Garage Conversion Costs In Los Angeles

Instead of parking your car in your garage, make some money off of your garage! Converting your garage into a studio or one-bedroom has never been easier. Recent regulations in California and the city of Los Angeles actually encourages homeowners to turn their garages into accessory dwelling units (ADUs) to help with the housing crunch. In fact, you could make about $800 profit each month by renting out that extra space. So, how do you do it? 

How much does it cost to convert my garage to an ADU in Los Angeles?

As with any major construction project at your home the cost of your garage conversion is going to depend on many factors.

• Will you be able to convert your current garage, or will you have to demolish it and start with new construction? This all depends upon the state of your current garage.

• How is your foundation? If your foundation is stable, you can use that. However, if your foundation has seen better days, you may have to tear it out and repour it.

• Will you separate your utilities? You absolutely can separate the utilities (water, gas, electric) from your main home and the studio apartment. Doing so will probably add $10,000 for separating the water, $15,000 to separate the electricity and $5,000 to separate the gas. Because the cost of separating utilities is so prohibitively high for most homeowners, they usually opt to just include the price of utilities in the rent that is charged. 

• What extra features will you include in your design? While renters will love extra add-ins like a built in breakfast nook, built in shelving and drawers, and a Murphy bed, these features will all add extra costs in the construction. 

That said, a garage conversion is going to cost about $90,000 to $120,000.

How do I finance an ADU in Los Angeles?

The price of an ADU may be surprising at first. But no need to worry. There are ways to pay for your new ADU without breaking the bank.

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. 

What are some benefits of garage conversion?

1. Pay-off your mortgage faster

2. Having help with paying your mortgage

3. Extra money to travel while the mortgage pays for itself

4. Live life less stressed

5. Use the profit from your renters to invest in other houses

6. Buy the lake house you always wanted

The benefits of garage conversion are endless and entirely up to you and only you know what you can do with the extra cash.

You’ve decided to do a garage conversion, now what?

Getting your funding in place is, of course, crucial to any large home improvement project. The next thing you want to do is to consult with a professional architect who will work with you to design your garage conversion. You want to make sure you work with an architect who has experience designing ADUs in order to make the next step in the process work seamlessly: getting the permits. Once your designs have been approved by the city, it’s time to hire a contractor. Shop around for a seasoned contractor who will make sure your job gets done on time and on budget. The whole process will probably take about 8 months -- from architectural design to getting the keys to your new garage conversion.

There are many considerations to take into account when deciding to build an ADU on your property. In the end, the extra income it can generate and the added value to your home make an ADU a great choice.

If you want to convert your garage and need help funding your project, give us a call. Our lending professionals have the experience and know-how to get you into an ADU/garage conversion today! Call at the number above to talk to a representative today!