Garage Conversion to ADU

[Yuval Hala]

Hey, I was wondering, what is the price for converting 2 car garage to a 1bd/1ba Unit?

how much the labor/rehab cost?

How much the city fees to get permit?

how long it usually take?

nothing crazy, simple 1bd/1ba Unit

thanks!

[Dan H.]

California politicians have gone all in on supporting ADUs. However, adding an ADU is often one of the worst RE investments. The reason @Carlos Ptriawan states is the big reason.  Contrary to what ADU developers indicate, adding an ADU typically adds much less value than the hands off cost to add the ADU.

In most markets an appraiser will value your garage conversion ADU between $50K and $100K. The hands of cost will be significantly greater than $100K. This results in an initial negative investment position. This negative position can consume years of the "cash flow" to achieve an even position and to have any real return (true cash flow).

Here is list of items that result in ADU additions being a poor RE investment:

1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?

good luck