Cost of an ADU in East Bay right now?

Question

Hello! I hope everyone is staying safe out there during these unprecedented times.

I wanted to ask the community, a rough ball park figure on what it would cost to build an ADU of let's say 500 sq. ft. with one bathroom, kitchen and bedroom, for a structure that is ALREADY existing and what it would cost to build from the ground up.

I'd be grateful for any input.

Laura Blair · Answer

Hi Sarah:

We have worked through the math a bit.  It might be easier for me to send you by email.  I am trying to send below.  I sent you a message and I can send by email...

Type of ADU

Assumed SF

Price/SF

Total Cost

Sample

Monthly Rent in   Oakland

Valuation

Net Equity

Shipping   Container Conversion to Modern ADU

160

$    300.00

$           48,000.00

$                1,500.00

$         216,000.00

$      168,000.00

Garage Conversion to ADU with existing foundation

500

$    300.00

$        150,000.00

$                2,000.00

$         288,000.00

$      138,000.00

Garage Conversion to ADU without existing foundation

500

$    400.00

$        200,000.00

$                2,000.00

$         288,000.00

$         88,000.00

Basement Conversion to ADU with existing foundation

500

$    300.00

$        150,000.00

$                2,000.00

$         288,000.00

$      138,000.00

Basement Conversion to ADU without existing foundation

500

$    400.00

$        200,000.00

$                2,000.00

$         288,000.00

$         88,000.00

Detached ADU with traditional prefab modular

500

$    250.00

$        125,000.00

$                2,200.00

$         316,800.00

$      191,800.00

Detached ADU with modern prefab modular

500

$    350.00

$        175,000.00

$                2,300.00

$         331,200.00

$      156,200.00

Detached ADU with on site build easy access

500

$    300.00

$        150,000.00

$                2,200.00

$         316,800.00

$      166,800.00

Detached ADU with on site build difficult access

500

$    400.00

$        200,000.00

$                2,200.00

$         316,800.00

$      116,800.00

Dan H. · Answer

You leave out a lot of details such as is the existing structure a garage?

Maxable ADU specialists (no affiliation) posts some costs, but these are minimum costs.  Higher end interiors, outdoor space, basically any upgrade raises the costs.

Garage conversion to 400’ studio >=$90k

1 br detached 550’ >=$150k

I would think converting existing living space would be cheaper than a garage conversion, but a 1 br would be more than a studio.   Also 500’ is larger than the 400’ garage conversion example.   It at least provides some costs from Maxable ADU experts to use as a basis for your estimates.

Maxable has a good and useful website, but their cash flow projections are pure BS.  like too many sites that are trying to sell RE products as an investment, they leave off many expenses.   They leave off vacancy, maintenance, cap expenses, utilities, miscellaneous costs.  Basically they treat PITI as the only expense (I am assuming their mortgage costs include tax and insurance - I have not checked). In addition, I have been told they used a 3.5% rate which could be aggressive especially if 1) not owner occupied 2) loan if combined with primary is a jumbo 3) construction loan used.   Some of the properties they reference as positive cash flow are likely, at best, cash flow neutral.  Understand the 50% rule.  Know what your cost of money will be.  Do not use Maxable’s cash flow examples.

•

John D. · Answer

A SFR + ADU should not / is not valued based on rent and CAP rate, but based on comps......unless the valuation is an internal-only metric.

Laura Blair · Answer

Hi Dan:

The valuations are based on net income (not gross) and cap rates for the area--which is how we have seen appraisals calculate value. It is key to make sure you can keep those construction prices down which is why we provided that perspective of different types of ADUS versus the value.  Hopefully it is helpful

Amit M. · Answer

@Dan Heuschele you bring up a question that I had a couple years ago when ADU’s became an option: how the heck are they being appraised?! So based on info here, SD is taking a worse case scenario, and in the Bay Area it’s all over the map. I think it will take years to sort out, and at a minimum:1- getting out of this recession and 2- a lot more SFH+ADU resales to establish a clear track record.

You have to keep in mind that  still, most people just want a decent SFH. The BP crowd eager to add an ADU for income, etc. is still not the mainstream buyer! So I always tell people to compare adding the ADU vs enlarging the existing home (for ADU’s inside building envelope.) For higher end areas you’re probably going to add more value with the home expansion, as you’ll get your $psf per value of the home. So unless you really want the ADU income, and you plan to keep it for awhile, I’d be cautious in most suburb settings where traditional SFH prevail. Here in the city (San Francisco) it’s different as SFH’s and 2-4’s are often on the same block. I also know that appraisers are valuing ADU’s built in 2-4’s as new, legit units, so the upside value is clearly there  I’m on my third project as we speak :)

Dan H. · Answer

The valuation and net equity numbers should at a minimum have an asterisk as the numbers you present could lead someone with insufficient knowledge to believe they have a good chance of being able to add an ADU as a value add, then refinance it at 75% LTV with conventional loan and with you valuation be able to extract all or their ADU costs and maybe all of their primary property acquisition.

The East Bay Area value seems to be unknown which in some ways is worse than the San Diego ADU valuation which under values the ADU, but seems to be fairly consistent.

The East Bay valuation seems to be unknown which would also make the equity gain by adding an ADU is unknown.

Dan H. · Answer

@John D. is correct.  Cap rates should not be used for an SFR with ADU (or even small multiplex with ADU).  You cannot get conventional financing using this method.  While you are not incorrect stating it is an established RE principle, you are incorrect applying it to this property class.  Therefore, it is not established RE principle when applied to this situation.  The SFR with ADU will not get this valuation for either a refi nor when selling because most purchasers will desire a conventional residential loan.  These loans will use comps with adjustments.  They will not use cap rates to set the value.  Therefore, the valuation you are implying Is not factual.  It is misapplying a commercial valuation onto a non-commercial property.  In addition the cap rate used to determine this valuation is from a different asset class.  It would be little different than using mobil home Park cap rate and applying it to an apartment building.  You are taking an apartment building cap rate (I am assuming you used apartment cap rate) and applying it to non-commercial residential home to get a value.

As indicated, your valuation deserves at a minimum an asterisk that indicates something similar to valuation based on cap rates which likely is not the method an appraisal is likely to use.  Better yet, remove the valuation information.  At least that would not be misleading.

Laura Blair · Answer

Hi Dan:

Thanks for the feedback.

The valuation we presented was determined by established real estate principals--using rent and cap rate and were used constantly with all the product types presented to allow someone to develop some baseline understanding about the types of construction. As you point out, there is a necessary next step for someone interested in ADUS to then consult with a banker if they are using a loan to build.  Anyone interested in learning more is free to contact me and I can explain further how to proceed and use the chart. I  hope that as this product is more common we will see more standardization in appraisals.

Laura Blair · Answer

The problem with appraisals up here is that it is not consistent and there isn't a policy across the board.  We try to have education and discussion with them and the banks

Sasha Josephs · Answer

@Laura Blair How common is it for a municipality to allow for a shipping container home or tiny home? Are there aesthetics they are usually concerned about/does it need to match the home?  @200K I don't think an ADU is worth it, but at $50k...I think it is.

Cost of an ADU in East Bay right now?

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