When does it make sense to add an ADU?

[Vanessa Banh]

I just closed on a property and am planning on using the BRRRR strategy. There is a detached garage. I am thinking of converting it into an ADU, so I can rent out this part as well. It should raise the value of the house by at least $30k. However, renovations and permits to convert this will also cost about $30k. Does it still make sense if it breaks even like this? I can likely get about $2k/mo for the main house and maybe about $1k/mo if I convert the garage into an ADU.

Currently, the property is worth $380k. The ARV is currently at $475k. We expect to put in about $50k in the main house, but converting the garage into an ADU would bring the total rehab costs to $80k. And with the ADU, the house will likely be worth at least $505k.

I would appreciate any insight.
 

[Wesley I.]

@Vanessa Banh

Are you in CA? CalHFA has a $40k grant to build ADU. Have you looked into this? The grant is a little tricky to get as you need to get a construction loan then refinance it with your first. Not worth it if you have a low rate on your first IMO. I have called several approved lenders and found one that will do it on 2nd trust deed but the minimum loan amount is 200k.