I’ve been creeping on the forums as most of us have for a few years. I’ve actually used the forums here as a legitimate source of information as so many people do the groundwork for you in regard to interpreting new laws and various calculators.

I have always dreamed of passive income. After almost one year of debating the best way to get into the passive real estate market I decided, building an ADU was the best for my family. I started this quest back in Winter 2018 drawing out a doodle on a piece of scratch paper how the ADU would sit on the property for my wife to see. Fast forward 2.5 years and we just received our official letter from the city building department granting us a designated address and certificate of occupancy.

Background: We currently occupy the SFH we decided to build the ADU on. The home is located in a quiet suburb of San Mateo County near a local BART station (Sorry, I won't say specific location as of now but would respond to private messages in regards to it, maybe  ). The Main home we occupy is 1500sqft+ on a 6700sqft+ lot. I know this may not seem like a ton of space, but our lot is extremely deep as the main home doesn't occupy a large footprint. Anyways, we decided to build the ADU at the furthest portion of our backyard, setbacks were respected at 7feet, making the front door of the ADU over 125ft from the front of our property line and 60ft+ from the rear of our main home. This left us with plenty of space for a backyard yard that still feels extremely private as we have built horizontal privacy fencing and planted plenty of beautiful maple trees.

The Unit: ADU- 746sqft 40x18 2bed/2bath. The unit was designed as a rectangle with the living space/kitchen situated between both bedrooms to optimize privacy for occupants, no shared walls are hard to find in the Bay Area. There is one master suite (10x10) with its own bathroom and wall closet. While the second bedroom (12x12) doesn't have its own bathroom, it does have a nicely sized walk-in closet which may be more important to some. The hall bathroom is located a few steps across from the second bedroom, so it still feels private. We opted for an open floor plan as this is most desired by our target audience, young professionals. We spent more than originally planned on the kitchen but are happy with the decision. We want people to be happy with where they live, not just happy to have a roof over their heads. So we added twice the amount of kitchen cabinets as originally planned and even a pot filler over the range. The Laundry unit is situated in the living space. The original plan set called for side-by-side units with possible bifold/curtain concealing the unit. We changed this to a stacked unit, thus creating a coat closet besides it and concealing it with some heavy barn doors. This is where the changes to the plan set stopped. We are extremely thankful for our architectural design team, Alex Tzang Group, as they thought of EVERYTHING and then some more!

First contact with Architect- Oct 2020

Plan set submitted- Nov 2020

First comments from City- Jan 2021

Plan set approved March 2021

Construction begins- March 2021

Major construction ends- June 2021

Minor finishes on backorder- July 2021

Final Approval- August 2021

Address designated- September 2021

Planning- 2 months

Construction- 4 months (delays due to land surveyor request from city on foundation work)

This was going to be our second major construction project and 3rd kitchen we've built. Experience is priceless as most of you would agree when it comes to watching budget and becoming cost effective. The first hurdle after getting approved plans from the city was hiring a GC. As many of you know prices are all over the place with some General Contractors using covid as an excuse for an upcharge. Below is listed the bids we received to construct the ADU of 746sqft as a rough finish (GC is responsible for all materials/labor to a drywall finish. We are responsible for providing all finishes, flooring, faucets, paint, etc. They install all finishes and get unit to pass final inspection.)

Contractor 1- Previous GC we used to renovate our main home 3 years ago- $350k

Contractor 2- Local GC in our neighborhood- $250k

Contractor 3- local GC in the area- $210k

Contractor 4- GC referral from Alex Tzang Group- $190k

Contractor 5- GC we hired $150k

As you can see the bids are all over the place from $150k-$350k. A few people were skeptical of the lowest bid of $150k and warned us not to do it. “High risk, high reward” is the motto for real estate investment, right? Lol. Also, we met with him and he seemed like a straight shooter just doing honest work. We accepted the bid for $150k after he met with our architect for final approval, thank you again Alex Tzang Group for going the extra mile and interviewing GCs for your clients.

I would like to note that we did shop and explore the prefab route. There are some solid choices in the bay area; ConnectHomes, Mighty Building, and Habitat (now known as “VillaHomes”).

Connect Homes- 1 bed 500sqft- $244k

Mighty Building- 2 bed/1 bath- $290k

Habitat Homes- 2bed/1bath- $245k

We opted out from these as they still had some extra costs and didn’t’ provide a floor plan we really loved.

Now for the part everyone cares about:

Cost- $205,619 (All-in)

Rent- “occupied” received a deposit within two days of showings

$3500 monthly $42,000 annually

Architect- Alex Tzang Group

General Contractor- North Bay Construction

I feel like we did a good job with total cost and annul rent. I'm searching for another property on the peninsula to repeat this process. Our main home should be able to rent for $4000 monthly on the conservative side so that would be $7500 monthly on a SFH. Constructing an ADU seems to be the best way for the "Average Joe' to get into the real estate game in my opinion.

Thanks for the read and analyze away to give me feedback on if we did it right or what you would change.