AB 1033 is increasingly being implemented in municipalities across California, and that means homeowners can opt to 'condotize' their ADUs and sell them off as a real home. We know from other states than nearly 50% of ADUs are sold off instead of rented - and for very good reasons. First, you avoid the hassle of property management. More important, we often see a higher return on investment by selling the ADU upon completion and then investing the proceeds, typically at least $100,000 more profit.
But how would condotization work? The answer lies in creating a "Cloud Condominium covering all the units on your property. This is essentially a Homeowner's Association but without any meeting, dues or nonsense. You can submit this to your local municipality when you submit permits for the ADU or later. Typically, there is an application and fee, and then you include the organizing document and property map (provided by your architect or permit specialist).
Most people choose a very simple approach:
This is simple cloud condo just 2 pages long. Explains that the owners are Tenants in Common and she responsibility for the maintenance of a shared driveway. It also gives the right of the apartment owner to walk across the sidewalk by the front house in order to access the street.
Another example is a 4-unit complex built by a developer. This Cloud Condo is essentially the same but much more in depth on the rights and protections of the owners. For example, it specifically spells out that:
The Homeowner’s Association is not anticipated to have regular meetings or require dues.
Each owner owns ¼ of the common area and is responsible for paying and maintaining any expenses or that area, namely the driveway.
When needed, each owner has the right to access utility lines which may come across the sides of the front houses
Each owner is responsible for the maintence of their own home, insurance, taxes, landscaping and so on. The agreement specifies that owners may not leave out trash or wood piles.
It specifies that each owner may not subdivide their existing property, but they CAN carve our a Junior ADU from space within the house. This prevents owners from adding onto their homes.
The Homeowner’s Association is specified as unincorpoarated, but they may incorporate at any time and every action must be agreed upon by 100% of the owners.
Owner’s can take action against other owners for failing to abide by the covenants, but it must be done by arbitration – not court.
Other owners cannot prevent an owner from selling their property or otherwise interfere with their property ownership.
As ADU condotization takes off, we and our title company and partners are prepared to help with selling off your ADU. Book a call on my calendar to check the ROI on renting vs. selling to see which option is best for you.
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