Cost of a one room office, guest house, laundry room (that is an absolute work horse of a building!)

Travis and Kelly approached New Avenue to discuss adding a multipurpose casita/office/guest room/laundry room in the backyard of their Oakland, CA home. We created a 250 square foot casita that is an absolute workhorse.  Any given day this casita serves three or more purposes: Pet-sitters, house-sitters, house guests, laundry, office, and au-pair quarters.

Construction time was 6 months. When you include custom design, permits, survey, engineering, tree removal, site work, utility upgrades (and finally actually building it) the cost is $116,700.   The full detailed budget is here: 250 Square Foot Cottage Completed Budget

You can contact us for the full set of plans too.

Project like this take 6 months to design, 6 months to permit and 5 months to build.  That is almost 18 months.  You can read more about it here: Average Project Timeline

Some challenges to this project included poor access to the backyard that required hand carrying everything in and out, a sloped lot with drops from the neighbors yard, and older utility lines that needed replacing.

Just as the the work came to completion Travis and Kelly adopted a baby. Now they take turns working from home two days a week in their backyard office so they can spend quality time with the newest member of their family.

When family and friends are in town to see the new baby or if Travis and Kelly are entertaining and hosting a get-together, they offer their casita as a small home away from home for overnight guests. It has a fully functioning bathroom and working washer dryer. In the instances the family is away, it serves as a residence for their dog-sitter.

The backyard accessory dwelling
The backyard accessory dwelling

Travis, Kelly, and the baby
Travis, Kelly, and the baby

The front door
The front door
The bed and the desk
The bed and the desk

Sliding door
Sliding door
From the rear wall, looking at the front door
From the rear wall, looking at the front door

The bathroom

New Avenue is an online collaboration platform that makes it easier to manage your home construction project. Be in the driver’s seat with New Avenue

Sign up to see example budgets, example floor plans, or to use the New Avenue system for free here: Get Started

Your accessory dwelling could pay for itself!

An accessory dwelling project is a big investment, but it brings tremendous value to your home. Our calculator makes it easy to estimate what your accessory dwelling could be worth over time.

Accessory Dwelling Economic Calculator

Input project costs, loan information, and expected rental income, and you can estimate the future value of your accessory dwelling. It even tells you how soon your project starts paying for itself!

 

 

Planning and Bulding Permit Costs for a Master Bedroom Addition and Detached Studio Remodel in San Mateo, CA

At New Avenue we have paid over 30 different types of permits to get residential projects approved.

One of the partner architects at New Avenue’s recently completed the design and permitting for a new master bedroom remodel plus remodeling an old shed into a nice detached guest room/studio in San Mateo.   The project is currently being built by one of the New Avenue partner builders too.

We guarantee your project will be different!  This is a great starting point if you are researching.  Most people have never heard of all these fees.

Planning/Zoning:  A small project such as this does not have a planning fee.

Schools: $3.29/sf for projects over 500sf, this project does not trigger this fee as it is mostly remodeled existing space.
 Building Plan Check:  $5,700 for demolition recycling deposit, which is refundable after you recycle. $16,000.00 for the full building permit.

For a detailed budget of this project, example floor plans or to use the free New Avenue project management system you can sign up for free here: Get Started

What are the true costs of an Accessory Dwelling?

One of the primary motivations and limitation when deciding to construct an Accessory Dwelling Unit (ADU) is finances. Let’s face it, why not build a backyard cottage? The uses are almost limitless, and here at New Avenue we’ve seen ADU’s being used for music studios, entertainment space, pool house, guest house, and most surprisingly, rental units.

It’s no secret that the San Francisco Bay Area is in the midst of a housing crisis with the influx of job growth, the supply of housing has diminished substantially. After lumping 1-, 2- and 3- bedrooms apartments together, average monthly rents are $3,057 in San Francisco, $2,187 in Oakland, and $2,066 in San Jose (1).

With affordable housing almost being non-existent for those trying to enter the bay area, we at New Avenue have decided to take it upon ourselves to do a study on the financial implications of building an Accessory Dwelling for the purposes of it being a rental unit in the San Francisco Bay area.

Based on New Avenue’s extensive experience and data we estimated that a 600 square foot, 2 bedroom ADU costs around $250,000 to design and construct.  This is based on our data from completed projects, for example a 250 square foot “Casita” cost a client $112k, a 360 square foot “L-shape Cottage” cost $151k, and a 620 square foot Backyard Cottage cost $252k. Based on these three scenarios we are looking at a cost of approximately $415.00 per square foot. Keep in mind the square footage costs of your Accessory Dwelling can increase of decrease based on a number factors including:

  • Permitting fees – these may shift up or down depending on your city or towns permitting schedule, and utilities to be included in your ADU (kitchen, plumbing, data, electrical)
  • Quality of Materials – Hardwood floors and other such finishes increase the costs compared to a professionally stained concrete floor
  • Quality of Contractors and Designer – New Avenue has partnerships with numerous architects/ designers and contractors that charge varying hourly rates and bid proposals which are in accordance with the design and build quality their previous projects

 

For the sake of this study let’s assume you are building a 600 square foot ADU and the entire $250,000 is financed via a traditional 30-year fixed interest rate of 4.25%, you would see a monthly mortgage payment of $983.88. We estimate a 30% increase of ADU value upon completion of construction; similar to the sales prices of newly constructed homes compared to their costs to build. With that in mind your $250,000 investment would stand to be worth $325,000 after construction. Subtracting out your ending mortgage balance for the end of the first year amount leaves you with roughly $79,000 in immediate equity. Using a conservative home value growth rate of 2% and consistently paying off your mortgage you would realize roughly $577,000 in ADU equity by the end of the 30 year mortgage. (See Chart below)

 

Now that we covered the basic costs of building an ADU and its equity appreciation, we move onto the second component of this ADU study: Rental Income. After looking at the rental incomes the San Francisco Bay Area is charging, we assumed a modest $2,250 per month rent for your newly constructed ADU. At $2,2250 a month, that totals to $27,000 in the first year and from there we grow annual rent increases at a modest 3% compared the 18% YoY increase in San Jose and Oakland from 2013 to 2014 and 8% YoY increase in San Francisco for 2013 to 2014, slowing only because SF rents were already high in 2013 (2).

With $27,000 in your total first year rental income based on a $2,250 monthly rent already established, it is time to consider the costs associated with your ADU. Immediately you can deduct the $14,758.20 in total annual mortgage payments which will remain steady for the 30 year duration. We then factor in the property taxes at 0.5% of the assessed ADU value starting at $250,000 in year 1 to equal $1,250 in additional annual property taxes a homeowner with a new ADU would expect. Maintenance is another expense, set at 1% of the Market Value of the Home (Year 1 would $325,000 based on the 30% Equity increase previously discussed), making it $3,250 for the first year and increasing at the 2% ADU appreciation rate.

Finally you get a break on your Taxes when you factor in your mortgage interest payments. Based on Bankrate’s mortgage tax deduction calculator (3) for a person in a 20% tax bracket, we would see a tax savings of $2,109.00 in the first year, which would slowly decline as you pay off your mortgage.

Ultimately, after subtracting out the mortgage payments, maintenance expenses, property taxes from your annual rent, then including the tax savings from your mortgage you stand to Net $9,850.80 in supplemental income in just your first year of renting out your new ADU. Additionally the net ADU rental income increases annually as rents increase.

Furthermore when you take a long-term perspective look at where you would be at the end of the 30 years after paying off the mortgage you now have over half-a-million in ADU Equity, and close to $700,000 in cumulative rental income over that period of time. (See Chart Below)

 

View post on imgur.com

Based on the assumptions we have provided you would have surpassed $1,000,000 in financial benefit by year 26.

Granted this is only a study, New Avenue plans on integrating a calculator into our website based people’s local conditions. Keep in mind construction costs, mortgage rates, and rents vary from person to person and region to region.

Also most people don’t fully intend to rent out their ADU for the duration of 30 years, the intangible benefits of having an ADU in your backyard can be far greater than the economic benefits we have illustrated. We have seen clients utilize a short term rental approach through the use of AirBnB to provide weekend or weekly rentals to travelers, while being able to enjoy their guesthouse when not being rented.

At the end of the day its reassuring to know that in the back of your mind, your backyard cottage can provide a source of additional income that would surpass its costs if needed.

If you want to dig deep into costs vs. income you can see our post about income: http://blog.newavenuehomes.com/?p=3316

You can contact us for additional plans, budgets or sign up and use the New Avenue system for free here: Get Started

Sources:

1.) http://www.nbcbayarea.com/news/local/Are-Bay-Area-Rental-Prices-At-All-Time-Highs-255598621.html

2.) http://sf.curbed.com/archives/2014/04/14/are_you_sitting_down_sfs_median_rent_rate_is_3200month.php

3.) http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx#ixzz3ACh4Ib9Z

 

Get income from accessory dwelling units

During retirement, sources of retirement income typically come from Social Security and a retiree’s own savings. But seniors around the country are finding that adding a second, independent living space to their homes can provide welcome extra income as rentals. Called accessory dwelling units, or ADUs, these in-law units or cabins can also serve as private living quarters for aging parents or an adult child in transition.

Michael Litchfield, a certified green building professional and author of “In-Laws, Outlaws, and Granny Flats,” a primer on planning and building ADUs, calls them an intelligent solution to the problems of urban sprawl.

Continue to full article: http://www.bankrate.com/finance/retirement/get-income-from-accessory-dwelling-units.aspx