Garage vs. ADU Conversion

San Diego, California
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Garage vs. ADU Conversion

Gabriel Mauser
Member since 2021 · 7 posts · 1 vote

Hi BP San Diego. Thank you to everyone in the forums as I have learned a lot from reading all of your experiences and contributions! I am working on my first investment property in Bay Park and I was hoping to get the opinion of other San Diego investors. The property has a long driveway and a two-car garage behind the main house; which will be a 4bed/3bath home after the remodel. 

I was wondering what option would be more valuable for the res-sale of the home.

Option 1: Take advantage of the long driveway and convert the two-car garage into a studio or 1bed 1 bath space.

or

Option 2: Keep the two car garage.

I also considered finalizing the permits for the ADU space (since I will already by waiting on permits for the main home) and leaving it as a blank "ADU ready" with adequate structural, plumbing and electrical for the future buyer to complete if they wish.

Thank you everyone for your opinions and I look forward to being a part of the BP community!

Gabe  

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y

SFH with ADU will not be valued via an income approach if the buyer is using conventional financing.

My view is that Bay Ho likely does not have enough ADU comps and an ADU addition will not add as much as a hands off ADU garage conversion addition. This was true before the material inflation, but more so now that the material inflation has cause the garage ADU conversion to increase in costs significantly.

Before proceeding with the garage ADU conversion make sure you can find multiple comps that show that it is a value add proposition. It is my belief that you will not be able to find these comps and the garage conversion will be valued significantly less than the costs of the garage ADU conversion.

Good luck

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y



    Is an  over the garage apartment is an option?

     It all depends on the conversion costs and the usual setup in the area. Also access is an issue.   Basically you have to run the numbers but I hope a California person  will give you more insight. 

    0Reply
  • Gabriel Mauser
    OP
    Member since 2021 · 7 posts · 1 vote
    5y

    @Colleen F.

    Thank you Colleen, you are absolutely correct, a second story would solve my issue I could potentially see some conflict with the neighbors to the back of the property but it is definitely something I will explore!

    0Reply
  • Christina Labowicz
    Real Estate Consultant · San Diego, CA · Member since 2016 · 75 posts · 42 votes
    5y

    Hi Gabriel, 

    In a general sense, the rentability of the units will be easier with a garage, but a garage will only generate about $5K-$10K in additional value each, whereas if you convert the 2 garages into a 1BR ADU, with market rent in Bay Ho, call it $1700 monthly and $20,400 annually, would increase the value by the multiplier of that income (call it 17GRM for Bay Ho), would increase the value from an income standpoint by $346,800.

    If you get permits and do all the legwork to convert the garage but do not have the unit "rent ready" then you are leaving money on the table for someone else to cash in. 

    Feel free to reach out to discuss further. 
    It would be advantageous to run the numbers and see if it's better to leave that unit vacant or if your return would be greater by establishing a strong rent prior to the sale, as well as what the best strategy is for the new capital, which I'd be happy to go through with you. 

    Best,

    Christina Labowicz, Apartment Advisor

    ACI Apartments

    1Reply
  • Gabriel Mauser
    OP
    Member since 2021 · 7 posts · 1 vote
    5y

    Thank you for the insight Christina. I probably should have specified that the project is a rehab/flip. I totally agree with your assessment if it were a property for cash flow. What are your thoughts on the choice if it is a SFH flip?

    0Reply
  • Lisa King
    San Diego, CA · Member since 2021 · 13 posts · 3 votes
    5y

    Gabe-

    Is there room on the front of the property to add at least covered parking if not add a garage? People like their garages. But I agree the ADU is a better choice for cash flow but maybe not worth the investment to flip. @Christina Labowicz has some good experience and perspective to run the numbers and see what suits your situation best.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y

    SFH with ADU will not be valued via an income approach if the buyer is using conventional financing.

    My view is that Bay Ho likely does not have enough ADU comps and an ADU addition will not add as much as a hands off ADU garage conversion addition. This was true before the material inflation, but more so now that the material inflation has cause the garage ADU conversion to increase in costs significantly.

    Before proceeding with the garage ADU conversion make sure you can find multiple comps that show that it is a value add proposition. It is my belief that you will not be able to find these comps and the garage conversion will be valued significantly less than the costs of the garage ADU conversion.

    Good luck

    3Reply
  • Gabriel Mauser
    OP
    Member since 2021 · 7 posts · 1 vote
    5y

    This is all great information! Thank you both so much. I will definitely look for more comps specifically targeting these criteria and will run my numbers again!

    0Reply
  • Maxwell Ventura
    Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
    5y

    @Gabriel Mauser

    This isn't really a comp but interesting to check out. There's a house that just sold in Bay Park for 1.9M that has an 2/1 ADU. Gorgeous property w/ deck and immaculate views of the bay - Address is 2070 Illion St. I know the agent.

    Other than that, there are a handful of recently sold's in Bay Park over the last 90 days all that are marketed as "ADU ready" or "ADU potential" but no solid comps I'm seeing at the moment.

    I'm sure you realize this but there can be a wide range of pricing throughout Bay Park w/ the potential for custom homes and gorgeous views. Within the last 90 days I'm seeing recently solds from 2.5M down to $950K 

    Best of luck!

    1Reply
  • Jonard Lopez
    Member since 2021 · 28 posts · 10 votes
    5y

    @Colleen F. I had 3 companies come to assess my project but they said that they would have yo strengthen the foundation. By doing that, they would have to tear down my whole garage. That would be more expensive.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y

    @Jonard Lopez sounds like your best bet is to leave the garage as is. Material costs are also way up.

    0Reply
  • Jonard Lopez
    Member since 2021 · 28 posts · 10 votes
    5y

    @Gabriel Mauser what company are you going with? Are you financing? I am also doing a garage conversion.

    0Reply
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