Hello Bay Area BP folks and others. I've been wanting to invest in real estate for awhile. To get started with a low budget I've always thought an in law unit aka ADU, would be a great way to start. My backyard though didn't meet the setback requirements per city codes. However now the State and subsequently the city, have relaxed the codes to encourage homeowners to build. Lucky thing
For those that have an ADU, please share your experiences. Are rental prices on these necessarily lower than the market?
I'm looking into building types. My side area is only 6 ft wide. Not quite enough for a BobCat to be used. That'll add to the costs since foundation work will have to be done manually.
Panel prefabricated homes look to be the best choice maybe. As long as they can carry them through that side yard area.
Any other advice to share is appreciated. Mahalos
Hi @Gary F. I'm looking at also using the CA ADU provision, in the North Bay. I've been exploring converting garages, as that is a more simple and cheap process (I received a preliminary estimate of $40k for a garage conversion).
The downside of converting the garage, I'm told, is that the main unit becomes less attractive, as families often do want a garage for their cars. I intend to hold the properties, so that shouldn't be too much of an issue, but it could be if I wanted to sell them.
Because of the above issue, I'd love to find a cheap way to construct an ADU in a property's backyard...we should chat if you have a moment...
Yes the garage conversion does reduce value of the main home. I've been looking into an attached or detached unit in the backyard as that would add value plus the rental income. However the tax advantages usually associated with a business rental unit may not be the same as a unit not on a primary residence. I'll have to research this more. Or if someone else with more experience can chime in that would be helpful.
Here's a link to ADU information for California. It looks like I can't build one. Per these codes for Santa Clara County at least one of the units, primary or secondary (the ADU) must be owner-occupied. If I were going to live there the whole time that's ok.
Plus there's a time factor for the city to register the ADU on record before it can be occupied. An REA told me it's taking about 6 Months. That's a long time to front all those costs with no rental income coming in.
@Gary F. there is no such owner occupier requirement in other cities that I'm looking to in California, and wait times are not long...why not look elsewhere in this state?
As per the previous messages in this thread, there are disadvantages to garage conversions. So I've been looking at prefab homes online...there are some beautiful ones for less than $60k. But how are such homes valued by appraisers? If I do a garage conversion, the value of the property will increase significantly, and I can do a cash out refinance. How much less would a home's value increase if I put up a prefab house in the background, instead of converting the house's garage?
I am applying for an ADU in San Mateo.
I do not know how to attach PDF on here. The plan has been resubmitted yesterday.
@Adil. Prefab is a great idea. The only issue is access for building it. Prefabs need to trucked in a whole piece and placed on the foundation. So unless a large truck can access the backyard it won't work.
Another prefab is the panel home. As long as there's about 6+ft of a path width on the side of the house it could possibly work. With this design the home is constructed of separate panels placed and secured to the foundation.
It's the accessibility and foundation work that may drive up the costs of the total ADU project beyond a decent ROI. Then there's permits and build time.
It's too bad for San Jose that they're quite restrictive on the owner-occupied regulation. That would mean I'd have to stay there and could not rent out both units.
I think a garage conversion might decrease not increase the homes value. However unless a particular buyer wanted to use the unit for in-laws or rental then it could be an increase. Hard to say. Probably good idea to consult with a local REA
For the 600sq ft ADU option (SJ max) you can get a prefab home, and its smart. Why smart? because it lets you buy these things out of state meaning you wont get slapped around with bay area construction costs, call it construction arbitrage if you will. The cost of the prefab home does not include permits, trenching (utility hooks) and foundation work, total is around $165 per sq ft- however good companies will sell you a pre-fab ADU and help you get all the extra stuff organized.
The ADU gets delivered via truck and then a crane drops on the foundation, and voila! Keep in mind any power line obstructions when dropping the ADU, as you will need a special permit to move them $$$. When picking an ADU layout think of one that will appeal to as many homeowners as possible.. think that you want every person who would view the home to say, "I could use this for X...." If someone isnt interested in being a landlord then the ADU needs to provide value to them also. The more people it appeals to the more value it brings to your property.
@David Song I'd like to hear more about your thinking with the ADA. I know you're keeping them as rentals, so obviously the added income is attractive. But what's not as clear is how much, of any, added value the ADU brings when you sell. I think it also depends on how hi end the neighborhood is too. Meaning, affluent people generally want privacy and added space, and not a second unit for extra income. But if the second unit can be marketed as a nannys unit, or used as business office or man cave, then it could be attractive to the affluent buyer as a feature. In San Francisco space is so tight, and event affluent neighborhoods are mixed economically, so that any added unit is a plus value wise. I'm just not as sure how that works in the burbs. Be interested in your POV.
In turns of resale value, depends on neighborhood.
My San Mateo SFR is located in 94401, there are already some duplex and apartments there.
The added income of $2000/mo, IMO, would add value.
However, if it is a Palo alto or hillsborough, the added value may be limited.
BYW: my ADU is a detached unit, not a garage convertion. We have a San Jose SFR which might add an ADU later.
I have been involved with some projects in EPA where dollars spent dropping an ADU on the property flow through about 2:1 on the value. So spend $100k on the ADU, add $200k to your home value. This plus the income (or personal use- depending on your intentions) makes it a pretty good choice in terms of your ROI.
Some information about modular homes
thanks for the feedback on value guys. In SF I'm thinking it'll be about 3 to 1 for my property. I'll be going duplex < triplex, so,avoid the whole SFH vs it's not really an SFH anymore.
But for anyone wanting the added income it makes sense, irrespective of the neighborhood imo.
@David Song I'm interested in hearing more about your ADU in San Mateo. I'm thinking about building out our attached garage into an ADU based on the new regs but wondering if it would be attractive to renters.
As I mentioned earlier, in San Jose we're required to have either the primary or secondary unit owner-occupied. Meaning we cannot rent out both the primary unit (House) and the secondary (ADU) at the same time.
You folks in other cities. Are you finding the same restriction?
@Kent Baltare That's an awesome ROI!
Have you heard of the same ROI for San Jose?
I'm in Redwood City and yes that same owner occupant restriction applies.
What do you want to know? I will be more than happy to share.
I prepared the plan myself, based on the city zoning code. Set back, etc.
This is great the thread is coming to life with replies.
Ok so San Jose isn't the only restrictive city. I wonder what's their reasoning for not allowing both units to be rented.
@David Song Only everything ;) How big and what are you basing your $2K/month on? We are looking at doing a garage conversion so I know its not as attractive as detached but I wasn't sure what to anticipate. What level of finishes are you thinking as well? I've seen some comments that its just an ADU, it doesn't need high end finishes but since its small I was thinking a bit higher end would attract a quality tenant. I'm totally new so appreciate any insight.
Are you building a new structure as well or is it an existing accessory building? The plan you reference, is it in planning review? Thanks for offering to answer my 20 questions!
We are applying for a 640 sf 1b1b detached ADU in the backyard.
The rent of $2000/mo is based on our existing rentals in the vicinity. $2550 for 2bd1b (790 sf), $1900 for a junior 350 sf studio 1bed.
There is an 99 sf covered porch is the back, which is exempt from FAR calculations.
The ADU is designed with an additional office, which actually meet the requirement for another bedroom, size, closet, egress, etc.
We bought this SFR is 2011 for 380 k, spent 120 k to rebuild the foundation and everything inside. It has 1600 sf, 2 car garage, split level, Mediterranean style, originally built in 1910s.
The current rent is 3890/mo. Zillow value; 1.2 m.
After ADU, $5890 rent, maybe 1.5-1.6 m? Just a guess.
I am planning to hold long term. We already cash out 420k a few years ago.
@David Song you're a licensed contractor correct? I assume you just paid for subs, as $120k for foundation plus remodel is quite discounted.
I'll probably have a gut remodel coming up next year. If you have some good contacts for reasonably priced GC's who can work in SF, let me know. We can PM later as I'm closer to project initiation. Thanks
In 2011, I was a newbie. $120 k is 2011 price. Now it is higher for sure.
Now I am licensed GC, working for my own properties.
We use subs all the time.