So, while you’re about to build an ADU, the first question you have in mind is about the cost to build an ADU. You start wondering, how much does it cost to build a 400 sq ft ADU or may be 600 or 800 sq ft.
Well, this is on top of mind for lots of homeowners as they explore the financing potential and whether or not an ADU makes sense for their family. Now, ADUs are not cheap, but when you compare them to the cost of buying a new property (e.g., a condo), there are vastly more financially superior options.
In fact, for the cost of a lot of ADUs, you probably can’t even buy vacant land in the city that you live in. So they really are a fantastic option for people, despite the price point.
So, in our today’s read, we’ll talk about how to think about cost, how to figure out how an ADU is going to cost for you, so you can decide if this is a smart financial decision.
So let’s dive into it.
How much does it cost to build an ADU? The cost per square foot
Construction costs are one of those things that really depend on where you live. For example, San Francisco and Sacramento are only 80 miles apart, but things like permit fees and local labor costs can vary drastically between the two cities. And even though pre-fab and modular ADUs have come a long way, it’s still cheaper to build a traditional stick-built unit with a local contractor.
The estimated costs that we’re going to mention are all-in, meaning that they include architectural design, permits and fees, site work, construction, and all the finishes including appliances.
Let’s start off with Los Angeles. Surprisingly, LA has the lowest cost to build out of any city on my list. At the low end of the range, it costs $300 per square foot. So for a 750 square foot backyard unit, it would cost about $225k total. The cost at the high end is $375 per square foot. So in that case, a 750 square foot ADU would cost $281k. Ultimately where your cost falls within this range will depend on the complexity of your design and the level of finishes that you choose.
The next city on the list is Sacramento. The cost here is $350 per square foot on the low end and $400 a square foot on the high end. And using that same 750 square foot example, the total cost to build an ADU in Sacramento ranges from $263k to $300k. For homeowners in Sacramento, I’d make sure that the return on investment actually makes sense in your neighborhood because those prices are pretty high relative to the average home value.
Moving on to San Diego, where the all-in cost for construction has a wider range compared to the last 2 cities. On the low end, you’re looking at $350 a square foot and on the high end, $450 a square foot. For a 750 square foot ADU, this translates to a range of $263k to $338k. That sounds relatively reasonable to me considering the average home value in San Diego is almost $900,000.
Now we’ll move on to the Bay Area, which has some of the highest building costs in the entire country. You will get more bang for your buck in the east bay compared to San Francisco, but building in Oakland will still cost you $375 a square foot on the low side and $450 a square foot on the high side. This works out to a range of $281k to $338k to build a 750 square foot unit.
Building an ADU in Dublin, CA could range anywhere from $200 to $400 per square foot depending on factors like materials costs, labor expenses and the complexity of your project.
However, please be mindful that construction costs can change significantly over time, depending on economic conditions and other variables. Therefore, for an accurate cost estimate for building an ADU in Dublin, California it would be beneficial to reach out directly to local contractors or construction companies in that region and get estimates tailored specifically to your requirements and current market conditions.
Highest & Lowest numbers
It’s probably not hard to guess that San Francisco has the highest building costs out of any city in California. At the lowest, you can expect to pay $450 per square foot, and don’t be surprised if the high end comes in north of $550 a square foot.
This means the range to build a 750 square foot place in SF is $338,000 to $413,000. And if you build anything smaller, say 500 square feet, those building costs go up to $550 per square foot on the low end and $650 a square foot on the high end because the high fixed fees associated with building an additional dwelling in the city can’t be spread out over a larger area.
But the cost estimation for an ADU is not that simple
Like a typical house, if you know that an ADU would cost you around $300 per square foot; you might say that my 1200 sq ft ADU would cost 1200 x 300; but that’s not the case.
Know the fixed costs
Within an ADU project, there are a lot of fixed costs associated with this. So you have to pay your design fees regardless of whether you build a 1200 sqft or a 300 sqft, and those fees aren’t going to vary too dramatically. It’s still going to be multiple thousands of dollars.
You also have to put in a kitchen and a bathroom no matter if it’s a small unit or a big unit, and that’s expensive square footage to have to add.
So, what’s the solution?
So generally, the way to think about it is the first 400 sqft is always going to be the most expensive square footage, and generally, the larger you go from there, you start being able to tap into some economies of scale.
So if you are building a big 1200 sqft unit, generally your cost per square foot numbers are going to be a lot lower than if you were building a 400 sqft unit.
How to arrive at an estimate for cost of an ADU?
Now, I want you to think about this, figure out a general range of what you think your project is going to cost. So let’s say that you are going to put in some of your own money, maybe to cover the soft costs and the hard costs for your project, which is your “construction cost.” It’s going to be $110,000. So your average loan payment on that $110,000 is going to be around $550, again depending on where interest rates are. You can use a mortgage calculator to figure this out for yourself, but let’s say it is going to be around $550.
So if you are spending $550 a month to pay for the loan for the ADU, what do you think you can rent that garage out for once it’s finished? I’m going to bet that almost any neighborhood, you are going to be able to rent your garage for far more than $550 a month.
In fact, we have a number of homeowners that have converted their garages into beautiful 1-bedroom or studios and are renting them for upwards of $3,000. That’s kind of an insane number, but it’s true.
So as you explore whether or not you can afford to build an ADU, also think about the cash flow that you can potentially generate from the unit, as well as the value that it’s going to add to your property.
So there’s the cash flow that you are going to get to realize right away, but then there’s also the increase in property value, and that’s really an important consideration.
Hidden costs of an ADU
So let’s talk briefly about the hidden costs of ADUs. These are things that homeowners don’t think about when they’re going into this.
The first one that is not obvious to people is utility connections. It’s kind of a boring topic, but it’s really, really important. The reason why this is important is because utility connections actually represent a material cost in your construction project.
So you have to think about how you are going to connect your utilities, your gas, your electric, your sewer lines, your water lines into the existing electric, sewer, gas, water, etc. If you are building your ADU far back on the property, even if it’s a garage conversion or whatnot, you have to trench to connect to those utility lines, and often you are digging a 3 or 4-foot trench through what sometimes is an existing concrete path, so that can add a lot to cost.
Solar or energy costs
Another cost that homeowners don’t think about is solar. If you’re building an ADU from the ground up, so new construction that’s a stand-alone unit, you have to add solar. You’re not required to add solar if it’s a garage conversion or an attached ADU.
Time to build cost
The final thing I want you to think about in terms of unexpected expenses is time. A lot of people will try to hire professionals that aren’t experienced in ADUs to save a couple of thousand dollars, and they end up getting stuck in a process that takes many, many more months than it should.
So if you are thinking about, for example, going back to that garage conversion, if you’re thinking about converting that garage and you’re going to rent it for $3,000 a month or $2,000 dollars a month, or whatever the averages are in your neighborhood, and you hire a designer that gets stuck in permits and you’re going through many, many rounds of revisions, and that permits process drags out an additional 4 months longer than it should, that’s potentially $8,000 or $12,000 that you could’ve started renting out that unit earlier.
So that’s another reason to think about. It’s not just about finding the lowest-cost bid; it’s about finding the teams that are going to do a good job and be really time-efficient.