Your budget is one of the most important parts of your ADU project. We recommend assessing your finances early, starting during or after assessing what’s possible on your property (Getting Started) and before you start working with your design team (Design).
Timeline
Most ADU projects take 12-18 months to complete, but some extend to 24 months or more. Budgeting is part of the Pre-Work phase, which takes 1-3 months.
Key Resources for Budgeting
RELEVANT WEBINARS
FAQs
Here are a few of the most frequently asked questions about budget and finance.
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Our ADU Calculator is a great place to start when developing a budget. It provides a rough estimate of costs and income and will help you understand how choices can impact your budget over time. In general, it is helpful to avoid having a fixed budget total in your head as you explore your options.The cost to build an ADU typically ranges from $30,000 for a simple interior conversion JADU, to $400,000+ for a large detached ADU with high-end finishes on a hillside lot. Cost per square foot is a good way to estimate, though this too can range — a very rough placeholder for you to use is $500 per square foot for construction and other costs (design, fees, etc.), depending on your design and the materials you chose.
See more details about costs – including design, permitting, and construction – in our ADU Workbook.
See our blog post about five hidden ADU costs you should know about.
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There are five main options available to homeowners to finance their ADU. Many homeowners use a mix of these options.
Cash savings or other liquid assets
Cash-out refinance
Loans from friends or family
Home equity loan or home equity line of credit (HELOC)
Construction or Renovation loans
As you’re doing financial planning for your ADU, remember to include the rental income you’ll receive in your calculations.
See more details about financing options in the steps below.
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Adding an ADU will likely affect your property taxes and the resale value of your home. However, your primary house and the land will not be reassessed Your property taxes will only increase based on the added value of your ADU. For example, if you build an ADU that adds $150,000 to your property value, and your tax rate is 1%, your taxes will increase by 1% x $150,000, or $1,500 per year.
Building a JADU will have a significantly smaller impact on assessed value. In some cases, your taxes will not increase at all. Home sharing will also not increase the assessed value of your home. Generally, garage conversions will not raise your tax bill as much as new construction, but they will also not add as much value.
Check out our blog post on the subject to learn more. You can also watch this helpful 4 minute video from ADU company Maxable on property tax implications!
Each property will require a one-on-one analysis to determine the added value of an ADU, so contact your County’s Assessor Office once you have an idea of your plan. They will be able to provide you with a rough estimate of tax implications.
Adding an ADU may impact your income taxes as well. This can be rather complicated, and it’s best to discuss these with a tax advisor.
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No. You will need to record in a deed restriction for the property that the ADU cannot be sold separately from the primary home.
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Rental income is a substantial benefit of having an ADU or JADU on your property – for many people, this provides valuable flexibility in their budget. Our ADU Calculator can help estimate the potential income of your ADU.
Steps in the Process
KEEP IN MIND Initial cost estimates are likely to change as you move through the process, and you won’t know what it will truly cost until you talk to a professional. Current workforce and supply chain disruptions are causing prices to move up and down more quickly than usual. If you have a tax or financial advisor, it is always good to check in with them early on too.
Estimate Project Costs
It is helpful to avoid having a fixed budget total in your head as you explore your options, because budgets are difficult to pin down this early in the process. That said, our ADU Calculator is a great place to start when developing a budget. It provides a rough estimate of costs and potential rental income and will help you understand how choices can impact your budget over time. Our Workbook and Exercises have helpful information to get started on budgeting, and our custom Feasibility Consults can help you get more specific.
HARD COSTS The average hard cost (costs directly related to construction, including materials and labor) per square foot is between $400-$600, but many decisions can dramatically increase those costs. For example, a complex roof can cost tens of thousands of dollars. The level of fit and finish, such as flooring, cabinets, and appliances, can be 30% of the total cost. Working with your architect and general contractor together on value engineering from the beginning is critical to keeping costs down.
SOFT COSTS There will also be some soft costs (costs indirectly related to construction, including architecture/design and permitting). Fees for an architect range from $5,000-$25,000, for example. You will also need an energy analysis of your project, often called a Title 24/CalGreen report ($300-700), and you may need a soils report from a Geotechnical Engineer ($2,000-$6,000). In total, soft costs can range from $5,000-$30,000.
Impact fees charged by the local jurisdictions have been waived for projects under 750 square feet, and school fees are waived for projects under 500 square feet but permit processing fees remain (generally under $10,000 but it depends on the jurisdiction).
KEY RESOURCES
Napa Sonoma ADU Calculator
Estimate costs and potential rental income based on your project location and details.
Assess Financing Options
There are five main options available to homeowners to finance their ADU. Many homeowners use a mix of these options. As you’re doing financial planning for your ADU, remember to include the rental income you’ll receive in your calculations. Some lenders will not consider this income when evaluating you for a loan, but it’s important for you to consider it in your calculations. Our ADU Calculator tool helps you plug in financing info and calculate how long it will take for you to see a return on your investment (hint: not very long)!
Learn more about ADU financing options from our on-demand webinar, How to Finance Your ADU and our webinar The Financial Case for Building an ADU Now and Not Later.
Cash savings or other liquid assets
Cash-out refinance
Loans from friends or family
Home equity loan or home equity line of credit (HELOC)
Renovation loans
For more information on financing an ADU, watch another on-demand webinar with Redwood Credit Union on their NEW ADU construction loan which opens up $300K in ADU financing for homeowners with low income &/or low equity! And look up the local finance experts available on our Vendor Registry here. In addition, check out this comprehensive overview of ADU financing from the statewide Casita Coalition.
KEY RESOURCES
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