ADU/in-law unit in Newark, Bay area

26 Replies

Howdy BP folks, 

I am firstimer, please bear my lengthy writeup.
Need some inputs for deciding to build ADU unit in side yard of my house.

Situation: Have a day job along with a kid. Cannot spend full time on the project. First time house buyer. 

My homework so far: 

Construction:

600 sqft allowed in my lot in Newark. Recent state laws have eased prices for utilities, approval processes. 

Tiring part is with contractors; finding one for small projects, timely completion and extra costs. Typical quotes are $250 to $350+ per sqft. which would make project about $200K in total. Prefab homes upon additions (redesign for approval, amenities) would come close to $120K+ they are not guaranteed/proven yet. So i think better to go with traditional build up.

Finance:

With 50K in hand, I would need financing for $150K. with mortgage (20yrs), EMI comes to about 1.1K per month.

Typical rent is around $1800/month. accounting maintenance, tax, occupancy rate. there would be avg gain of $500/month.

My concerns: 

Appraisal/Sell ability of main property after ADU.

Is time/effort in construction worth the effort? Is it better off with 50K invested elsewhere (ETFs/stocks)

Can I buy another property for 250K elsewhere and get slightly lower returns.

It would be great for me if you can provide inputs on any of these points, raise flags, suggestions.

Thanks in advance.

@Harish Maiya

I forgot how expensive it can be to build in Ca! $200k for 600 sqft unit is lot of money for something that small. What is your endgame? Why do you want to build an ADU? Is the $50k burning a hole in your pocket and you want to reinvest it?

I like your idea to build an ADU and think it's a great option, your options just really depend on your endgame!

I'd start talking to local realtors to get a sense if an ADU is seen as a plus for resale purposes. Especially in a suburban setting. On one hand you have an extra unit, for rental or extended family uses, which would be seen as a plus. OTOH most people just want an SFH and don't need/want an extra unit to deal with. (You'd also want to compare the value of adding 600 sq ft extension to the home vs an ADU.) Experienced realtors in your are can help you get an answer on that. Remember, it's an opinion, so I'd seek many perspectives, and see if you can draw a conclusion. I can tell you that in San Francisco proper, ADUs are generally seen as a plus, but the built environment here is much more dense. Suburban buyers may see it differently.

Let us know what info you get on this!

Thanks for inputs.
My primary goal is to leverage to have secondary income without losing much on equity. ADU option seemed lucrative since cash flow of $1800/month for a $250K (with relative low maintenance), compared to invest in house elsewhere or stocks
@Amit M. good suggestion, i would ask around and get general perspective. Exploring designs, contractors, local rules meanwhile.

It would say it all depends on your needs. I am a realtor and my dad is a contractor. I don’t think your 200k investment would necessary just add 200k overall value to your house in the sense that this add on make it harder for normal first time home buyers to suck up. However, if you are going to stay at your current house for the long haul, it is not a bad investment and the rental newark is hot. Well, Facebook is expanding to Fremont~

My suggestion would go to build a smaller unit. A 250 soft will be plenty for a studio and can go for $1500ish a month. And a bedroom will go for $1800 ish with 350-450. For 600 soft u can totally do a two bedroom.

If you go for the style of tiny homes and rent to a single working professional, I think you can go in with less and balance it out when you want to sell with neighborhood comps.

If you go to the add on route(add a bedroom and a bathroom), you can think about the add on functioning like an attached “in law unit” with a hot plate for working professional to cook on, with that I would say rents about 900ish depending on the set up.

I think my question to you would be, how many people do you want to share your yard with? What’s the parking situation? And all...

@JingJing He Great inputs! 
More details, sideyard has concrete floor (existing RV space) with separate gate. And plenty of parking in frontyard. 

Agree with lower sqft like 400 to bring down cost, since there would be no equivalent equity added. 

Now looking into tiny homes, (kithaus, studio shed) still would need permit, GC. And plan to furnish (laundry, bath, kitchen) so its convenient to working professional. 

@Harish Maiya you can check out www.myHousable.com they have a break even calculator that helps give you an idea of cash flow, break even point, etc. Would help you evaluate your options relative to investing in that 50K elsewhere. 

I think if you plan to stay on the property/own the property long term that's when ADU's start to make a lot of financial sense. Not sure what owner occupancy rules exist in Newark.

@JingJing He if you're going through the cost to build you should build to the max size allowed by building code. There are so many fixed costs (like permitting) that adding on 300 extra sq ft isn't that material toward the cost. You wouldn't save much by cutting sq footage. 

There's a lot of debate about what the ROI is on an ADU, the general rule of thumb, although it differs greatly, and I'd expect this number to increase as people become more aware of ADUs and the value they bring, is ~70%ROI on investment. So great for long term investments, not awesome for quick flips.

OP, I'm pretty close to you in Fremont. We're also debating about adding an ADU. We're looking into prefab options due to the cost savings and that a lot of the work can be done offsite, so less impact/inconveniences in our backyard. Ideally a 2 bedroom, 1 bath, but we're still figuring out if our lot size would be OK for that. Realistically, a 1 bedroom would fit into the lot best. I'm not sure if you have this with Newark, but unfortunately, school impact fees for Fremont have skyrocketed (this applies to builds of 500 sf or more). Just a few years ago, it was less than $10/sf. Today, it's $26/sf which is insane compared to other cities in the Bay.

From an investment standpoint, it seems to make sense. However, I've also been thinking about putting the money elsewhere - for example, building an ADU in the Bay would be about half the cost of buying a "full" home in Sacramento. What's the better option? I don't know.

For resale purposes, I think it's a plus and a selling point.  People seem to care less about backyards and many of us have aging parents.  ADUs would be a great place for them to stay.  

Note that the construction costs have been going up as we speak, so building now seems to be better than later.  However, I'm hoping additional legislation will continue to lower the fees.  

Our intent for this ADU is a combination - for us (well, me) to live in, perhaps rental property as well, and in the future, home for aging parents.

For $200,000 you can build a 2/1 apartment financed at 30 years with a fixed rate home loan... You aren't going to get that opportunity anywhere else. Your operating expenses won't be 50%, they've most likely be in the low 20s if you self manage, with property taxes and insurance being the expensive part.

If the unit is attached to the house then it will appraise as additional SF. If it isn't it will likely be worth less (but still more than you paid.


What's not to like?

As a rule of thumb 400 SF is a one bedroom, 500 SF is enough for two. Add 100 SF if you want a large unit. There isn't a lot of need for a large unit if it is well designed.

Hey Seth, 500 sf seems small for a 2/1 with kitchen and bath? Haven’t seen many floor plans with that configuration, but would love to. Someone I know just built a 2/1 at just under 800 sf and that layout seemed ok on size. Can imagine similar but at 500 sf.

@Laura C. have you talked to realtors, or have you seen any for sale homes in your are with ADU's? I agree that an ADU is good for aging parents, rental, etc. but OTOH most people just want a regular SFH. Upshot is I'm not sure if it will be more difficult to sell a home with an ADU (for more money) vs a regular one. LMK if you have seen any sales comps or gotten feedback from knowledgeable brokers who have done this.

As for a 2/1, 500 sq ft is way too small. 650 is minimum imo. Decent 1br is 500-650, 2br 650-800, studio can be 300-400. Going outside these norms is technically doable, but won’t be comfortable for most people...unless they have lived in Hong Kong or Tokyo before!

Originally posted by @Laura C. :

Hey Seth, 500 sf seems small for a 2/1 with kitchen and bath? Haven’t seen many floor plans with that configuration, but would love to. Someone I know just built a 2/1 at just under 800 sf and that layout seemed ok on size. Can imagine similar but at 500 sf.

 We have an in house architect at my day job who does plans like that. The kitchen is in the living room at that point. That said, people rent them at market rates all the time.

It’s easy to get sucked into the bigger is better mentality when adding square footage but you may want to consider building an ADU that gives you the biggest return without ruining the aesthetics of your home and taking up the majority of your land. You probably have a good idea of what renters are looking for in your area, if not maybe talk to a property management company. An experienced design / build contractor could provide a minimal plot plan and floor plan design and give you construction costs along the way. Alternatively, you could call an architect or draftsman and then get estimates from multiple contractors but many won’t spend a lot of time bidding the project until the design is completed. Until you get some ideas and design on paper the ADU will just be an idea.

@Amit M. Haven't talked to realtors or checked out resale values of homes with ADUs. We plan to be here for the long haul and wanted an ADU for personal use, not thinking about selling the house and it's impact. However, you do bring up a good point that we should factor in. There has been a huge uptick in the build of ADUs, so the short term demand is there. I'm expecting with so many techies/millennials around, they will also need to put aging parents somewhere, especially in the next 10 to 20 years.

Yes, I agree with your sizing estimates.  @Seth Borman   Your in-house architect must be really creative and efficient with the layouts.  

@Wes Harding brings up some good points as well.  We're also torn on size vs. taking up land and aesthetics.  Need to make some decisions..

Hi guys,

I'm a building contractor from Fremont Newark area with over 15 years of experience in remodels, additions, and new homes and am reading the posts and replies regarding the ADU construction costs being $200-$250k for a 600 square foot unit seem high.

I've recently completed a 400 square feet kitchen and family room addition and a partially completed 400 square feet master bedroom and bathroom addition to a house in Campbell, installed a new HVAC system and 2400 square feet of engineered hardwood flooring throughout the home all for under $250k.

Is there something I'm missing? Are Newark and Fremont building fees extremely high??

Thanks
Zab

@Harish, $250 to $350/sf for ADU seems high. Did you get multiple bids? We just finished two ADUs in Anaheim and Fountain Valley respectively @ 720sf/each for $180K/unit. Both ADUs have everything a regular SFR has.

@Laura, $26/sf for school fee?  Wow, that is EXTREMELY high.  We already complaint at $5/sf in OC.

@Zab Khan Most ADU quotes I've seen are fairly high. Recently saw a unit at less than 400 sq cost about $250K, but I've also seen 800 sq units cost for about that price. There's a wide range on pricing and it also depends if it's stick built, prefab, etc. This is not necessarily for Newark/Bay area, but Bay Area in general.

@Dennis Vo Yup, I think it's $26.11/SF to be exact - insane. It was $8/sf about 2 or 3 years ago and for some reason, they just decided to triple it. A small group of people have been trying to protest it during school district meetings, but it hasn't been successful. It's funny as the politician who has been trying to lax ADU rules/restrictions for California is from Fremont. The caveat is any builds under 500 sf won't have to pay this ridiculous fee, which puts me in a bind. I rather go bigger, but I feel it's unjust for the city to get away with charging this excessive amount.

Your builds in Socal are very cheap.  I guess everything in the Bay Area is more expensive - I wouldn't be surprised if the prices of ADUs continue to climb with the demand.  Things are bad out here....

@Laura C. I agree the numbers vary quiet a bit in the Bay Area but end of the day 400 square feet is the size of a two car garage and wheather it's pre fab or conventional framing, it takes about a week to frame so just saying 250k seems high..  I'm currently building in the Bay Area so if you need a quote, feel free to reach out.

@Laura,  My partner just paid $3.57/sf for school fee for the two new homes we are going to start tomorrow... and the owners already cry about the school fee.  They should talk to you to get some comfort  :)

@Zab Khan Can you PM me any info you have on your firm?  

@Dennis Vo   Tell your partner to stay away from investing in Fremont if they don't want to have a nervous breakdown ;)

I've been hearing questions like this a lot and our next Meetup topic is covering ADUs specifically. We have someone that's on a planning commission, an architect, and a friend that's actually gone through the process. It's Wed 5/16 by Santana Row. It will answer many questions folks have.

I don't think BP allow us to plug events now or have external links in the posts so check my profile for the Meetup link.

I am working on refinance of my single family home with an recently developed ADU unit in the bay area that cost a little over 300k to build and the appraiser only added 75k in value for the in law unit

The ADU unit is detached 2 bed/2bath/loft/kitchen with its own address and pge meter. It has been rented for $2495 but can easily be rented for $2700

Is that a norm in the bay area for ADU properites or the appraiser had no clue on what he is doing.

If this is true then practically I lost money and 2 years of my time to get the design/approval and construction done and it looks like adding ADU does not make any sense in the bay area.

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