For decades, the fundamental limitation of ADU investment in California was exit strategy. You could build the unit. You could rent it. But you could not sell it independently of the primary residence. The ADU and the main house were legally inseparable — one parcel, one title, one transaction. Whatever equity the ADU represented was locked inside the property, inaccessible unless you sold the entire lot.

AB 1033 changed that.

Signed into law in October 2023 and effective January 1, 2024, AB 1033 allows California cities that opt into the program to permit ADUs to be sold as separate condominiums — independently of the primary dwelling, on their own title, to a separate buyer. The ADU becomes its own real property interest. It can be financed separately, sold separately, and owned separately from the house next to it.

For property owners in Los Angeles who have built — or are planning to build — an ADU, this is not a minor regulatory update. It is a fundamental change in the investment calculus of ADU development. The unit that was previously a rental income asset is now potentially a saleable asset with its own market value, its own buyer pool, and its own exit timeline.

Most property owners don't know this law exists. Most of the ones who do don't understand what it actually requires to execute. And almost none of them have talked to a design-build firm that understands both the construction requirements and the legal framework well enough to build toward an AB 1033 sale from the beginning of the project.

Here is what AB 1033 actually does, what it requires, and what building toward an AB 1033 exit actually looks like on the ground in Los Angeles.

What AB 1033 Actually Says — The Legislation in Plain Language

AB 1033 amended California Government Code Section 65852.2 — the primary ADU statute — to explicitly authorize the separate conveyance of ADUs as condominiums. Prior to AB 1033, the legal framework for ADU development was silent on separate conveyance, and the default rule under California property law was that structures on a single parcel could not be separately conveyed without a subdivision — a process that was practically and economically prohibitive for the scale of a typical ADU project.

AB 1033 creates a specific exception to that default rule. An ADU that meets the requirements of the bill — and that is located in a jurisdiction that has adopted an implementing ordinance — can be sold as a condominium interest under California's Common Interest Development Act, with all of the legal infrastructure that condominium ownership entails: separate title, separate financing, shared property rights in the common areas, and a governing structure for the relationship between the ADU owner and the primary residence owner.

The key phrase in that summary is "jurisdiction that has adopted an implementing ordinance." AB 1033 is an opt-in framework. Cities and counties must affirmatively adopt a local ordinance implementing the AB 1033 program before property owners in that jurisdiction can use it. The state law creates the authority. The local ordinance activates it.

As of 2025, Los Angeles is in the process of implementing its AB 1033 ordinance — the city's size, political complexity, and the breadth of its existing ADU program have made implementation a deliberate process rather than an immediate one. Property owners in LA should confirm current implementation status with LADBS or a qualified land use attorney before proceeding with an AB 1033 sale strategy. Several smaller jurisdictions in the LA metropolitan area have moved faster on implementation.

Why This Changes the ADU Investment Equation Entirely

To understand why AB 1033 matters, it helps to understand the prior constraint it removes — and what that constraint was actually costing ADU developers.

Under the pre-AB 1033 framework, an ADU was valued as a rental income asset. Its contribution to property value was measured by capitalization of the rental income it generated — typically by applying the prevailing cap rate for the local multifamily market to the net operating income of the ADU. For a detached ADU in West Los Angeles generating $3,000 per month in rent, with prevailing cap rates in the 4% to 5% range, the income capitalization value was approximately $720,000 to $900,000 at the gross rent level.

That is the ADU's contribution to the value of the overall property. It is not the ADU's value as a separately saleable asset — because under the prior framework, there was no separately saleable asset. The $720,000 to $900,000 of ADU value was accessible only through a sale of the entire property, in competition with every other factor that affects the whole-property valuation.

Under the AB 1033 framework, the same ADU — as a separate condominium unit with its own title — is valued as a residential real estate asset in its own right. In West Los Angeles, a new, permitted, detached one-bedroom condominium unit in a well-located lot commands a purchase price that reflects the comparable condominium market — not just the income capitalization of its rental potential. In many LA submarkets, that comparison produces a significantly higher realized value than the income capitalization approach.

The difference is liquidity and comparables. A separately saleable ADU competes in the for-sale residential market — a market with a buyer pool of owner-occupants, investors, and first-time buyers who will pay a price per square foot that reflects the scarcity of affordable entry-level ownership in LA. A rental ADU competes in the income property market — a market where buyers apply cap rates that reflect risk-adjusted return requirements rather than emotional attachment to homeownership.

For many property owners, the AB 1033 exit produces more realized value than a lifetime of rental income — and it produces it immediately, as a lump sum, rather than over decades of property management.

The Condominium Structure — What AB 1033 Actually Creates

The legal structure that AB 1033 creates when an ADU is separately conveyed is a two-unit condominium project — with all of the legal infrastructure that entails.

The primary residence and the ADU become two separate condominium units within a common interest development. The lot — the land they both sit on — becomes common area, owned proportionally by the two unit owners as tenants in common. A governing declaration — a CC&Rs document — establishes the rights, obligations, and governance structure of the relationship between the two owners.

This legal structure has specific requirements that are established at the time of the condominium subdivision — not after the sale — and that have direct implications for how the ADU must be designed and built if the property owner intends to pursue an AB 1033 sale.

Separate utility services are typically required — or at minimum, clearly delineated — for separately conveyed condominium units. An ADU that shares a single utility meter with the primary residence is not effectively separable for ownership purposes, because the utility billing relationship creates an ongoing financial entanglement between the two owners. ADUs built toward an AB 1033 exit should have separate gas, electric, and water meters — which affects the design and construction scope from the beginning of the project.

Defined exclusive use areas must be established in the governing declaration — the outdoor space, the parking, the storage, and the access pathways that each unit owner has exclusive use of, as distinct from the common areas that both owners share. For lots where the ADU and primary residence are in close proximity, this definition requires careful site planning and design — and it is much easier to establish when the physical layout of the site reflects the intended ownership structure than when it is retrofitted onto a site designed without separation in mind.

HOA governance — even in its minimal form for a two-unit development — requires the preparation and recording of CC&Rs, bylaws, and a condominium plan. These documents are prepared by a real estate attorney with condominium subdivision expertise, and they govern the ongoing relationship between the two-unit owners for as long as both units exist in their current configuration.

The condominium subdivision process — from the initial site plan through the recorded condominium plan — is a separate legal and mapping process that runs parallel to the LADBS permitting process for the ADU construction itself. It requires a licensed civil engineer or land surveyor to prepare the condominium plan, a title company to process the subdivision, and a real estate attorney to prepare the governing documents.

What Building Toward an AB 1033 Exit Actually Looks Like

The property owners who will realize the most value from AB 1033 are not the ones who build an ADU for rental purposes and then try to convert it to a condominium after the fact. They are the ones who identify the AB 1033 exit strategy at the beginning of the project and build the ADU specifically to support it.

The design and construction decisions that support an AB 1033 exit are different from the decisions that support a rental ADU — and making them at the design stage costs a fraction of what retrofitting them costs after construction.

Separate utility infrastructure is the most significant construction-level decision. Establishing separate electrical service, gas service, and water metering for the ADU requires coordination with LADWP and the relevant utility providers from the beginning of the project. It affects the service entrance sizing, the underground utility runs, and the panel configuration. Retrofitting separate meters onto a completed ADU that shares utility infrastructure with the primary residence is expensive and disruptive.

Private exterior access is essential for a separately owned unit. An ADU that can only be accessed through common areas that are shared with the primary residence — or worse, through the primary residence itself — is not functionally separable for ownership purposes. The site plan must establish a clear, private, direct access path from the public street or a clearly defined shared access easement to the ADU entry, without passing through the primary residence's exclusive use area.

Sound and fire separation between the ADU and the primary residence — required by code in attached configurations — takes on additional significance in an AB 1033 context. A condominium unit must be a self-contained residential environment, and the physical separation between adjacent units is both a code requirement and a quality-of-life factor that affects the ADU's market value as a separately owned residence.

Parking provision — even where not required by current ADU parking regulations, which are quite permissive under California's ADU reform legislation — becomes relevant when the ADU is a separately owned unit whose owner has no guaranteed access to the primary lot's parking. The CC&Rs can establish parking rights and responsibilities, but a site plan that physically provides dedicated parking for the ADU unit produces a more marketable and more easily governable ownership structure.

The Financing Question — How AB 1033 Units Are Purchased

One of the practical questions that property owners considering an AB 1033 sale face is how a buyer of the ADU condominium unit will finance the purchase. This is a legitimate concern, because the financing market for AB 1033 units is newer and less standardized than the financing market for traditional condominium sales.

Conventional conforming mortgage financing — Fannie Mae and Freddie Mac backed loans — has specific project approval requirements for condominium projects. A two-unit condominium created under AB 1033 is a novel project type, and the conforming loan guidelines around condominium project approval may require updates to fully accommodate the AB 1033 structure. As of 2025, the conforming loan market for AB 1033 units is still developing, and buyers should work with lenders who have specific experience with the AB 1033 condominium structure.

Portfolio lenders — banks and credit unions that hold loans on their own balance sheet rather than selling into the secondary market — have more flexibility in underwriting novel loan structures, and several California-based portfolio lenders have been proactive in developing AB 1033 loan products. Cash buyers are also a significant component of the buyer pool for ADU condominium units, particularly in the price range where AB 1033 units are expected to transact in the LA market.

The financing landscape for AB 1033 units will evolve as the program matures and as Fannie Mae and Freddie Mac update their guidelines to accommodate the new ownership structure. Early sellers in the AB 1033 market may need to work with their real estate brokers to identify buyer-side lenders with AB 1033 experience — but this is a solvable problem, not a fundamental barrier.

What SKS Brings to an AB 1033 ADU Project

SKS Construction has been building ADUs in Los Angeles since before the current wave of ADU reform legislation — which means we have the design-build infrastructure to execute an ADU project that meets the construction, permitting, and utility separation requirements that an AB 1033 exit strategy demands.

Our in-house licensed structural engineer handles the structural design and LADBS permitting for the ADU construction. Our permit team coordinates with LADWP for separate utility service establishment from project inception — not as an afterthought. Our architectural design capability produces ADU layouts that establish clear private access, defined exclusive use areas, and the physical separation between units that supports the condominium governance structure.

We do not practice real estate law or prepare condominium governing documents — that work requires a qualified real estate attorney with condominium subdivision expertise, and we refer clients to attorneys who specialize in exactly this area. But we coordinate directly with those attorneys and with the civil engineer preparing the condominium plan to ensure that the physical construction of the ADU aligns with the legal structure being created.

The result is an ADU that is built toward the exit from the beginning — not retrofitted for a sale strategy that wasn't anticipated when the project was designed.

Thirty-nine years. Over 3,000 completed projects. 80% repeat clients. Fixed-price bids with no subject-to-change clauses. Direct owner access to Shahab and Sam Shaolian on every project.

Get a FREE AB 1033 ADU Feasibility Consultation

SKS Construction offers FREE ADU feasibility consultations for property owners across Los Angeles County who are considering an AB 1033 ADU development — whether as a new construction project or as an evaluation of an existing ADU's separability potential.

Our team will assess your lot configuration, evaluate the utility separation requirements, identify any site planning considerations that affect the AB 1033 structure, and provide a fixed-price design-build proposal for an ADU built toward your specific exit strategy.

This is the ADU conversation that most firms in LA are not equipped to have. We are.

Call (818) 855-1181 or email info@sksconstruction.com to schedule your FREE AB 1033 ADU consultation today.

The law changed. The opportunity is real. The window to build ahead of the market — before every property owner in LA understands what AB 1033 makes possible — is open right now.