somewhere.”
Comments
Unclear how much it costs, but it’s a poor investment if it costs $120K with 25 year lease. If they are throwing around the $120K figure, it means they are covering up their actual profits. I bet a homeowner can do it for half the cost or less. The senior looking for retirement benefits actually have other options with their home like renting a room for more profits. $900 for a room and bath. Or convert a large family room into a studio with kitchenette. Don’t sign a 25 year lease like what the solar companies want.
By TTTSec on 03.09.20 5:20pm
That’s a pretty good deal for what you are getting. It’s in line with what turnkey GCs would cost. Can you do it cheaper? Sure! Can you do it cheaper without taking on risk and finance charges yourself? No.
By Seth Borman on 03.09.20 8:41pm
Of course you can take on risk and finance charges.
And exactly what are they paying for?
$120,000 financed via 25 years mortgage at 4.5% is $667 a month.
If rented at $1495 and getting back $400, company is profiting $428 per month and it only gets better for them every year with rent increases. They are likely getting kickbacks on the loan and reaping low cost construction costs. Double and triple dipping.
By TTTSec on 03.09.20 9:59pm
So you’re saying it’s good business.
Most people aren’t willing or able to manage a building project like this on their own. The $120K figure comes from Curbed. I wouldn’t be surprised if United Dwelling is doing it for a lot less.
By CaliSon on 03.10.20 9:27am
It’s good business for the scam artist.
I already said it’s possible to do it for a lot less. That’s why United Dwelling insists on a few layouts with no customization. In a second reading, they insist on 75% of the rent. The homeowner is paying custom prices for a cookie cutter ADU unit.
The homeowner has much more choices than the expensive option from United Dwelling. They can just rent a room for more rent money and no construction. Or convert a large family room into a studio apartment with minimal construction.
By TTTSec on 03.10.20 9:52am
The pay for the construction costs, finance charges, property management costs, maintenance and capital repairs.
As a rule of thumb 25% of your rent in a new or newly renovated building goes to expenses before debt service.
By Seth Borman on 03.10.20 12:13pm
How about Property Taxes? If construction is valued at $100K, 1.25% means an increase of $1,250 a year, and increasing every year. This is paid by the homeowner. If rented at $1,600, three months rent of $400 a month is returned to LA County. How is this a good deal? You can finance your own construction and find your own contractor. Pay as little or much as you want. Get all the rent.
By TTTSec on 03.10.20 12:23pm
A homeowner could not build a fully permitted, turn-key, ground-up granny flat in their backyard for $60k.
By Cleavon Little on 03.10.20 10:01am
That’s not what United Dwelling is doing either. They will convert a garage. That’s why their plans are 352 sq ft. You’ll be surprised at how much you can save by converting existing square footage from your existing house.
By TTTSec on 03.10.20 10:44am
Another thing is the new California ADU law actually makes construction costs cheaper. Cities can’t charge exorbitant permit fees and demand separate utilities hook ups that increase costs, but check with your city.
By TTTSec on 03.09.20 5:26pm
I bet that is offset by the solar requirements…
By Seth Borman on 03.09.20 8:42pm
Whenever a company wants to make things really easy I tend to think you’re probably paying a premium for what you’re purchasing. I’d be very hesitant to sign up to have a stranger living on my property for a lousy $400 a month in my pocket.
By LAoneWay on 03.09.20 6:30pm
The appliances seem out of proportion to the size of the unit.
By Holly Would on 03.09.20 6:31pm
Not a bad idea and for the right person this could potentially be a win win. If the no pre payment penalty is true then this can be good for some. Most people don’t hold their mortgage for 25-30 years anyway. If you have this built and collect the rent for a few years and then sell the house you are likely to make some money on the appreciation on the granny flat. The best part would be that since you have lived in the residence for more then 2 years you can keep the appreciation tax free (250k for individual or 500k for married couple ) – The hardest part of adding an ADU is the paperwork with contractors and the city and managing of the work actually getting done, most people don’t have a history of construction projects to fall back on so this mitigates that risk and also allows people with little time to outsource the entire construction part.
By Mr Balls on 03.10.20 10:38am
The most important aspect of all of this, which is not discussed, is who is responsible for the maintenance costs over the 25 year lease period? Basically this company gets to receive landlord profits without having to pay the mortgage, taxes or maintenance costs. The only benefit to the homeowner is that you are not incurring debt – or the homeowner doesn’t have the credit to take out a loan which is probably why they are targeting poor black neighborhoods – to finance the ADU. However, you are giving the company 75% of the profits and have to pay maintenance out of your share of profit.
By LADude on 03.10.20 12:01pm
Don’t forget the property taxes that the homeowner has to pay out of their 25% cut. If the upgrade is worth $100K, this means an additional 1.25% increase of the $100K or $1,250 a year increase. It’s 3 months of the $400 monthly cut that they have to give back. The homeowner has no control over the costs. If the renovation was managed by the homeowner, they can decide how much they will spend.
By TTTSec on 03.10.20 12:17pm
There’s a lot of pockets in this article and within this concept.
But what about that 25 year leasing contract?
If the couple is going this route, that means that THEY will have to pay United Dwelling 75% of the cost of their mom’s rent if they choose to have her live in the new home.
Also, I did some crazy calculations.
75% of $1,995 is $1,496.25/month
$1496.25×12 months (1 year) = $17,995/year
$17,995 (a year) x 25 (year lease) = $448,875
What am I missing?
By subaruwrx on 03.11.20 7:36pm
It’s highly unlikely anybody is gonna pay $1,995/month for a 352 sq. ft. converted garage in Gramercy Park, Morningside Park, and other South Los Angeles area neighborhoods.
By LosFeliz$ean on 03.12.20 9:05am
Market rent apartments are expensive and I don’t expect United Dwelling to be flexible with the rent. That’s why no one should sign that contract. They’re going to increase the rent every year like any developer with expensive lawyers on retainer.
By TTTSec on 03.12.20 10:23am
What’s the market rate for a 352 sq. ft. converted garage in South L.A.?
By LosFeliz$ean on 03.12.20 10:27am
Whatever United Dwelling says it is. That’s what all landlords do. They price as much as the market will bear. If the homeowner wants to rent it to grandma, talk to the landlord.
By TTTSec on 03.12.20 10:48am
Sounds sketchy!
Your property taxes increase.
You never really make a profit from having strangers in your backyard.
I would not be surprised if the city of Los Angeles and the state California were in cahoots to turn your home into a housing experiment for the homeless.
Which could very likely happen for many reason’s
1) The company has gotten funding from the local government and tax breaks.
So in the end the city and state could step in a require that you provided housing.
2) The funding and the tax break could explain why they believe you can rent a space that’s less than 400sq ft for 1900 a month- but you only get 400 of that.
3) They have created more redlining on top of the already existing redlining.
4) What will your homeowners cost you for an additional dwelling housing someone who has lived on the streets? I’m sure there’s some coded phrase for your new tenant.
5) This is something they’re are clearly not presenting to people north of the 10 freeway!
A.K.A White neighborhoods.So once again black and brown communities bare the brunt and receive little or no profit.
This would actually be a non issue if California "progressives" really believed in economic equality for everyone.
6) All this for 400 dollars?
7) The devil is in the details and If you don’t pay close attention you could lose your home!
By Klukluxklanhater on 03.14.20 4:25am