Accessory Dwelling Unit Costs and Investment Breakdown

One thing I learned while working in the finance industry is that you must have a plan for your money.

A good plan requires a good strategy. A good strategy requires a thoughtful approach.

Our relationship with money is one of the most important relationships we have. So why don’t we spend more time focusing on that relationship?

Let me give you an example…

California real estate has more upside than any cryptocurrency.

Real Estate is predictable and as long as there are humans they will need a place to live. Cryptocurrencies, on the other hand, are not predictable.

Everyone is talking about Cryptocurrencies and how much money they're making. But unlike the Crypto market, Accessory Dwelling Units have an endless ROI.

After we breakdown the costs and investment returns of an Accessory Dwelling Unit. You will see why ADUs are the single greatest investment opportunity of our lifetime.

Because let’s be honest…

There’s no plan or strategy that’s going to help you make a killing in the crypto market. Other than timing the market or staying in for the long haul.

Which is why it’s shocking to see how many people in the world don’t make a plan for their money.

After 15+ years of working in the finance industry, I know that Way too many people have no plan or clue on what to do with their money.

They'd rather hope to get lucky. They would rather invest money into the stock or crypto market than research and plan on their own.

Putting money into the stock or crypto market is giving up all control over your money. Would you rather do a blind handoff or opt for a guided tour when it comes to investing your money?

After years of watching people stress and fight over money, I made a promise to my soon-to-be wife.

I'll tell you what that promise was in a minute.

But first… here’s what I did before I popped the question.

I wanted to know how to have a successful marriage. Like an idiot, I did what everyone does. Started asking married people what their best tips are for a happy marriage.

Sidenote: Be careful about who you seek advice from.

The same old advice kept coming up. Happy wife, happy life. Listen to each other. Value each other. Allow each other to be themselves. Blah, Blah, Blahhhh. All great tips sure.

After asking enough people I posed the question to myself. After all, I was more qualified to answer that question than anyone else I asked. Even though I had never been married, all I did was help married people with their money.

As I started thinking back, one trend kept sticking out. The number of relationships that suffered because of couples who argued, fought, and stressed over money.

Money is not the root of all evil but it is the root of 90%+ of all disputes in relationships.

The key to a successful marriage is to avoid fighting over money. Most relationships, personal and business end because of disputes with money.

I love my wife. The last thing I ever wanted to do was be in an unhappy marriage or fight over the same stuff. I wanted to do whatever I could to avoid disputes over money.

I made a promise to my wife and made her promise me the same thing in return.

We will never fight over money. Simple. That one rule has avoided hundreds if not thousands of potential disputes between us. To this day we avoid those potential disputes by planning and strategizing what we do with our money.

My career in finance allowed me to study people’s behaviors around money. Studying how people spent, saved, invested, and valued their money, one trend kept coming up.

People with money use their money to make money.

If your plan is to have your money make money then you should invest in California Real Estate.

Especially now.

The new ADU laws in California allow you to turn your single family home into a multi family property.

When you break down how much it costs to build an ADU it's clear you need one. After seeing the potential returns, you’ll never want to invest in anything else again.

Real Estate gains value in many ways...Rental income. Interest write-offs. Depreciation. Appreciation, to name a few.

Think of investing like playing basketball. How hard would it be to score a lot of point without a three point line and any referees? Accessory Dwelling Units are the modern day rule changes that allow you to score more.

Let’s breakdown the costs and returns on Accessory Dwelling Units. Garage Conversion, Ground Up and prefab builder options below:

The Cost and ROI of Garage Conversion

The lowest hanging fruit for any California homeowner. The ability to turn a garage into a living space. Whether detached or attached a garage can turn into a living space with minimal work. Because the structure of the building is already in place. Saves you lots of money because you don’t have to pour a new foundation, you don’t have to start everything from scratch.

A garage conversion allows you to do more of a renovation project. Depending on the size of your garage.

A simple garage conversion can cost anywhere from 30-75k.

After it’s completed and depending on what part of California you live in, it could rent for $1000-$2000 per month.

Say it cost you 30k to build, monthly rent is 1500. You'd break even on month 20!

Infinite ROI after you recoup your initial investment.

Real life example: My first ADU was a garage conversion. That garage has rents for anywhere from $1200-$1500 a month.

5 Years later...What's the return on my investment?

Breakdown:

35k to build out.

Say 1200 a month, after 5 years, that’s a whopping 72k in income.

Made all my money back in month 28. Less than 2.5 years to make all my money back. Endless ROI after I recouped my initial investment.

But not everyone can convert their garage or may not want to. So let’s look into the option of building a new structure from the ground up.

ADU Cost Breakdown for a Ground Up Construction

Ground up construction might be the most difficult type of ADU to build. In most cases, this is great for anyone with a house on a big lot.

Theoretically, you have more space and options to consider.

Unlike a garage conversion where the structure is already in place, round up construction is building a brand new house.

There are more variables than a simple garage conversion.

Which means this ADU construction will cost more than a garage conversion but less than a prefab modular building.

Ground up construction has the most variability in costs.

Contractors need to account for site conditions, weather, labor and material costs fluctuate depending on the day.

Your ability to influence costs will depend on how much time you can commit to the project.

Ground up construction also requires a team of experienced professionals. Finding and securing those professionals to work on your project is a mountain to climb.

Not impossible but much more costly and unpredictable than a simple garage conversion. With endless variables and thousands of decisions to make.

However… Traditional ground up construction is the best option for your ADU project because you can build almost anything you want.

Costs for an ADU Prefab/Modular Building

Unlike ground up construction, prefab or modular building providers have limited customization options.

Most have templates to choose from.

This limits the amount of uncertainty and options to consider. They make the ADU offsite in a warehouse. Prefab ADU builders control more variable and drive down costs butthey don't pass that cost savings on to you, the customer.

Rather the cost savings improves their margins. Also almost every prefab company does not offer in-house general contracting services. They focus on the cost of material but ignore cost of labor.

Sure they all have “preferred partners” they recommend. But these 3rd party providers have their own sets of fees and charges.

Which when added to the cost of a prefab unit eliminates most people from considering such an option if your goal is return on investment or ROI.

Choosing prefab means you most likely have the cash on hand or easily accessible. It als means the return on your investment will be lower due to higher costs associated with the build out.

Choose the prefab option for your ADU if you care more about how it looks than the return on your investment.

Costs can vary within garage conversions, ground-up construction and prefab building options.

Why?

Because...

“The true price of anything is the amount of time you exchange for it” – Henry David Thoreau

People are recognizing the wealth-building power of ADUs. And an ADU can cost as much as you’d be willing to pay for it.

Bottom line?

ADU dwelling costs can vary depending on you and what kind of ADU you decide to build.