Cost of an ADU in East Bay right now?
San Francisco, CA · Member since 2017 · 115 posts · 29 votes
Hello! I hope everyone is staying safe out there during these unprecedented times.
I wanted to ask the community, a rough ball park figure on what it would cost to build an ADU of let's say 500 sq. ft. with one bathroom, kitchen and bedroom, for a structure that is ALREADY existing and what it would cost to build from the ground up.
I'd be grateful for any input.
Hi Sarah:
We have worked through the math a bit. It might be easier for me to send you by email. I am trying to send below. I sent you a message and I can send by email...
| Type of ADU | Assumed SF | Price/SF | Total Cost | Sample | Monthly Rent in Oakland | Valuation | Net Equity | |||||
| Shipping Container Conversion to Modern ADU | 160 | $ 300.00 | $ 48,000.00 |
|
$ 1,500.00 | $ 216,000.00 | $ 168,000.00 | |||||
| Garage Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Garage Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Basement Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Basement Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Detached ADU with traditional prefab modular | 500 | $ 250.00 | $ 125,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 191,800.00 | |||||
| Detached ADU with modern prefab modular | 500 | $ 350.00 | $ 175,000.00 |
|
$ 2,300.00 | $ 331,200.00 | $ 156,200.00 | |||||
| Detached ADU with on site build easy access | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 166,800.00 | |||||
| Detached ADU with on site build difficult access | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 116,800.00 |
You leave out a lot of details such as is the existing structure a garage?
Maxable ADU specialists (no affiliation) posts some costs, but these are minimum costs. Higher end interiors, outdoor space, basically any upgrade raises the costs.
Garage conversion to 400’ studio >=$90k
1 br detached 550’ >=$150k
I would think converting existing living space would be cheaper than a garage conversion, but a 1 br would be more than a studio. Also 500' is larger than the 400' garage conversion example. It at least provides some costs from Maxable ADU experts to use as a basis for your estimates.
Maxable has a good and useful website, but their cash flow projections are pure BS. like too many sites that are trying to sell RE products as an investment, they leave off many expenses. They leave off vacancy, maintenance, cap expenses, utilities, miscellaneous costs. Basically they treat PITI as the only expense (I am assuming their mortgage costs include tax and insurance - I have not checked). In addition, I have been told they used a 3.5% rate which could be aggressive especially if 1) not owner occupied 2) loan if combined with primary is a jumbo 3) construction loan used. Some of the properties they reference as positive cash flow are likely, at best, cash flow neutral. Understand the 50% rule. Know what your cost of money will be. Do not use Maxable's cash flow examples.
Hi Sarah:
We have worked through the math a bit. It might be easier for me to send you by email. I am trying to send below. I sent you a message and I can send by email...
| Type of ADU | Assumed SF | Price/SF | Total Cost | Sample | Monthly Rent in Oakland | Valuation | Net Equity | |||||
| Shipping Container Conversion to Modern ADU | 160 | $ 300.00 | $ 48,000.00 |
|
$ 1,500.00 | $ 216,000.00 | $ 168,000.00 | |||||
| Garage Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Garage Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Basement Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Basement Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Detached ADU with traditional prefab modular | 500 | $ 250.00 | $ 125,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 191,800.00 | |||||
| Detached ADU with modern prefab modular | 500 | $ 350.00 | $ 175,000.00 |
|
$ 2,300.00 | $ 331,200.00 | $ 156,200.00 | |||||
| Detached ADU with on site build easy access | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 166,800.00 | |||||
| Detached ADU with on site build difficult access | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 116,800.00 |
Hi Sarah:
We have worked through the math a bit. It might be easier for me to send you by email. I am trying to send below. I sent you a message and I can send by email...
| Type of ADU | Assumed SF | Price/SF | Total Cost | Sample | Monthly Rent in Oakland | Valuation | Net Equity | |||||
| Shipping Container Conversion to Modern ADU | 160 | $ 300.00 | $ 48,000.00 |
|
$ 1,500.00 | $ 216,000.00 | $ 168,000.00 | |||||
| Garage Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Garage Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Basement Conversion to ADU with existing foundation | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 138,000.00 | |||||
| Basement Conversion to ADU without existing foundation | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,000.00 | $ 288,000.00 | $ 88,000.00 | |||||
| Detached ADU with traditional prefab modular | 500 | $ 250.00 | $ 125,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 191,800.00 | |||||
| Detached ADU with modern prefab modular | 500 | $ 350.00 | $ 175,000.00 |
|
$ 2,300.00 | $ 331,200.00 | $ 156,200.00 | |||||
| Detached ADU with on site build easy access | 500 | $ 300.00 | $ 150,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 166,800.00 | |||||
| Detached ADU with on site build difficult access | 500 | $ 400.00 | $ 200,000.00 |
|
$ 2,200.00 | $ 316,800.00 | $ 116,800.00 |
It is good info.
Where/how are you getting the valuations? In San Diego, the appraisals, for the most part, are coming in below most ADU construction costs. Maybe Oakland is different but are these based on actual refi appraisals?
Thanks
Hi Dan:
The valuations are based on net income (not gross) and cap rates for the area--which is how we have seen appraisals calculate value. It is key to make sure you can keep those construction prices down which is why we provided that perspective of different types of ADUS versus the value. Hopefully it is helpful
@Laura Blair How common is it for a municipality to allow for a shipping container home or tiny home? Are there aesthetics they are usually concerned about/does it need to match the home? @200K I don't think an ADU is worth it, but at $50k...I think it is.
The shipping containers referenced in my attachment that I sent you don't look like shipping containers. Cities in California are not allowed to have design review based on the new regulations.
Hi Dan:
The valuations are based on net income (not gross) and cap rates for the area--which is how we have seen appraisals calculate value. It is key to make sure you can keep those construction prices down which is why we provided that perspective of different types of ADUS versus the value. Hopefully it is helpful
Are these conventional residential home loans that allowed a SFR with ADU to be appraised via net income? Or is it something you have done to place a valuation that will never be able to be applied to a conventional residential home loan that, for 4 units or less, is based on comps plus adjustments? The adjustments we are seeing in San Diego places the value of the property after adding the ADU at less than the value of the property prior to adding the ADU plus the hands off ADU costs.
value (SFR + ADU) < (value(SFR) + HandsOfCostOfAdding(ADU))
A protégé of mine recently had an offer for his property that had a nice ADU addition. The appraisal came in below the offer price. Basically the adjustments did not cover the cost of adding a hands of ADU. This is common in San Diego. I know he successfully sold the property, but I do not know if he had to lower his price of if the buyer brought more money to the purchase to cover the financing shortage.
I am trying to determine if the Bay area has figured out a way to get around the comp based appraisals with inadequate adjustments for the ADU. My own view is the adjustment for the ADU should be the retail cost of a hands off ADU addition (or as close as they can determine). Not more because it is easy to add ADU at the hands off cost so why would it be more? Not less, because the owner determine that the ADU was worth what he paid to add it, so why would it be less? In San Diego,ADUs are being valued in the appraisals at less than the cost of adding them.
The problem with appraisals up here is that it is not consistent and there isn't a policy across the board. We try to have education and discussion with them and the banks
@Dan H. you bring up a question that I had a couple years ago when ADU's became an option: how the heck are they being appraised?! So based on info here, SD is taking a worse case scenario, and in the Bay Area it's all over the map. I think it will take years to sort out, and at a minimum:1- getting out of this recession and 2- a lot more SFH+ADU resales to establish a clear track record.
You have to keep in mind that still, most people just want a decent SFH. The BP crowd eager to add an ADU for income, etc. is still not the mainstream buyer! So I always tell people to compare adding the ADU vs enlarging the existing home (for ADU's inside building envelope.) For higher end areas you're probably going to add more value with the home expansion, as you'll get your $psf per value of the home. So unless you really want the ADU income, and you plan to keep it for awhile, I'd be cautious in most suburb settings where traditional SFH prevail. Here in the city (San Francisco) it's different as SFH's and 2-4's are often on the same block. I also know that appraisers are valuing ADU's built in 2-4's as new, legit units, so the upside value is clearly there I'm on my third project as we speak :)
The problem with appraisals up here is that it is not consistent and there isn't a policy across the board. We try to have education and discussion with them and the banks
The valuation and net equity numbers should at a minimum have an asterisk as the numbers you present could lead someone with insufficient knowledge to believe they have a good chance of being able to add an ADU as a value add, then refinance it at 75% LTV with conventional loan and with you valuation be able to extract all or their ADU costs and maybe all of their primary property acquisition.
The East Bay Area value seems to be unknown which in some ways is worse than the San Diego ADU valuation which under values the ADU, but seems to be fairly consistent.
The East Bay valuation seems to be unknown which would also make the equity gain by adding an ADU is unknown.
Hi Dan:
Thanks for the feedback.
The valuation we presented was determined by established real estate principals--using rent and cap rate and were used constantly with all the product types presented to allow someone to develop some baseline understanding about the types of construction. As you point out, there is a necessary next step for someone interested in ADUS to then consult with a banker if they are using a loan to build. Anyone interested in learning more is free to contact me and I can explain further how to proceed and use the chart. I hope that as this product is more common we will see more standardization in appraisals.
I live in San Jose, and remodeling my primary residence.
Converting following:
1. Converting 4garage to studio (440 sqft)
2. Convert 2 bedrooms + some space of washer dryer area in a 1B/1B (400 sqft)
3. Change orientation of washer dryer so it is common to all tenants
4. Change backyard garage so it is more welcoming, plu lay some stones
After talking to few contractors to get bids, finally going with a recommended one. Overall, paying ~$60K for above work. Appliance cost is separate.
Note that each house is unique and has its own set of challenges, so above numbers will of course vary.
Hi Dan:
Thanks for the feedback.
The valuation we presented was determined by established real estate principals--using rent and cap rate and were used constantly with all the product types presented to allow someone to develop some baseline understanding about the types of construction. As you point out, there is a necessary next step for someone interested in ADUS to then consult with a banker if they are using a loan to build. Anyone interested in learning more is free to contact me and I can explain further how to proceed and use the chart. I hope that as this product is more common we will see more standardization in appraisals.
@John D. is correct. Cap rates should not be used for an SFR with ADU (or even small multiplex with ADU). You cannot get conventional financing using this method. While you are not incorrect stating it is an established RE principle, you are incorrect applying it to this property class. Therefore, it is not established RE principle when applied to this situation.
The SFR with ADU will not get this valuation for either a refi nor when selling because most purchasers will desire a conventional residential loan. These loans will use comps with adjustments. They will not use cap rates to set the value. Therefore, the valuation you are implying Is not factual. It is misapplying a commercial valuation onto a non-commercial property.
In addition the cap rate used to determine this valuation is from a different asset class. It would be little different than using mobil home Park cap rate and applying it to an apartment building. You are taking an apartment building cap rate (I am assuming you used apartment cap rate) and applying it to non-commercial residential home to get a value.
As indicated, your valuation deserves at a minimum an asterisk that indicates something similar to valuation based on cap rates which likely is not the method an appraisal is likely to use. Better yet, remove the valuation information. At least that would not be misleading.