Financing an ADU in San Carlos: Costs and Returns

Thinking about building an ADU to create rental income or flexible family space in San Carlos? You are not alone. With steady Peninsula demand and supportive California laws, ADUs can be a smart way to grow long-term value. In this guide, you will learn what ADUs cost locally, how to finance them, and what returns to expect, plus key rules and timelines specific to San Carlos. Let’s dive in.

San Carlos ADU basics

San Carlos follows state ADU law, which streamlines approvals for compliant designs. The city allows ADUs on most residential lots, with objective standards for size, height, setbacks and parking. Use the county’s San Carlos page to confirm the latest local rules and contacts at the start of your project. You can review the resource at the San Mateo County ADU Resource Center.

• Size and height: Detached ADUs are generally allowed up to about 1,200 square feet, subject to zoning and context. See the current standards before you design.
• Setbacks and parking: Side and rear setbacks are commonly 4 feet, and state rules provide several parking exemptions near transit or for conversions.
• Rentals: ADUs may be rented for 30 days or longer. Short‑term rentals are not allowed. See the city’s ordinance for current language in the San Carlos Municipal Code.
• Permitting: State law promotes objective, ministerial review if your plans meet standards. Get familiar with the process and statewide guidance in the California HCD ADU resources.

What an ADU costs

Bay Area ADU costs run higher than many U.S. markets. Local reporting shows many site‑built detached projects in the low to mid hundreds of thousands, with wide variation based on size, finishes and site work. Recent coverage places many Bay Area ADUs in the 150,000 to 400,000 plus range, with custom builds higher. See cost context in the San Francisco Chronicle’s overview of California build costs and drivers.

Typical ranges in San Carlos context:

• Small garage conversion or JADU: 80,000 to 180,000.
• Small detached studio, 400–600 sf: 150,000 to 300,000.
• Larger detached ADU, 800–1,200 sf: 250,000 to 500,000 plus.

Prefab options can lower the unit price, though site work, foundation and utility hookups still add time and cost. Plan carefully for utilities in particular, since PG&E coordination is a common source of delay and added expense in Bay Area projects. Chronicle reporting details the risk of utility-related ADU delays.

Soft costs to include in your budget:

• Plans and engineering: commonly 5,000 to 20,000 depending on complexity.
• Permits and plan check: can range from a few thousand upward based on valuation and scope. Under state rules, ADUs under 750 sf are typically exempt from impact fees. See statewide policy notes in the HCD ADU guidance.
• Utilities and site work: trenching, sewer tie‑in, electrical service upgrades and any retaining or tree protection can add significant cost.

Pro tip: In the Bay Area, carry a 15 to 25 percent contingency to handle price swings and surprises.

Financing options that work locally

Start by deciding whether you need a flexible draw during construction or a single lump sum. Then compare rates, fees and repayment terms.

• HELOC: A home equity line of credit gives flexible draws that match construction stages. It is secured by your home and often has a variable rate. Review the basics of draw periods and risks in this HELOC explainer.
• Cash‑out refinance: Replaces your first mortgage with a larger fixed loan and returns cash at closing. It can reset your term and involve higher closing costs, but may secure a stable rate.
• Construction‑to‑permanent loan: Funds the build with draws, then converts to a permanent mortgage when complete. Many banks and credit unions offer this product. See a lender overview of construction-to-perm structure.
• Renovation loans: FHA 203(k) and conventional renovation loans can fit conversions or attached additions. Lender rules vary.
• State support: The CalHFA ADU Grant has provided up to 40,000 for pre‑development costs for eligible owners when funding is available. Always check current status in the HCD ADU resources.
• Energy-focused options: PACE and utility rebates can help pay for electrification upgrades like panels or heat pumps. Weigh lien and transfer implications before using PACE.

How owners often stack funds:

• Combine a CalHFA grant if open, a HELOC or construction loan for the bulk, and a modest cash reserve. Ask lenders about contractor and permit requirements for draws, and whether prefab contracts are eligible.

Returns, value and taxes

Rents in San Carlos are higher than statewide averages. Depending on size and finish, many studio and one‑bed ADUs command mid 2,000s to low 4,000s per month. Always price off current local listings before you finalize a budget.

A quick example: If a 600 sf detached ADU costs 240,000 and rents for 2,400 per month, gross annual rent is 28,800. That is a 12 percent gross yield on project cost. After loan payments, insurance, maintenance, vacancy and taxes, many owners see a net yield in the mid single digits. Property value often rises after completion, although uplift varies by neighborhood and appraisal treatment. For context, local reporting has highlighted strong average returns in some Bay Area cases, as noted in this Chronicle review of ADU ROI and valuation.

Property tax impact is usually modest. Under Prop 13 rules, the assessor typically adds only the new construction value of the ADU to your property’s assessed value. Many owners see roughly 1 percent of the ADU’s assessed value added to annual taxes, plus local rates. For a plain‑English overview, see this guide on how ADUs affect reassessment.

Bottom line: Treat rental income, potential value uplift and family utility together. Peninsula cap rates are often low, so many owners justify ADUs for long‑term flexibility in addition to cash flow.

Timeline and risks

A typical ADU journey runs 6 to 18 months from idea to move‑in. Plan roughly 1 to 3 months for feasibility and design, 2 to 4 months for plan review if the submittal is complete, and 3 to 9 plus months for construction depending on scope. Prefab can shorten build time on site, but utility and permitting lead times still apply.

Watch these common risks:

• Utility upgrades: Electrical capacity, new meters and sewer connections can add cost and months. Chronicle reporting details common PG&E-related delays.
• Site constraints: Slopes, trees and tight access can raise budgets.
• Bids and materials: Bay Area labor and materials can move quickly. Get multiple itemized bids and verify experience with San Carlos permits.

Your step‑by‑step plan

1. Check your lot’s feasibility. Review San Carlos standards and map out setbacks, height and parking early. The San Mateo County ADU Resource Center lists local contacts and helpful checklists.
2. Scope and budget. Decide detached vs conversion and target size. Build a line‑item budget with a 15 to 25 percent contingency.
3. Engage a designer and get preliminary utility input. Ask about panel size, sewer tie‑in and trenching needs.
4. Get 2 to 3 contractor bids. Confirm they have recent San Carlos ADU experience and can meet lender draw requirements.
5. Compare financing. Price a HELOC against a construction‑to‑perm loan and cash‑out refi. Ask lenders about draw schedules, contractor licensing and appraisal timing.
6. Submit a complete permit set. Objective review helps avoid hearings when your plans meet standards.
7. Track utilities early. Start PG&E and sewer steps as soon as feasible to avoid late‑stage delays.

Ready to talk through your plan, run numbers and weigh rent potential against financing costs? Reach out to Daniel Fridman for a local, investment‑minded ADU strategy and next steps. ¿Hablamos en español? Con gusto.

FAQs

How much does a San Carlos ADU usually cost?

• Most ADUs land between 150,000 and 400,000 plus based on size, finish level, utilities and site conditions, with garage conversions on the lower end.

What loans work best for ADUs in San Carlos?

• Many owners use a HELOC for flexible draws or a construction‑to‑permanent loan for ground‑up builds, while some opt for a cash‑out refinance for a fixed lump sum.

Are ADUs allowed on single‑family lots in San Carlos?

• Yes, ADUs are allowed on most residential lots if your design meets objective standards for size, setbacks, height and parking.

Will my property taxes jump after I add an ADU?

• The assessor typically adds only the new construction value of the ADU to your assessed value, so most owners see a modest increase compared with rent potential.

How long does an ADU take from idea to rent‑ready?

• Many projects take 6 to 18 months, including design, plan review, construction and utility coordination.