cost-effect strategies for building a new unit

[Noam Birnbaum]

Hi folks,

I own an existing property in the Bay Area that has a large backyard -- large enough to build an additional rental unit. I've inquired briefly of a couple local contractors and have received ballpark construction estimates of between $300,000 - $400,000 for a 1 to 2 bedroom dwelling built from scratch. I imagine it would take 10 to 15 years to recoup this investment, which doesn't seem worth it to me.

I'm wondering what other options are feasible, such as purchasing existing construction plans, building a pre-fab, or anything else I'm not thinking of, to decrease the cost and time-to-break-even.

Thanks!

[Ryan Hopkins]

@Noam Birnbaum there are a whole slew of issues you have to deal with, especially in secondary units and in Alameda county. Zoning, setbacks, HOA restrictions, utilities (sewer, electrical, hvac) are all going to determine if something like this is even feasible let only financially possible. Have you done any leg work to that effect?

Of course you can attempt to go the inexpensive route and purchase existing plans or have the builder draw them up (if he provides that service) but your construction costs alone (not including soft costs) will be at at least $300/ft. If the house is in Oakland that drives up pricing and contractors are beyond busy right now so ones that are giving you inexpensive bids are either not good at what they do or they are simply trying to win the job by specing low cost building and then in come the change orders. 

My advice would be to do your leg work, find out as much as you can before even considering this as an option, be very realistic with you numbers so construction doesn't lag and become a headache. SIP panels are great in theory, not so much in other ways. Prefab in general has yet to prove itself more cost effective and depending on your lot can be a nightmare to install. Tiny homes are interesting enough to maybe work in Oakland...depends on what you are looking to get out of this. You can go buck wild and get a yurt...I wouldn't advise. Not sure what other options as the site needs more analysis.

On the bright side you are right to try to introduce passive cash flow especially in Oakland. You are adding value to the property so don't forget to include that in your analysis. Talk to a local real estate agent to understand what the norm is in your area for rent and for finishes and square footage. 

If you'd like to chat more feel free to contact me as I work in the bay and am married to a real estate agent!

Best of luck on this journey!