Garage Conversion vs Detached ADU: Cost and ROI Compared

Two Paths to an ADU

If you already have a garage you rarely use, converting it into an ADU is the most affordable way to add a living unit to your property. But if you have the budget and lot space, a detached ADU gives you a purpose-built structure with higher rental potential. This guide breaks down the key differences.

Quick Comparison

Factor	Garage Conversion	Detached ADU
Cost	$120,000-$150,000	$250,000-$500,000+
Timeline	4-6 months	8-14 months
Rental Income	$1,800-$2,800/mo	$2,500-$4,000/mo
Size	Limited by garage footprint	Up to 1,200 sqft
Design Freedom	Constrained by existing structure	Full flexibility
Permits	4-8 weeks	8-16 weeks

Garage Conversions: Fast and Affordable

A garage conversion transforms your existing garage into a livable ADU. The structure is already there, so you skip foundation work and framing. The project focuses on insulation, drywall, flooring, plumbing, electrical, and finishing.

Advantages:

• Lowest cost entry point for an ADU ($120K-$150K)
• Fastest timeline since the shell already exists
• No new foundation or framing required
• Streamlined permitting in most Bay Area cities

Limitations:

• Size is fixed by your garage footprint (typically 400-500 sqft for a two-car garage)
• Ceiling height may be limited (standard garages are 8 feet)
• You lose your enclosed parking
• Layout options are constrained by the existing structure

What Goes Into a Garage Conversion

The typical scope includes insulation and drywall, new flooring, a kitchen or kitchenette, a full bathroom, electrical panel upgrade, plumbing connections, HVAC installation, a separate entrance, and windows. The garage door is usually replaced with a wall, window, or French doors.

Detached ADUs: Purpose-Built for Maximum Value

A detached ADU is a new structure built from the ground up on your property. This gives you complete control over the design, layout, size, and finishes. Detached units feel more like independent homes, which is why they command higher rents and add more property value.

Advantages:

• Full design flexibility (layout, ceiling height, windows, finishes)
• Sizes up to 1,200 sqft (California state limit)
• Higher rental income due to better quality and privacy
• No impact on your existing home or garage
• Can include outdoor living space

Limitations:

• Higher cost ($250K-$500K+ depending on size and finishes)
• Longer timeline (8-14 months including permitting)
• Requires adequate lot space with setback compliance
• New utility connections (water, sewer, electrical) add to cost

What Goes Into a Detached ADU

A detached ADU is a complete construction project: foundation, framing, roofing, siding, full MEP (mechanical, electrical, plumbing), interior finishes, and landscaping. Custom Home designs detached ADUs to complement the main home’s architecture while functioning as fully independent living spaces.

Which Delivers Better ROI?

Both options generate positive returns, but the math looks different.

Garage conversion ROI: At $135K average cost and $2,300/month average rent, a garage conversion pays for itself in roughly 5 years. The lower upfront cost means faster breakeven.

Detached ADU ROI: At $375K average cost and $3,200/month average rent, a detached ADU takes roughly 10 years to pay for itself through rent alone. However, the property value increase is typically larger. Appraisers value purpose-built units higher than conversions.

The bottom line: Garage conversions win on speed-to-return. Detached ADUs win on total value creation.

Making the Decision

Choose a garage conversion if:

• Your budget is under $200K
• You want rental income as quickly as possible
• Your garage is in good structural condition
• You do not need more than 500 sqft

Choose a detached ADU if:

• You want maximum rental income and property value
• You have lot space for a new structure
• You want full design control over the unit
• You plan to keep the property long-term

How Custom Home Builds Both

Custom Home’s two-phase process applies to both project types. In Phase 1, we design the unit with 3D visualizations and locked-in pricing. For garage conversions, this phase identifies any structural issues early. For detached ADUs, it covers site planning, utility routing, and architectural design.

In Phase 2, construction follows the approved plans. Garage conversions move quickly because the structure exists. Detached ADUs involve a full build sequence but benefit from the same detailed planning that prevents change orders and delays.

Next Steps

Not sure which option fits your property? A site visit is the fastest way to find out. We will assess your garage condition, lot dimensions, and local requirements, then recommend the approach that matches your goals and budget.

Schedule a free consultation to explore your ADU options with Custom Home.