If you are thinking about developing an ADU, also known as an additional dwelling unit, the first question that comes to your mind is; where do I start?
Knowing where to start can be difficult with such a large list of things to complete. You will need to draw up plans, fill out paperwork for permits, get financing, hire a contractor, select materials, and make numerous decisions. With so many things to do, how do you know what the first step to take is?
ADUs require a lot of steps to develop. Read on to find out the first steps you should take to determine if your ADU project is feasible and whether you should pursue it.
The First Steps to ADU Development
There are 4 main first steps you need to take to start ADU development.
- Gather ADU costs
- Secure financing for the project
- Research zoning and planning requirements
- Consult with experts who have ADU experience
Start by figuring out the total project budget you are willing to invest. From there, you can figure out how you will finance your ADU. You may need to re-evaluate your budget once you figure out financing options to see what budget and finance combo will work best for you. Make sure you have a budget and financing option that you can afford and still build the ADU of your dreams.
How To Figure Out Your ADU Costs
The key to figuring out your ADU costs is to remember that it is a ballpark range. It is impossible to determine an exact figure when you have not figured out all the details yet.
To know an exact figure, you will need to have design and engineering plans in place. These plans are the manual for building and figuring out exact material types and quantities. You will also need to know the labor needed to execute the plans. Even then, you would have to know all the things that could go wrong and how much they would cost you. Thus, it is best to determine a range of costs that you will need instead of going through all the plans and then figuring out that the ADU is too expensive.
With that being said, you should beware of “professionals” who provide you with exact costs without plans and engineering in place. If you come across someone who guarantees an ADU project will cost a certain amount, you should know something is off. Often, that price is just them guessing and will result in you more than likely having to pay more later on or deal with low-quality work.
The 4 Major Factors of Costs
To figure out your ADU cost range, you need to take 4 major cost factors into account.
- Design and Planning – You can get exact costs for these based on the type and size of your ADU.
- City Fees – You should be able to gather this information from your local building and planning departments.
- Construction (Labor and Rough Material) – You should be able to get a range of ballpark costs based on size and type of ADU
- Finish Materials – These are items like cabinets, floors, doors, windows, etc.
Levi Design Build’s Cost Calculators can help you determine your average construction costs. It is important to note that construction costs will be affected by the contractor you hire. Although hiring the most expensive contractor is not always feasible, you shouldn’t go for the cheapest contractor either. They often have hidden fees you have to pay later or are not experienced enough in the field to provide you with an ADU that is built with quality in mind.
A quick tip for finding the best contractor for the job is to work with professionals who have experience building ADU’s in your area. They will often know the best course of action for your project and can be trusted to construct an ADU that is exactly how you want it to look.
Average ADU Costs
To help keep you on the right track as you figure out your costs here is the average cost range of many ADUs.
- Design and Planning – $6,000 – $14,000
- City Fees – $3,000 – $11,000
- Construction Labor And Materials – $175 – $300/Sqf
- Finish Materials – $50 – $75/Sqf
It is important to note that your design tastes will considerably impact the design and planning stage, along with the finish materials stage. So, if you are looking to lower the cost of your ADU development without impacting the size of it, look at how you are designing it.
It is also important to note that there are different types of ADUs, and they have different costs associated with them. If you are constructing a garage conversion, your costs will be towards the lower end of the range, whereas if you are doing a new construction detached ADU, your costs will be towards the higher end of the average range.
Don’t Forget About Furnishing Your ADU
It is important to remember that not only will you need finish materials like cabinets and flooring, but also ADU appliances and furniture. Although they are not vital to the development, they are vital to livability. The sooner you acquire appliances and furniture, the sooner you can rent out your ADU or have your in-laws move in.
Also, knowing the sizes of your appliances ahead of time can help in the planning stage as well. That way you know how big things will be in a room so you can design it to maximize space. So be sure you budget and plan for your appliances as well.
How To Pay for Your ADU
With the recent rise of ADUs in California, lenders and banks are struggling to catch up to the growing demand. As a result, specific loan products tailored to ADUs have yet to be developed.
Due to this, most homeowners today rely on savings or home equity to pay for their projects. However, there are other loan options for you to consider.
Let’s review the top ways to finance your ADU project.
Home Equity Loans & HELOC
Home equity is the most popular way for homeowners to finance their ADU projects. It comes in two typical forms: Home Equity Loans and Home Equity Line of Credit (HELOC).
Home Equity Loans provide a fixed amount of cash available to you with a fixed repayment schedule. They are backed by the equity you own in your home.
HELOCs are also backed by the equity in your home but are structured as revolving lines of credit that have shorter repayment terms. They also only charge interest on the balance you have drawn on the line.
Another option that is very much like Home Equity Financing but structured differently is cash-out refinancing. This option works best if you would like to:
- Change your mortgage provider entirely on your existing home loan
- Get a lower rate
- Consolidate the new project financing into your existing home loan
In cash-out refinancing, the lender will look at the current appraisal value of your home compared with the principal value remaining on your current mortgage. If your home has increased in value substantially since you purchased it, then you may be eligible to refinance it for the current appraisal value. You can then get cash out based on your new equity balance to finance your ADU development.
A construction loan is a short-term, higher-interest loan that provides the funds required to build your ADU. Most of the time, it will be issued based on the future value of the ADU. Therefore, plans must be issued first to appraise the future value.
These loans typically are one year in duration but, they can be longer. During this time, the property must be built, and a certificate of occupancy should be issued. Once the ADU is built, the construction loan needs to be paid in full. This can be accomplished through refinancing or a line of credit loan.
If you have been able to save for your project over the years, then maybe jumping through all the hoops required to get financing for your project is not worth the hassle. Many of the ADUs built today are financed mostly or entirely with the homeowner’s cash savings.
If you are planning to build an ADU soon, you must have some cash savings on hand to cover up-front expenses. These expenses include things like:
It is good to have a general idea of how you want your ADU to look and make sure it is feasible to create before asking for a loan to finance the build. Therefore, having some extra cash on hand can come in handy to cover the initial expenses needed to ensure your ADU is indeed buildable. Being sure of this before asking for a loan can save you a lot of time and money.
Plus, the more money you have saved up that you can put towards your ADU, the less you will have to take out in loan form and payback with interest. By doing so, you will save yourself quite a bit of money.
How To Plan Your ADU
Once you have figured out your broad costs, determined your budget and financing, you must start researching what you can develop.
There are different rules and regulations in place for each state and city. Due to this, you will need to research your specific cities guidelines to determine things like the size and location of the ADU on your property.
The best way to figure out what you can build on your property is to do a Feasibility Study.
How To Do a Feasibility Study
A feasibility study will enlighten you on the possible challenges you could face once you start planning and building your ADU.
This study starts by creating a sitemap of your property with all your structures clearly marked. Then you will need to meet with your local planning department to figure out different regulations like setback requirements and height limitations.
You can watch this Feasibility Video to learn more about this process. You can also download our ADU eCourse for a hands-on video course. It contains details on how to conduct a feasibility study and create a site map for your property.
ADU Research Helpers
Researching about ADU’s does not have to be a daunting task. There are plenty of ADU resources available to help you learn the most you can before beginning development.
A great ADU resource for you to download is our ADU Guidebook. It will supply you with an in-depth explanation of how to build your own ADU. You can also take our eCourse which is packed with valuable information and resources that make your ADU journey smoother to understand and execute.
Consult With ADU Experts
The best way to build an ADU is with the help of an ADU expert. ADUs are essentially like tiny homes but they have different rules and regulations associated with them. Due to this, contacting a general contractor will not result in you receiving the best help since they do not know the ins and outs of ADU development specifically.
Your best bet is to consult with ADU professionals who have experience building ADUs in and around your area. They will know the rules, regulations, and ways to save you money on your development. Not to mention, they know a few tips and tricks to help you avoid making costly ADU mistakes and are really good at optimizing your limited space.
Who To Consult With About ADUs
Not sure who to talk about your ADU development project with? Come talk to us!
Here at Levi Design Build, we know how to get your project started. Our personalized approach to designing, planning, managing, and building your ADU allows us to have a clear insight into how your project will unfold. Thus, making it easier for us to figure out where to have you start. Plus, help guide you through the rest of the development process.
We offer a free consultation to help navigate you through permits and regulations as well as any other important information you might need to know. We can then set you up with an advisory meeting to cover all the details of your project to help you understand the costs. Then, we provide you with all the tools necessary to make the right choices for your ADU project.
We can also help you navigate through ADU financing, ADU feasibility, and even ADU development. After all, it is our commitment to provide you with the highest service throughout the entirety of your project.
Starting Your ADU Development
Building an ADU doesn’t have to be a hard experience. Always start by figuring out your costs and creating a budget. From there, you can determine how to pay for the ADU, and if it is able to be built the way you want it to be. After some research and assistance from ADU professionals, you will be on your way to owning a beautifully built ADU in no time!