Accessory dwelling unit costs can reach $5,000 or more, covering building permits, house plans, and site preparation, depending on location and project scope. Accessory dwelling unit cost is an important factor to carefully consider when you want to add an ADU to your property. While accessory dwelling units (ADUs) can give you several benefits, you need to understand the various expenses involved in going from planning to actually building a secondary unit.
In this RenoFi guide, we’ll cover all the different expenses that are typical of building an ADU. We’ll break down major costs, including planning and design, permitting, site preparation, construction, and interior finishing. We’ll also look at a couple of financing options and provide tips to help you manage your budget.
A Quick Look at ADU Budget Basics
There are several things to keep in mind when figuring out the costs of building an ADU. Factors such as the size of your ADU, the construction method, the materials you choose, and how detailed or lavish you want the finishes to be will impact the overall cost.
Aside from the actual construction costs, you also need to budget for things like:
- Design and architectural fees
- Permits, fees, and other development costs
- Site preparation costs
Although there’s a lot to think about in terms of budgeting for your ADU, and the financial implications might seem overwhelming at first, the good news is there are financing options that can help cover many of these expenses.
What Determines the Actual Construction Costs
Size of ADU
Larger accessory dwelling units usually cost more to build than smaller ones. And if you’re looking at two-story structures, you can expect to part with more money than building a simple, single-story ADU.
ADU Type
Your preferred ADU type can impact the total cost of construction. Detached ADUs tend to cost more than units attached to the main house or an interior conversion (garage, basement, or attic ADUs).
That said, remember that modifying your existing structure involves several complexities. Plus, it requires getting new permits, which can impact overall costs. In other words, while detached ADUs might generally cost more than attached options, detached ADUs can cost less in some cases, especially if they are smaller.
Site Preparation
An ADU might be smaller than your main house, but it still requires clearing and preparing the lot, especially when you’re building a stick-built ADU where the unit is constructed from scratch on your property.
If your lot is already clear and flat, you’ll likely have little additional costs in terms of site preparation. On the flip side, you can expect higher costs if you need to do extensive site clearing, such as leveling your lot, clearing bushes or trees, excavation, or demolition.
Utility Connections
The condition and availability of utilities, including water, electricity, and sewer at the site can also affect the overall accessory dwelling unit cost. It’s common to extend your existing utility connections to the new unit.
One of the major factors that determines exactly how much this extension will cost is the nearness of the secondary unit to your main residence ― whether it’s a detached, attached, or interior conversion.
Additionally, you might need to do major upgrades or new connections, especially if your main house is an older home.
The Value of a RenoFi Loan
All of these costs can add substantially to the budget and if you don’t have enough equity built up in your current house, it is impossible to fund the construction of your ADU using a home equity loan.
RenoFi is the smartest way to finance your ADU project. ADUs not only increase your home’s value after renovation but can also generate rental income. However, ADUs are costly. If you don’t have enough equity in your current home, funding ADU construction with a home equity loan is impossible.
For example, let’s say your current home value is $500,000, and your outstanding mortgage balance is $400,000. You are planning on adding an ADU and expect the value of your home to increase to $640,000. Your current loan-to-value ratio (LTV) is already at 80%, which means that most home equity loans are out of reach because that’s the maximum LTV they allow. So, your borrowing power using your current equity is $0.
RenoFi, on the other hand, would allow you to go as high as 150% LTV of your current value or 90% of your after renovation value, whichever is lower. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 by using the after renovation value of your home!
Breaking Down Labor Costs for ADU Construction
The cost of hiring the workers to actually build your ADU is a major factor in your overall construction budget. The hourly rates charged by the different tradespeople needed, such as carpenters, electricians, plumbers, and others, can add up quickly.
Here are some of the key things that impact labor costs:
- The standard rate for skilled workers in your area: Labor costs tend to be higher in big cities and regions with high costs of living.
- How busy the local construction market is: When builders are in high demand, they can charge more.
- The complexity of the ADU project: More complex designs may require more specialized labor, and that usually means higher costs.
Another factor that can affect the cost of labor is whether you hire a general contractor to oversee everything or manage the subcontractors yourself. Handling the subcontractors directly may seem like a way to save on labor costs, but then you’re responsible for coordinating all the different tradespeople and making sure the work is done right.
On the other hand, hiring a general contractor adds to the upfront labor budget, but their expertise and industry connections can actually save you money in the long run by avoiding delays and mistakes. It’s often the smarter choice, even though it costs a bit more.
The Cost of Materials
The materials used to construct your ADU, from the framing lumber to the roof tiles, are another major factor in the total construction budget. The specific products and finishes you choose can have a huge impact on the bottom line.
Here are some examples of how material costs can vary:
- Framing: Wood is cheaper than steel, but steel is more durable
- Siding: Fiber cement siding is more affordable than stucco or stone
- Roofing: Asphalt shingles are less expensive than metal or tile roofs
- Windows: Basic vinyl windows are more budget-friendly than wood or aluminum
- Flooring: Laminate or vinyl plank is cheaper than hardwood or tile
- Cabinets: Stock cabinets cost less than custom or semi-custom
As a general rule, the more premium, high-end materials you select, the more you can expect to pay. But there are ways to save. For example, you can use more economical products for things that are less visible and splurge on the finishes that make the biggest visual impact.
Also, consider using durable, high-quality materials if the ADU will be occupied full-time, as they’ll hold up better. But for occasional use, you can save on interior finishes.
Cost Comparison of Stick-Built vs Prefab vs Interior Conversion ADUs
The construction method you choose for your project can have a significant impact on the overall cost. Here’s a look at the key differences between the main ADU building approaches:
Stick-Built ADUs
Constructing a brand-new, stick-built detached ADU from the ground up tends to be the most expensive upfront option. This higher cost is because the construction involves site preparation and development costs, but the approach gives you the greatest level of customization in terms of the design, layout, and features of the unit.
While the exact costs will vary based on factors such as where you live, you can expect a stick-built ADU to cost anywhere between $150 to $250 per square foot. This amount naturally goes up if you’re eyeing a two-story stick-built ADU.
Prefab/Modular Detached ADUs
Prefabricated or modular detached ADUs can be a more budget-friendly option compared to traditional stick-built construction for adding extra living space. These factory-built units are typically less expensive to produce and can be installed on-site much faster.
Although you have limited customization options if you’re looking to build a prefab ADU, it takes less time and costs a bit less to construct. Again, the cost can vary greatly based on several factors, but you can expect to pay around $80 to $160 per square foot.
Interior Conversions (Garage, Basement, Attic)
If you want to save some cash on your ADU project, converting an existing space like a garage, basement, or attic into an ADU is usually the cheapest way to go since you’re working with what you already have.
Remember that you might have to work around some size and layout limits that you wouldn’t face if you were building a whole new structure from the ground up. Interior conversions can range from around $50 to $200 per square foot.
Keep in mind that the costs above are only general estimates for the actual construction and do not include additional costs like permits, house plans, land surveys, and other pre-construction expenses.
Breaking Down Pre-Construction Expenses for ADUs
Before you start building your ADU, there are a few important expenses to consider. Three of these include:
- Building Permits: Building permits usually cost between $500 and $2,000, depending on where you live and how big your ADU will be. Remember that this might also include fees for checking your plans and the impact of the secondary unit on your area.
- House Plans: These typically run from $1,200 to $5,000 and cover the cost of drawing up the plans and getting input from an architect or engineer. A house plan is important for getting your permits and making sure your builder knows exactly what to do.
- Site Preparation: Lastly, there’s site preparation, which includes getting your land ready for the ADU. Expect to pay around $1,500 to $5,000 for excavation. This covers digging out the area where your ADU will sit. You might also need to level out your yard, which can cost another $1,000 to $5,000. In addition, site preparation may also include a land survey, which marks out where everything should go, including boundaries, foundations, and utilities. A land survey usually costs between $400 and $1,800.
ADU Financing Options
From the estimates so far, it’s clear that an ADU project can be a bit expensive. Thankfully, there are several financing options available to help you fund the project. Common financing options include:
- Home Equity Line of Credit (HELOC): This lets you borrow against the equity you’ve built up in your home. A RenoFi HELOC allows you to get more funds than traditional HELOCs.
- Cash-Out Refinance: This involves taking out a new, larger mortgage that replaces your current one. You get the difference between your old mortgage balance and the new loan amount in cash, which you can use to fund your ADU project. This option usually offers lower interest rates, but it resets your mortgage term.
- Construction Loans: These are short-term loans specifically designed for building projects. They cover costs throughout the construction process, meaning funds are released in stages as the project progresses. Once construction is complete, these loans typically convert to a standard mortgage.
- Personal Loans: These are unsecured loans based on your creditworthiness, so they’re not tied to your property. While they are quick to get, they typically come with higher interest rates due to the lack of collateral.
Accessory Dwelling Unit Cost-Saving Tips
- Consult an experienced ADU builder early. Getting expert input during planning can prevent costly issues later. They can spot potential problems and suggest cost-effective solutions from the start.
- Consider pre-approved designs. These plans are already approved by the city, so they’ll save you time and money on permitting. Remember, though, that you can’t modify these designs.
- Look into prefab or modular options. Factory-built ADUs are often cheaper and faster to set up than traditional builds. Plus, you know exactly what you’re getting upfront, which can help avoid surprise costs during construction.
Taking Action on Your ADU Project
Building an ADU is an investment that can boost the value of your property. Besides, it can bring in cash flow if you decide to rent it out. In this guide, we’ve explored the different construction methods and cost factors that influence accessory dwelling unit costs to help you make an informed decision. However, it’s important to remember that ADUs can be costly projects despite their smaller size.
For many homeowners, financing might be necessary. If you’re considering taking out a loan for your ADU project, RenoFi can be of help. We can help you get the funds you need to cover your ADU costs from start to finish. Don’t hesitate to contact us today if you need help with funding your project.
RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after-renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.
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