Detached vs. Attached ADUs – How Much Does It Costs to Build One?

Perhaps the first thing to come up in your mind when it comes to having a new project is, how much will it cost? This should be the first thing to come to mind when considering whether or not to convert your garage to an accessory dwelling unit, or ADU. Whether you have an attached or detached garage, you can turn that structure into a liveable space that you can rent out or help out a relative who needs a place to live.

What is the difference between detached and attached ADUs in Los Angeles?

There is one basic difference between detached and attached ADUs -- one is attached to your house and the other is not. Los Angeles is home to thousands of homes built before 1940. Most of these have detached garages, meaning the garage is not attached to the home itself. These can be converted into detached ADUs.

Meanwhile, there are just as many homes built in the Los Angeles area that have a garage attached to the main house. These can be converted to be attached ADUs.

Let’s say you don’t have any garage at all, can you still build an ADU? Absolutely! Under new state regulations, you are allowed to construct up to two ADUs on your property. Such tiny homes would also be considered detached ADUs and would require all new construction. In fact, it is illegal to deny you the opportunity to build an ADU on your property.

How much does it cost to install an ADU on my property in Los Angeles?

Whether you are looking at an attached or detached ADU, you can expect to spend anywhere from $90,000 to $120,000 on the structure. This price reflects converting older construction or building from the ground up. What’s included in this price? This price includes all the basics -- from the architectural design, the permitting process, and construction. Of course, the more luxe you make your ADU, the more it is going to cost. 

How do I finance an ADU in Los Angeles?

The price of an ADU may take your breath away at first. However, once you catch your breath, you will find out there are actually a variety of ways to finance the cost of your ADU. 

Home Equity Line of Credit

As a homeowner, you are probably already paying off your mortgage or you own your property. Either way, you can borrow against the value of your home.

One of the most common ways to borrow against the value of your home is through a home equity line of credit, also known as a HELOC. This is a line of credit secured by your home that gives you a revolving credit line to pay for large expenses. 

To qualify for an HELOC, you need to have equity in your home. That means, the amount you owe on your home must be less than the amount your home is worth. You can usually borrow up to 85% of the value of your home, minus the amount that you owe. As you repay your HELOC, the amount of available credit is replenished, meaning you can borrow that money again, as needed. You can typically draw money from your HELOC for about 10 years.

Cash-Out Refinancing

Another way to pay for your ADU is through what’s called a cash-out refinancing of your mortgage. With a cash-out refinancing of your mortgage, you will get a lump sum payment. How? 

Basically, you replace your current home mortgage with a new one. This new home mortgage would be higher than your current home mortgage. Then, you can take out the extra money and use it towards your ADU. 

This is a great option when interest rates are low, especially if interest rates are lower than they were when you purchased your home. Also, the money you collect from a cash-out refinance isn’t considered income, so you don’t have to pay taxes on it. Instead of being considered income, the cash out is considered to be a loan. 

Construction Loan

Yet another option is a construction loan. One of the many benefits of building an ADU is that it increases the value of your property. That makes it appealing to banks, who may give you a construction loan. With a construction loan, you would refinance with a mortgage that reflects the house's estimated value after you construct your ADU. Many lenders provide mortgages that cover up to 80% or 85% of the remodeled home's value.

With a construction loan, your bank will first assess the value of your property. Then, an appraiser will calculate how much they believe your home will be worth after an ADU is built. The bank will also take into consideration how much it will cost to convert your garage. Once all those factors are determined, the bank will provide a certain percentage of that difference for you to finance the cost of construction. 

With a construction loan, the bank plays a larger role. The bank approves the general contractor selected by the homeowner. Then, the bank releases money at various stages in the construction process, which may involve an inspector verifying the progress. While these inspections may involve fees, this approach protects both the bank and the homeowner, who may not be familiar with how to oversee a major home construction project. 

How much rent can I charge for my ADU in Los Angeles?

When you rent out your ADU/garage conversion/granny flat, there are some things to consider. First of all, consider all the factors of renting into account. This includes screening tenants, placing ads and deciding how to cost-share utilities.

The average rent for an ADU is $1700 a month in Los Angeles . After monthly expenses including utility fees and upkeep costs, you can expect to make about $860 of income per month from your ADU! 

Looking to convert your garage? Give us a call. We provide assistance throughout the entire process -- from acquiring financing to the architectural designs and construction.  Call at the number above.