Dilemma with an ADU Conversion

14 Replies

I own a Duplex in Los Angeles and I want to convert the back storage unit into an ADU. I'm planning to demolish the storage and build the ADU from the ground up. The ADU is going to end up being 552 sqft and a one-bedroom. I've never done anything like this before, but I'm looking to learn from this. My plan is get a home improvement loan and hire subcontractors myself. I'm afraid of spending too much money on this conversion, a contractor quoted me at 100,000 and it scared the living daylights out of me. I heard if I do it myself I would save half of that. Do you guys think this is a good idea? or should I hire a contractor to do the work?

How much does it cost to build an ADU? Also, do you know any home improvement lenders you could recommend me?

If someone told you that your cost of hiring each sub on your own would save you half the cost of a general contractor, they are sadly mistaken.

A 500 SF ADU for $100k sounds like a very good price to me - generally speaking, but would need all details of the project and the site to be sure.

Assuming you have the footprint room on the lot, a multi family zoned property is allowed 2 detached ADU units. The cost to build an ADU on a multi family lot vs the cost to buy another door with land, etc is so much less which is why it is such a great new law for multi family investors. Any owner with the room should be adding these doors. You can typically get your investment back in 5-10 years with the typical average at 7 years. That equates to a very nice double digit return. On top of that, your combined NOI is increased thereby increasing the value of your multi unit property. Win, win.

If you've never subbed a construction job yourself then doing something ground up might not be best place to start (remodel of something existing is a better starting place). But at the same time, paying a contractor nearly 200/Ft for a one bedroom ADU seems rather pricey. Plenty of good GC's out there in the 150/Ft range who would deliver you a quality product.

In my market GC's charge 30%.  You are unlikely to save anywhere close to 30%.  First the GC has subcontractors that may give the GC a discount and because of bulk purchasing discounts.  Next there is the inefficiencies involved in learning.  I suspect your savings, if you do fairly good job, will be 10% to 15%.   If you do a great job then more.  However, a lousy job and you could result in the effort costing more than using a GC.  Also realize acting as the GC is work and takes time.

My own belief is that if you are doing this one time, hire a GC. If you are planning on doing this multiple times, then it may be worth the effort, but realize the compensation for effort may not be the greatest on the initial effort. Subsequent efforts should be able to leverage what you have learned and should produce additional savings acting as GC.

Good luck

@Gadiel Del Orbe

ADUs in Los Angeles are really hot right now and contractors are charging that price because they know there's a lot of demand for them. I've done 8 ADUs myself as owner builder and I'm around 35k for 500 square feet (now that lumber prices have gone up you can add another 5k) ADU Including permit fees and blueprints .You should be able to get it done yourself for less than 50k. I did go thru a contractor the very first time I did an ADU in 2017 and they charged me 55k and after that contractors have been charging more and more. I suggest you do the ADU yourself if you have the time, you will save at least half the cost or maybe more.

Originally posted by @Aaron Pfeffer :

If you've never subbed a construction job yourself then doing something ground up might not be best place to start (remodel of something existing is a better starting place). But at the same time, paying a contractor nearly 200/Ft for a one bedroom ADU seems rather pricey. Plenty of good GC's out there in the 150/Ft range who would deliver you a quality product.

I don't think you are taking into consideration the fact that the original poster is looking to build a 550SF ADU. That is a small project and just like the difference between buying a 6 pack and a 12 pack, the price per can goes down on the 12 pack and even more on a 24 pack.

Please name one contractor in LA that can build a 550 SF ADU (new construction) including arch design, structural engineering, and permit fees for $150 a SF who is licensed? These ADU's need to have direct connections to street sewer systems and can not tie into existing home sewer lines. They often require other inspections from utility easements and other hurdles which take tie and cost money to organize and get approved. Even if you toss out the soft costs and only refer to construction costs including all finish items, I find it hard to believe anyone could do it for that price and still make a profit in LA.

 

Not about to start throwing out names here. What I can tell you is that a private money/hard money broker who has facilitated funding on a significant number of ADU projects in the past 24 months...I'm seeing what the developers are spending on PPSQFT between 500 to 1200. I like your point about the price per can going down the larger the pack, and I will also acquiesce on the fact that many of the projects I speak of are inclusive of rehab on existing structures (putting more money into the GCs pocket getting to run the remodels as well). Still...I said there are plenty of good GCs out there in the $150/Sq Ft "range." Meaning...200 Sq Ft is the highest anyone should be paying, so it's your job as an investor to lower that cost. Whether it be an additional $20-50 per Sq Ft is on you and is doable. Especially since you're assuming the GC is handling architecture and engineering, which I did not assume. Either way, I'm not saying the cost savings should be half or more. I'm saying $200/Sq Ft is the highest anyone should be paying. Basically...retail. Our entire mantra as REIs is to never pay retail. And there are wholesale priced GC's out there in Los Angeles county who would do a 550 Sq Ft ADU for around $150/Sq Ft and do it well.

You can buy prefabricated ADUs, garage conversions are generally cheaper as well. As someone who has done research into the space. 100k in California for a new structure ADU is about right

@Derrick Dill The issue our clients have noticed with pre-fab ADUs (and there are some really cool ones out there or coming soon)...is that there are significant costs that aren't included in the price of the unit.  Delivery, Craning and Installation may or may not be included in the price. More importantly, all the site work is not included and they expect the homeowner to pay a local contractor for this work...demo/clearing, trenching, foundation, site utility connections, permits, patios, landscaping, fencing, etc.  Our clients are needing to budget $20-50k for this work in addition to the price of the pre-fab unit. 

@Gadiel Del Orbe The price will vary depending on what you include in the "cost to build". One thing that hasn't been mentioned yet is the solar panel requirement (Title 24 requirement for all new construction, including detached ADUs), which can add thousands of dollars in upfront cost, unless you choose to lease the system and not own. I'd recommend hiring a quality designer and general contractor who specialize in ADUs and know all the requirements.

The best way to think about this is not in terms of the upfront cost, but in terms of the ROI and forced appreciation benefits you're getting in the long run. Even if you build for $250/sf, acquiring the equivalent property in the LA region can often cost $400-800/sf.

Originally posted by @Aaron Pfeffer :

Not about to start throwing out names here. What I can tell you is that a private money/hard money broker who has facilitated funding on a significant number of ADU projects in the past 24 months...I'm seeing what the developers are spending on PPSQFT between 500 to 1200. I like your point about the price per can going down the larger the pack, and I will also acquiesce on the fact that many of the projects I speak of are inclusive of rehab on existing structures (putting more money into the GCs pocket getting to run the remodels as well). Still...I said there are plenty of good GCs out there in the $150/Sq Ft "range." Meaning...200 Sq Ft is the highest anyone should be paying, so it's your job as an investor to lower that cost. Whether it be an additional $20-50 per Sq Ft is on you and is doable. Especially since you're assuming the GC is handling architecture and engineering, which I did not assume. Either way, I'm not saying the cost savings should be half or more. I'm saying $200/Sq Ft is the highest anyone should be paying. Basically...retail. Our entire mantra as REIs is to never pay retail. And there are wholesale priced GC's out there in Los Angeles county who would do a 550 Sq Ft ADU for around $150/Sq Ft and do it well.

Aaron, I appreciate your response, my above of "name 1 contractor" was rhetorical though. I have a project that is an 800Sf ADU (which is a 360SF detached garage conversion/addition) and all inclusive of Arch design, structural eng, plan check expediting, utility connections, etc, we bid $145k. That comes to $181.25 per SF. To my point, a 550 SF would not cost that much less (quantity discount argument you agreed with) and I just wanted to make it clear to others reading not to expect a $150 pSF price all inclusive for such a small ADU.

I also failed to mention that I also perform these with higher end finishes and decked out to obtain the highest rental rates for the clients. Solid wood shaker cabinetry, quartz counters, higher end tiles, glass enclosure shower, Mini split or full AC system, recessed lighting with dimmer switches, wood flooring, etc. I can see if you work with lower end finishes you can get that price down more too which I did not take into consideration in my comments above.

So I guess we agree that a good GC can keep it under $200 pSF but to obtain $150 pSF on a very small ADY (550 sf), you would have to sacrifice some finishes and perhaps not include Arch design/Structural plans, etc.

Originally posted by @Aaron Pfeffer :

Not about to start throwing out names here. What I can tell you is that a private money/hard money broker who has facilitated funding on a significant number of ADU projects in the past 24 months...I'm seeing what the developers are spending on PPSQFT between 500 to 1200. I like your point about the price per can going down the larger the pack, and I will also acquiesce on the fact that many of the projects I speak of are inclusive of rehab on existing structures (putting more money into the GCs pocket getting to run the remodels as well). Still...I said there are plenty of good GCs out there in the $150/Sq Ft "range." Meaning...200 Sq Ft is the highest anyone should be paying, so it's your job as an investor to lower that cost. Whether it be an additional $20-50 per Sq Ft is on you and is doable. Especially since you're assuming the GC is handling architecture and engineering, which I did not assume. Either way, I'm not saying the cost savings should be half or more. I'm saying $200/Sq Ft is the highest anyone should be paying. Basically...retail. Our entire mantra as REIs is to never pay retail. And there are wholesale priced GC's out there in Los Angeles county who would do a 550 Sq Ft ADU for around $150/Sq Ft and do it well.

Hey Aaron, I'd be interested in some references for wholesale priced GC's that could do a good job in LA if you have any. I recently completed a garage conversion ADU that was about 400SF and cost me about $80k for the construction - not including soft costs. The GC was slow and painful to deal with, so I'm looking for better ones on some future projects.