Converting Garage to ADU

[Andy Ren]

Hi,

I am new to biggerpockets and wanted to first thank everyone who support this community. It is awesome to see how helpful everyone is! My goal one day is to be able to help others through my journey. I am writing this post in hopes of getting some guidance on a garage ADU conversion. I recently purchased a home for the first time in the SF bay area and yes, it was extremely expensive, as I'm sure is no surprise. The home has two floors. The first floor has an unpermitted family room and half bathroom behind the garage. I plan on converting the unpermitted family room and half bathroom to an ADU. I am very eager to begin my investment journey in real estate and thought this could be a great way to start.

I have read a lot of post asking how much it cost to build an ADU and of course, it really depends. However, my question is not so much how much it cost but what is range of construction cost would make this ADU conversion a smart investment? This ADU is about 600 sf (2 bed/1bath) with a kitchen and living room. Where I am located, I believe I can rent this out for $2000/month.

Unlike other locations, SF Bay area has a housing shortage and the additional square footage should raise my property value. I am thinking adding additional square footage can increase home value by ~$500/sf conservatively (currently in this insane market, bay area homes are close to $1000/sf!) With that said, is it worth spending $150k on ADU to increase cash flow by $2000/month? How about 200k? 100k? Or is it a better investment to take my cash and put it in the stock market for long term investment?

Also, if anyone can provide some advice on financing, that would be great! Hopefully I provided enough information as I tried to keep it brief as possible.
Thank you in advance! Your help is much appreciated!

Thanks,

Andy

[Nathan Gesner]

Run it through any investment calculator. BP has one available under TOOLS.

Generally speaking, if you can rent for 1% of the purchase price, then it's worth doing. In this case, you could spend $150,000 and rent it for $2,000 a month, which is 1.5% of the purchase price and worth the effort.

There are other factors to consider, but that's a surface assessment that indicates it's worth pursuing further.