ADU San Francisco Bay Area (San Jose)

[Sayantan Satpati]

Hi,

I wan't to build a detached ADU in our backyard. This would be my first home building/addition project. I was looking for suggestions on:

1. Total Cost & Cost per sq / ft 
2. Project timeline
3. Suggestions on contractors
4. Can I have tenants in the house when we build the ADU?
5. Can I additionally convert my garage in to junior ADU?
6. Can I expect comparable rent from ADU (per sqft) as from the main home?
7. Any other tips/suggestions? 

My objective is to rent out the home and ADU separately

[Steven Nguyen]

Hello,

I am originally from the bay area (Milpitas) and know San Jose has lots of properties with large lots.

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. There are a few ADU companies in the bay area as well. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses.  I currently have tenants in the main house as I am constructing the backyard ADU, but made it clear upfront that there would be 3-4 months of construction.  With modular homes, it would be less on-site construction.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.

I hope this helps!