Help with Costs for ADU in San Diego, Ca

[Sandra S bello]

I have a property with a large lot in East San Diego. SFH go for about $300 a SF in my area. Homes with ADU's are not getting appraised as the ADU being worth $300 a SF, more like its an amenity. So even though builders are charging $300 a SF to build, the value add is very minimal and its a negative investment out the gate if you sell property.

Since I am keeping my home long term as a rental, and I could probably get $1500-$2000 for a 1000 SF ADU, I was looking into options for building. All the builders I have contacted and contractors are quoting about $250k to $300k. I think that is nuts to be honest when looking at ROI. At the end of the day, this is an investment. Even if we make $2k net in month in rent (after accounting for property tax increases), to be negative out the get go doesn't seem too smart to me.

Then I read here that some people go the Owner builder route and sub it out. Anyone here successful with that in San Diego and willing to share resources? Anything will help, whether its a checklist of costs, subs you used, things to keep in mind, etc. We have already looked at the county and preapproved plans and one actually might work perfectly for the space and just needs an architect to review and do the site plan, Title 24, etc....

We have talked to the county and are under County Jurisdiction, and have plenty of room for the ADU in a newly excavated part of the property.

Thank you all in advance for any advice or help in San Diego you can give!

[Dan H.]

In areas where ADUs are not getting appraisals approaching the hands off cost, hands off ADU additions are typically not a good RE investment. At your rent point after subtracting off PITI, maintenance/cap ex, vacancy, Property Management (allocate for it even if self managing because it does take effort and is not passive), and miscellaneous expenses your ADU will not have significant cash flow if financed at typical LTV. It will take years of cash flow to recover from the initial negative position resulting from the hands off ADU addition costs versus the value added.

Acting as GC can save significant money, but 1) it is work 2) the GC has relationships and discounts that will not be available to you 3) the GC has a lot of experience and is likely to make less mistakes than you will make the first time you are in the role of the GC.  mistakes result in lost money and/or time. 

If you did the GC role perfect, you likely can save ~30%.  I think there is little chance you will do it perfectly your first time.

I believe if you are going to do this multiple times then it is worth being the GC.  You will learn a lot on your first effort.  If this is going up to be a one and done, then I think hiring a GC is money well spent. 

We have acted as GC on multiple rehabs.  However, our last significant effort we used a GC.  However, prior to hiring the GC we hired an abatement company.   There was indications very early that our abatement contractor choice was not good.   I should have fired them in the 1st or 2nd week but did not due to the hassle, etc.  When they “finished” they had missed multiple items and was way over 1 month late.  Even though their estimate to finish was less than another abatement contractor, we brought in a different abatement contractor.  When discussing it with the wife I remarked that I had no confidence in the initial abatement contractor’s time estimate.  If the contractor made this time estimate, it would have been the first time.  2nd abatement contractor was much better, but not as good as I wished.  Abatement was finally done at almost 50% of our original total complete project timeline.  Then covid.  Our 6 to 7 month initial planned duration fir the project ended up taking 12 months.  We clearly made mistakes with the initial abatement contractor.   We made these mistakes even though we had acted as GC at least a half dozen times on rehabs.  If we had not made those mistakes, we would have been much further on the effort when covid hit and covid would have been a smaller impact.  

I discuss our recent issue to point out some subs are not good, things do go wrong, the problems can be costly in both time and money. We had never needed this size of abatement before.  We did not have a trusted, reliable abatement contractor.   Professional GCs typically have many trusted subs including trusted abatement sub.   They are also paid to manage the subs.   I would hope a GC would have fired the 1st abatement contractor early, caught that they had not done all the abatement before having “finished”, and would have finished the abatement virtually on time.  

GC is work and if you make mistakes as the GC, it can be costly. 

Good luck