Adding an ADU in the back of a home in California can add hundreds of thousands of dollars to the overall property value. Additionally, an accessory dwelling unit as a potential rental, could rack up some passive income that would offset some of the costs of building and maintaining the unit.
Though every city in California has different rules, regulations, and fees associated with building and maintaining an ADU on your property, there are average cost estimates you can consider during the planning, and our knowledgeable team at Apex ADU Builders is here to break them down for you. Keep reading to find out the various cost categories and average estimates for the state of California, as well as ways to offset costs, returns on your investment, and potential income.
What are the Costs of Building an ADU in California?
Every city in California has different rules and regulations when it comes to building an ADU on your property. It’s important to research those terms to get an accurate idea of what you’ll need to include in your ADU, which will affect costs. For example, city ordinances may require an ADU to have a ¾ bath, permanent provisions for cooking, eating, sleeping, fire sprinklers, etc.
Here are the costs needed to be considered when building an accessory dwelling unit:
- Drafting and Design
- Construction and Materials
- Fees and Permits
- Interior Furnishing
- Utilities and Other Ongoing Costs
Let’s take a deeper look into each of these factors and their approximate costs.
Drafting and Design
The first item to check off the to-do list is to check with your city planning department to ensure you are eligible to build an ADU on your property, as well as the rules and regulations for the ADU, like size limit, property setbacks, etc. Once you have that information, you can contact a developer to conduct an initial consultation and quote.
If the initial quote is within the budget range for your ADU, you can move forward into the drafting and design phase. A good developer will collaborate with you on the design of your ADU not only to meet your needs but take into consideration building code requirements. There will be some drafts you can obtain from your developer for the permit process, like engineering analysis & stamp, Title 24 energy analysis & certification, and solar design & plans.
The cost for this phase can run between 8-15% of your total costs and depends on the size of the unit. Let’s say your developer gives you an average cost per square foot of $400, and your unit is 750 square feet; your overall cost will be $300,000. You will pay anywhere between $24,000 and $45,000 for the developer fee.
Construction and Materials
This phase will take up the largest portion of your budget. Any developers you’re working with on this project should provide you with an overall bid, which will include the cost of materials and labor. Pricing should be transparent, which means no hidden fees or costs.
Pricing out the costs of construction, including labor and materials, is typically determined by square footage. So, just like in the drafting and design phase, the size of your desired unit will be the defining factor of your overall cost. On average, building an accessory dwelling unit can range from $300 to $500 per square foot.
Be aware that you will need to prepare the site when you build an ADU on your property. This process could include grading the land to set a brand-new foundation and make way for the utility work. If this is the case, you’ll be given an estimate for this work, but these costs could increase if there is anything below the surface that requires extra attention.
Fees and Permits
Every city in California is different in its requirements, and therefore, costs to properly permit your ADU may vary. Depending on where you are located, you may only need a building permit, and other locations may need both a zoning and building permit.
When it comes to zoning codes, officials take into consideration how your land project will fit in with the overall community in your area. Building codes specifically have to do with ensuring your structure is constructed according to the required standards. Zoning permits can cost anywhere between $25 to $4,000, while building permits cost anywhere from $450 to $15,000.
One fee that you might not commonly hear spoken about is the development and impact fee. This fee only affects you if you build an ADU larger than 750 square feet. If so, your local jurisdiction will calculate the development and impact fee based on the square footage and the cost of fees of your primary dwelling if it were built today. Be aware that building an ADU larger than 750 square feet can add a possible additional $10,000.
Interior Furnishings
With any other dwelling, there will be costs to properly furnish the space. Taking into consideration furniture and appliances for the sleeping quarters, bathroom, and kitchen, at minimum. There will also be finishings like countertops, faucets, flooring, light fixtures, and so on.
The budget for these items will be dependent on the design of the space and personal preferences. Pricing out some of these items can help you set a budget with some wiggle room. Some of these costs could potentially be included in the construction bid for materials and labor. It’s a discussion worth having with your developer, so you can budget accordingly.
Utilities and Other Ongoing Costs
Since most ADUs are independent of the primary dwelling, they require their own installation of utilities like plumbing, electricity, and HVAC systems. It’s possible that your current electrical supply system may not be enough for an ADU, which would require upgrading your system to accommodate the unit. You also may want to rent out the ADU, so having the utilities on separate meters will help keep track of who pays what when the utility bill arrives. Adding an electric meter can run between $2,000- $5,000.
You may be able to offset your electricity costs by installing solar. In fact, new builds require solar panels, except when the site does not get adequate sun for solar to be effective. The design and installation of solar panels can add an average of $12k-18k to your overall cost.
Remember, utilities are not a one-time cost. The installation will be a one-time fee, but the cost of using water, sewage, and electricity will be an added monthly expense. Solar will help you save on monthly costs, and currently, there is a 26% federal tax credit for the initial solar installation. However, this tax credit is not guaranteed beyond 2022.
Another ongoing cost to consider is property tax. Property tax is paid yearly and, in the case of ADUs, will be 1-1.5% of the total build cost. So, if your ADU costs $400,000 to build, your yearly additional property tax for the unit will be $4,000.
Return on Investment and Potential Income
Though the cost to install an ADU in California can average around $250,000, they can be as high as $800,000. Taking on the costs may have you questioning the investment. However, ADUs can still be a solid investment in two ways. They can add to the overall value of your home property, and they can provide passive income.
Return on Investment
To get the exact value of your home property with an ADU, you will need an appraisal. The appraisal will determine if the ADU is an additional living space or a rental property. On average, an ADU can add an additional $470 per square foot in property value. Some homeowners in Los Angeles saw an additional value of $600,000 to the property for a $300,000 investment. That’s a definite return when you decide to sell the property.
Potential Income
For a more immediate return, there is the option of renting out the ADU. Rent costs are dependent on supply and demand. Your geographical location will play an integral factor in what you can charge for an individual to rent out your unit. However, on average, an ADU can be rented from anywhere between $1,500 to $4,000, not including the cost of utilities. One month of rent could pay for your annual property tax. An ADU could provide a passive income of between $18,000 and $48,000 a year.
Final Thoughts
Though the total cost of building an accessory dwelling unit (ADU) can accumulate with the various categories of costs, there are various ways in which this scale of investment can pay off. Not only will you see a return on your hundreds of thousands worth of investment when you sell your property, but you’ll be able to make income in the interim using your ADU as a rental. For more information on the costs associated with having an ADU in Los Angeles, contact us today!