How Much Does it Cost to Build an ADU in Los Angeles?

One of the hottest home improvement projects in Los Angeles right now is ADU. Accessory Dwelling Units, (also known as ADUs, granny flats, or garage conversions) are spreading like wildfire all over the city, and for good reason! They are a relatively cost effective way to add a housing unit to your property. Whether you use that extra housing unit for a relative in need, as an income property, or as your new pared-down residence, having an ADU on your property will increase the value of your home. 

Recent changes in state and local regulations have made it easier than ever to install an ADU on your property. In fact, the city of Los Angeles cannot deny your request for a permit to build an ADU. You can even have two ADUs on your property -- one full ADU and one Junior ADU (500 square feet or less).

With all these reasons for building an ADU on your property, what are you waiting for?

How much does an Accessory Dwelling Unit cost in Los Angeles?

The typical ADU is going to cost between $80,000 to $120,000 to construct. This includes the design, construction and permitting process.

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. New construction tends to cost more, but it will be standing 100 years from now.

• Are you going to install a prefab ADU? If you are looking to save time and money, you may want to install a prefabricated ADU. It costs about $70,000 to install a prefab ADU, and it is assembled on your property in a fraction of the time. The state also inspects the prefab unit before it is shipped out, saving you time.

• 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. 

How can I pay for my garage conversion in Los Angeles?

The price of an ADU may be surprising at first. In fact, when ADUs were first legally allowed in California, the cost alone was prohibitive to all but wealthy homeowners. Fast forward a few years and ADUs are financially feasible for most homeowners. 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. 

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. With interest rates at historic lows, this is a great option right now. 

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. 

Ready to convert your garage into a studio apartment? Call the professionals at Granny Flats Designs at 818-532-0482. We can help you, not only with your architectural designs, but also with financing your new garage conversion.