ADU or not? in Torrance, SoCal

[Sarah Wang]

Hi BP friends,

I’m totally new to building and real estate investing, and would really appreciate your thoughts on building an ADU in Torrance, SoCal.

My property:

• Lot: 7,800 sqft
• Main house: 1,700 sqft, 4B3B
• Main house Includes a 1B1B in-law suite with a separate entrance, connected to the main living area

The area:

• Torrance median sale price: ~$1.02M
• My home is in Northeast Torrance— a more affordable part of the city compared to West and South Torrance
• Schools are solid (ratings 9/7/9)

My plan:

• convert current 2-car garage to one-car garage, and build 1B1B ADU (700 sqft)
• Designed with vaulted ceiling + great natural light (stronger interior feel than most local ADUs)
• Budget: $175K (ADU) + $80K (lot landscape)
• Build time: 8 months
• Estimated rent: $2,300/mo
• Can do long term or mid-term rental (20 min to 3 medical centers), no short-term
• ROI looks strong and easier to manage locally than out-of-state investing
• Local ADU = lower management cost + easier eviction if issues come up

My questions:

1. A few years ago I saw posts saying banks appraise ADUs below build cost, making it hard to pull the equity out or sell — is that still true today?
2. In my case, do you think adding an ADU could lower my overall property value?

I haven’t found many local comparisons, so I’d love to hear your opinions or experiences.
Thanks a ton!!

[Rick Albert]

A couple of thoughts:

1. The last appraisal I saw with an ADU earlier this year was $100,000. I did speak with an appraiser a few weeks ago when I sold another ADU property and he said he has given as much as $150,000. Keep in mind appraisals go through secondary reviews from the bank and that bank could be in some office building in the mid west where they may look at the appraiser as being crazy for giving a $150,000 value for essentially a converted garage. Really what you have to do is find other homes that have sold with an ADU so that they don't have to make an adjustment. Go further out if you have to. Appraisers need at least one. But just keep in mind in my experience, an ADU is a separate line item so they typically don't care if it is a studio, one bedroom, or sometimes even a two bedroom. It's like appraising a pool. They don't care about the size of the pool. A pool is a pool. In either case, it likely won't lower your overall value unless you do something like eliminate any off street parking, no yard, etc. But even then there is going to be some value, even if it isn't dollar for dollar.

2. What makes you think it is an easier eviction? Because you are here? Are you an eviction lawyer who can do the work yourself? I would never make that assumption.

3. If you are going to spend $255,000, have you looked to buy an existing 2 unit property? You save 8 months of stress, surprises, and opportunity costs and now you have increased your door count using the same capital. Just something to consider. To be fair in some markets out of state you could buy cash and collect similar rents (obviously pros and cons).