Many people are astonished at what it costs to build a granny flat in Los Angeles. We come across articles all the time that misconstrue the actual cost of construction. So let’s clear up the discrepancies.
When you’re considering a granny flat (also called an accessory dwelling unit or ADU), you need to think not only about the cost of design, permitting, and construction but also about your return on investment (ROI).
In California, it’s proven to be outstanding for most homeowners.
Cost Per Square Foot Can Be Deceiving!
It’s tempting to look at average cost per square foot numbers online, but there are several reasons granny flats cost more per square foot than typical single-family homes.
- Since granny flats are smaller, the cost per square foot is not offset by extra bedrooms, large living spaces, and hallways that you would find in larger homes. These spaces are considered ‘cheaper’ square footage and normally bring down the average cost.
- Granny flats still require a bathroom and kitchen, which is ‘expensive’ square footage.
- Many permitting and design fees are fixed costs, which means you have to pay them no matter the size of the home or granny flat.
- Margins are smaller for general contractors, subs, and architects.
- Just like a regular house, ADUs require new foundations, plumbing, electric, heating and cooling, and a separate roof.
- There are no economies of scale. Think about the significant discount you get from buying groceries in bulk at Costco. Building a granny flat is the opposite.
What all this means is, yes, cost per square foot of a granny flat is most likely going to be higher than that of a single-family home. But you are packing a lot more value into a smaller space, so it makes sense that you may pay a little bit more from the get-go. Download our free toolkit here, which includes case studies with budgets!
Size and Structural Form Impact the Cost of a Granny Flat
Here are some general rules of thumb to consider:
- The larger the unit, the cheaper your cost per square foot. Detached units can be up to 1,200 square feet unless specified by a local ordinance. A 1,200 square foot unit is likely to be cheaper per square foot than a 450 square foot unit.
- Building up is expensive! Most people instinctively want to build an accessory dwelling unit above their garage. It can add ~$50 per square foot to your project. If your budget is tight, stick to single-story.
- Garage conversion is the cheapest way to convert space into a granny flat. If your budget is limited, keep the existing envelope of the garage, meaning don’t expand on the current footprint. This would add onto the cost.
Cost to Build a Granny Flat in Los Angeles
Garage conversion: $95,000—$395/SF
550 SF 1-bedroom: $200,000—$365/SF
750 SF 2-bedroom: $250,00—$334/SF
1200 SF 2-3 bedroom: $330,000—$275/SF
Most people’s units cost between $300-$400 a square foot for design, permitting, and construction.
How to Assess Your Granny Flat Investment
Wow. The cost to build a granny flat in Los Angeles seems expensive, but here’s a smart way to assess your investment.
- Look up the median value per square foot in your neighborhood. For example, in the Echo Park neighborhood the median home sells for $771 per square foot.
- Let’s say you build a 550 square foot unit in Echo Park for $365 a square foot.
- You may spend $200,750 on your project, but you’re gaining about $424,050 in value.
- That means you’re adding about $223K in equity to your property. And it doesn’t take into account the added value passive rental income brings.
- In Echo Park, a 1-bedroom apartment will rent for a minimum of $2500 a month. Many rent for far more.
Andy’s Garage Conversion ROI
The price tag on an accessory dwelling unit can scare people, but let’s look at a real-life example. As discussed before, garage conversions are the cheapest way to convert space into a granny flat because there is an existing envelope.
Several years ago Andy ball-parked that it would cost roughly $100,000 to convert his 560 square foot garage into an ADU. At the time that was reasonable for a granny flat, even though it’s very low by today’s standards.
In the end Andy’s project ended up costing as follows:
Structural plans: $3,000
Plan Check and permits: $6,000
Construction, labor, fixtures, and finishes: $98,000
Total budget: $107,000
(Click here to learn more about Andy’s story.)
$107,000 sounds like a lot of money. Now let’s look at Andy’s return on investment.
The median value per square foot for a home when Andy built his ADU was $523. Andy’s garage conversion cost him about $191 per square foot. (He did some work himself, which saved money but cost him his own time.)
Without any additional information, we cannot create a 1:1 comparison for how much value was added to the property. This is because Andy lost the garage value but gained an income property.
What’s more, property values have increased a lot since Andy built the ADU.
That value doesn’t take into account the passive rental income that the unit will bring in. Andy now rents his ADU for $1,800 per month.
Suddenly $107,000 doesn’t seem so scary!
Granny Flats are an Investment
To maximize your return on investment, those who build a granny flat should plan to own their property for an extended period. In a city like Los Angeles, where rental prices have skyrocketed, the value of passive rental income is undeniable.
We’ve calculated that even a $100,000 garage conversion, maintained over a 30-year period can bring 1.5 dollars in value between rental income and property value increases. That’s a 15x return on investment.
How to Maximize Your Granny Flat
Build your granny flat as large as your lot will allow. If you can comfortably fit 800 square feet in your backyard, I recommend our clients to do so.
The fixed cost.
Relative to what you’re already spending on the fixed cost and ‘expensive’ square foot areas of your ADU, adding 200 more square feet of ‘cheap’ square footage won’t dramatically increase your budget.
But it could substantially increase how much rent you can charge, how many bedrooms you have, and how many people can live in your granny flat.
Another way to maximize your granny flat investment is to create garden spaces. Gardens and outdoor area is a luxury most renters don’t have access to. In Los Angeles, a patio with an outdoor table can feel like a second living room and be used all year long.
This is a very inexpensive space to create but can make your property much more appealing to renters.
For more tips and tricks on granny flats download our free tools or talk to one of our granny flat experts.