First investment - ADU conversion

[Donovan Hanna]

What's up BP! 

I'm 24 and looking to get into my first house hack in the Santa Clarita/Palmdale CA area. I have 75k saved and wanted to get into a SFH and convert the garage into an ADU. Since I'd be living alone I would reside in the ADU and rent out the main home.

My main question comes with how much I should be expecting to pay for an ADU conversion? What are some things to look out for? California is known for having poor landlord laws so how much/hard is it to get permitted? Should I wait until I have more cash saved and if so how much?

Something to note is my father can do a lot of the work himself so flooring/ finish carpentry/ any drywall etc... Would certainly need to sub out any plumbing/electrical line items. 

Any feedback would be great! 

Thanks, 

Donovan

[Rick Albert]

The current cost to convert a standard garage is roughly $130K depending on location, finishes, etc. DO NOT TEAR DOWN THE GARAGE AND BUILD BRAND NEW. You will then be subject to new building codes, which just adds on to the cost and I'm not convinced you would get that much more in rent.

I used the FHA 203(k) loan to convert the garage into an ADU on my property. I did have to come up with some of the money for the difference but this was 2018 when ADUs were new and still learning the actual costs. We have much more knowledge now. The only challenge is making sure it appraises. Good news is with that loan program, they will lend up to 110% of the appraised value. All while you put 3.5% down of the purchase price and construction costs.

Most ADUs I see are poorly designed. They don't think like investors. Here are key items to look for:

1. Privacy: Make sure window and door placement give privacy to the main house.

2. Outdoor experience: Even the smallest of yards can make an impact for tenant enjoyment.

3. Washer/dryer hookups: You are already setting up plumbing anyways.

Honestly, if you can find one with an ADU already built, that is actually ideal. Although it is getting better, we still aren't quite there on getting dollar for dollar value back. Plus you save roughly 6-9 months of our life dealing with construction when you could have had it rented. Especially with $75K, you could buy a property with one built with only 3.5% down and get started on house hacking immediately. It is likely a better return on your money.