Globella Buyers Realty > Resources > Cost to Build Granny Flat in San Diego
Photo Credit: Allan Ferguson
Recently, I wrote a piece covering California’s new granny flat laws and what they might mean for homeowners and renters in San Diego.
Today, I’m going to turn to the practicalities of building or converting a granny flat, including how much it can cost AND how much you can recoup in rent.
The new California laws regarding granny flats, or Accessory Dwelling Units (ADUs), drastically reduced state fees for water and sewer hook-ups and permitting.This means that the cost of building a granny flat in California went down by tens of thousands of dollars!
While building a granny flat costs much less than building a single-family home, it is still an expensive prospect. In a recent survey by the UC Berkeley Terner Center for Housing Innovation, granny flat owners reported spending, on average, $156,000 to build their ADUs. And that was BEFORE the pandemic caused building prices to skyrocket.
Converting an existing structure, like a garage or a carriage house, into a granny flat will clearly cost less than starting from scratch. However, even a garage conversion could cost $50,000 or more.
In addition, a lot of urban areas in California (including throughout San Diego), charge development fees designed to mitigate the impact of new construction on the existing neighborhood. Homeowners still need to research the fee structure in their area and factor that into their costs.
The market for granny flats is still new in California, and many cities are still working out their own ADU ordinances and regulations. As a result, homeowners may have some trouble getting a traditional loan for the project.
Several innovative alternatives have been suggested. For example, ADU Builder in Palo Alto has created a profit-sharing model, in which the builder helps cover construction costs in return for a certain percentage of the profit from the rental of the new unit. Another Palo Alto company, Point, gives homeowners money toward the construction of a new granny flat in return for a percentage of the appreciation of the entire property; in this model, homeowners have 10 years to either sell the property or buyout Point’s share.
You may be able to get a Home Equity Line of Credit (HELOC) to finance the building of your ADU, or you may be able to refinance your current mortgage and get cash out.
Building a granny flat on your property still involves a big investment and a lot of decisions, even with the new laws making it easier. So how do you know if it's worth it for you to build an ADU on your property?
First, really think about your long-term strategy.
Are you planning to sell your house in the relatively near future and want to maximize its value? Are you planning to stay in your current home and plan to use rental income to help pay your mortgage? Understanding your long-term plan is key in any real estate decision, including whether or not to build a granny flat.
Second, do your research.
Home values and rental prices both vary considerably in different areas of San Diego, so it’s important to know the trends in your area. Having a granny flat can raise the value of your entire property, meaning a bigger profit when you sell. If that’s your goal, make sure to look into how much comparable homes with granny flats or rental units have sold for in your area. That will give you a better idea of just how much value such a unit might add to your property.
If you’re thinking of a granny flat as a source of long-term income - in other words, as a rental property - look into how much rents typically are in your area. According to RentCafe, as of March 2022, the average rental price in San Diego hovered around $2,600/month for an 875 sq ft apartment.
However, these numbers can vary considerably from neighborhood to neighborhood. For example, rent in La Jolla is among the most expensive, averaging around $3,100/month for an 800 sq ft apartment.
Knowing how much you can realistically charge in rent is a key piece of information when you’re deciding whether or not building a granny flat is the right financial decision for you.
Also Read: 3 Strategies & Tips for Buying an Investment Property in San Diego
Also Read: All About the New (2017) California Granny Flat Law
Also Read: What is a Buyer Strategy Session?
Also Read: What is an Exclusive Buyer Agent?
Also Read: How Does a Buyer's Agent Get Paid?
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Justin Gramm is the founder and principal broker of Globella Buyers Realty, your San Diego Exclusive Buyer Brokerage.
Exclusive Buyer Agents do not list homes for sale and never represent sellers. They have no "inventory" to try to sell you. They can represent you in purchasing any home. They are specialists at representing buyers only on the buyers' side of the transaction. Exclusive Buyer Agents work to get buyers the best price and terms when they buy a home.
If you have excellent credit and plan to buy a home or condo in San Diego County within 90 days, contact Justin Gramm to hire an agent on your side of the transaction. Call Justin at 858-437-2662 or Email.
Globella Buyers Realty > Resources > Cost to Build Granny Flat in San Diego
