In August 2019, Seattle mayor Jenny Durkan loosened regulations allowing more homes to incorporate ADUs (accessory dwelling unit) and DADUs (detached accessory dwelling unit/backyard cottage) in the greater Seattle area.
Loosening these regulations helped aid two things:
1. Affordable housing in the city
2. Supply where there still isn’t enough
The basic premise of an ADU/DADU:
-Can either be attached to existing single-family home (ADU) or detached in the backyard (DADU or backyard cottage) while sharing the same lot
-Maximum square footage of 1,000 sq ft. Can be as little as 250 sq ft
-Allowed in Single family and residential small lot zoning
This link provided by the city of Seattle, does a way better job than myself explaining what exactly they are and where it's allowed.
Below are some examples of DADUs in Seattle:
You can find more projects of Seattle DADUs here at microhousenw.com
What I’m here to provide is more info on the nuances of the actual process the city hasn’t provided on their website. I leaned on a local investor for answers below who's done a handful of DADU projects in Seattle.
*disclaimer, this is purely for information purposes only and shouldn't be seen as advice.
How long does the permit process take?
If you have all your ducks in a row (architectural plans, engineered stamps, site plan, etc.) approval can take as quickly as 2 months. Normal approval time will take 3 months. If you screw up on your plans or there’s some funkiness to the lot itself, you’re looking at 4 months.
Normal single-family construction takes about 6-8 months for new builds so why the shorter permit time? You’re providing new affordable housing which the city desperately needs and it's on a lower scale.
On the city website, if you choose from one of the 10 pre-approved plans, the permit process can take as little as 2-6 weeks.
How much do my permit fees cost?
Permit fees are going to cost roughly $10,000 to get everything situated. It might cost more if you have to deal with a steep slope, remove mature trees, larger structure, etc.
You’ll be getting a construction addition permit, construction permit to establish use and most likely an electrical service charge for new services.
How much do architectural/engineering fees cost?
Average cost will run you about $10,000. Paying for an architect who knows the city of Seattle’s code is key. Handing over that 20-40-page document with signed engineered stamps on the initial visit helps create credibility to expedite the permitting process.
Do you as the investor deal with the permit process yourself or does the architect do it themselves?
It’s really up to the builder/owner and their comfort level of the project. Someone who hasn’t done any new construction can pay a consulting fee which will run you about 20k.
Price depends on how hands on you want them to be. These companies would be able to get architectural plans, apply for the permit and recommend contractors.
If you're skilled with the city and have prior experience building or renovating, you can use your own resources to save money.
How much for the actual hard costs of building?
Hard costs mean expenses directly related to the physical construction of a building. You’d be looking anywhere from 250k-350k depending on the size, design, lot, and finishes.
A one-story DADU will cost less for the foundation than a two-story because it doesn’t have to be as sturdy knowing it’s not carrying all that weight of another level. Also, some ADU/DADUs can sell for 600k or more so you’ll have higher end finishes upping the cost.
Like any project, there’s going to be a variance for final cost but 250k-350k is a good range.
How do I finance the project?
I recommend going with a hard money lender in the area whose lent on previous ADU projects.
Riverbend lending has a great track record of providing favorable financing terms. One thing to keep in mind for them-you or someone whose doing the project must have prior new construction experience.
These companies can help finance not just the construction costs but permitting and architectural fees as well to help lower the cash out of pocket.
Do I start laying the foundation before or after the condo survey?
This is a very important step! Make sure to lay the foundation BEFORE you get your condo survey. If you get a survey done on the property before and they come back to see it's is a foot off center, you may have to scrape it entirely and start over. That would be a costly mistake given laying a foundation can cost you 10k-15k
By laying it down first and then ordering the survey, the surveyor will go off in ground landmarks which your foundation will be apart of.
Same goes with building a fence to distinguish the difference between the DADU and single-family house. Put the posts in before getting the survey.
Why and how do I condominiumize my DADU?
Once laying the foundation, you order a condo survey. This is done with the county and not the city. The county office is located in Snoqualmie while the city is downtown.
By getting a condo permit, you now have two tax IDs on one parcel of land. This means you can sell the single-family home as an individual sale and the DADU as an individual sale also. Again, some DADUs can sell for 600k or more. Why such a high price point? It’s new construction in the city of Seattle.
By condominimumizing the property, you’ll be in charge of an HOA and have dues to both the single-family home and DADU. The reason being is you need HOA insurance which costs extra to homeowners’ insurance.
These fees are as little as $30/year but important the new buyers understand the process of it.
How are utilities decided between the single-family home and ADU/DADU?
You’ll only have one water meter for the two. How you split the monthly costs is to sub-meter the property dividing the amount equally to both owners.
For electricity, you’ll put a second meter on the single-family house. You most likely have to increase the panel from 200 to 400 amp to allow for sufficient electricity flow.
Your conduit (power and cable) has to go underground to the DADU because of new construction code.
For sewer, you’ll have to get a side sewer permit as well as a sewer impact fee.
So that’s it. I know I jumped around and didn’t cover everything there is. For a more in-depth version of ADU development you can order this book. It's still a fairly new concept to me but hope to acquire one property this year and see this through from start to finish.
Here's why I'm really excited for this opportunity: You can build a new construction home in the city of Seattle, have 25% equity, and potentially zero money down once complete. You'd have a BRRRR on a new construction home
You do this by completing a cash-out refinance once finished with construction. A traditional lender will provide you with 75% equity of the appraised value.
Example: The appraisal comes back at 500k. This means you'll receive up to 375k back from the bank. Your all in costs can be 350k which means you would receive money back!
This is one of the benefits of a hot real estate market in Seattle. This same house in Tacoma might appraise for 350k where you'd only get 262k back. You'd be leaving about 100k into the project.
It's just another way to create value in real estate without having to put a lot of cash in for the long term.
If you have any further questions about ADU/DADUs, buying or selling, you can email me at chris.seubert@compass.com
Thanks for reading!