Convert sunroom or garage to living space?

Question

Last year I bought my first house hack, a 4/2 SFH in Escondido, CA. My plan was to either convert part of my sunroom to a living space, or convert the attached garage to an ADU. I've seen plenty of posts about how ADUs are a poor investment, given the lengthy permitting/construction process, and how they usually receive low appraisals when completed. However I also have a massive 650sq ft sunroom. My thought process is that I can convert part of this sunroom (where the dining table is, about 150 sq ft or so) into a bedroom, and potentially add a bathroom as well. Currently it is only used as a dining room, and my girlfriend will be using the right side of it, about 230 sq ft, for her small business. I'm currently renting two bedrooms for 1000 & 1050, so I would expect to get around 950-1050 for the added bedroom. The garage is 460 sq ft, and I would expect to get 1400-1500 if it was converted to an ADU.

Would you consider converting the sunroom to be a better option? From what I understand I would still have to add a vapor barrier and insulation to the sunroom, but I haven't yet talked to any contractors about all the work that would be required. I've also read about how adding a bedroom can potentially ruin the 'flow' of a house, so I would like to be mindful of that. Any advice would be appreciated!

Thanks in advance!

Bruce Woodruff · Answer

Go ask the City Building Dept if you are allowed to convert this to living space.

Dan H. · Answer

The issues with the cost of adding the ADU being less than the value added by the ADU is only one of the reasons adding an ADU in CA is often one of the worse RE investments.  Note I do not do a value add unless it adds double the cost of the value add.  This is because value adds take work and I expect to be well compensated for my work. Doing the amount of work of adding an ADU (including when hiring out all the work possible, still leaves hiring, design decisions, finishing decisions - similar work to hiring out all work for a rehab as part of BRRRR) and having it add less value than it costs, I do not get why anyone would do this as an RE investment (I do get it as in-law suite for family where the return is not the primary motivation).

Here are various reasons adding an ADU is worse than many other REI options (note in recent times syndicators would have provided far better return with significantly less effort but I am currently being cautious even with joining new syndications):

1) The value added by the ADU addition is often significantly less than the cost of adding the ADU.  Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position.  This negative position can consume years of cash flow to recover.  Make sure you know the value the ADU will add to the property before building the ADU.  2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged (HELOC, cash out refi, etc).  Leverage magnifies return.  3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR.  However if I do a BRRRR I can achieve infinite return by extracting all of my investment.  Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).4) Adding an ADU is a slow process.  It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU.  This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.  5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space. 6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties.  This may affect value or time required to sell.7) Adding an ADU does not make the property a duplex.  For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units.  Duplex can always add additional units via the ADU laws.  8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU.  Why add an ADU if it can be purchased cheaper?

good luck in whatever you choose to do.

Koree Scott · Answer

thanks @Dan Heuschele and @Kenny Simpson for your input. great points from both sides.

Bruce Woodruff · Answer

Great post @Dan Heuschele !

Kenny Simpson · Answer

If you an ADD more units it is always a win long term.  More doors is better.  ADU companies can be much more expensive if they do the work sometimes.  Get the plans/permits done and then maybe sub out yourself and save $$ as owner builder.  Long term in San Diego it is hard to lose on long term rentals.

Koree Scott · Answer

@Steve Meyers i'll check them out. Thanks!

Steve Meyers · Answer

@Koree Scott check out https://gomultitaskr.com/ for your ADU they're great, provide you with 3D walk throughs of it before hand.  They have a lot of different finacing options available too.

Koree Scott · Answer

@Nicholas Coulter sounds great! i'll reach out soon!

Nicholas Coulter · Answer

@Koree Scott If you can add BD and BA count with additional SQFT you will add value. Happy to chat more about it! I am local and currently HH in north park

Koree Scott · Answer

@Leo Ray I'm in San Diego county, so everything's quite expensive. I recently spoke with a realtor that specializes in ADUs and she agreed with the estimates for a conversion. However I'll definitely get more estimates.

I hadn't considered that. The master doesn't have its own bathroom, so that would be a potential option but I'll have to see how much that would allow me to increase the rent. Thanks for the suggestion. Though if I go that route of adding the master bath, there is the potential of giving the master it's own private entrance, private outdoor space, and turning it into a med term rental.

Convert sunroom or garage to living space?

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