Garage Conversion vs Detached ADU: Which One Pencils Better

$100K to $130K gets you a garage conversion of about 400 square feet. $200K to $250K builds a detached ADU between 800 and 1,000 square feet. Which generates the better return on invested capital?

Cost Per Square Foot

Garage conversion: $250-$325/sqft. Detached ADU: $200-$250/sqft. You pay more upfront for the detached, but you get double the space at a better per-square-foot value.

Rental Income

Garage conversions in LA rent for roughly $600-$1,000/month. Call it $800 at the midpoint. Detached 2-bed ADUs pull $1,800-$3,150/month. Use $2,400 conservatively. Detached units generate 2-3x the rent.

Return on Equity

Using 35% operating expenses:

Garage conversion: $115K invested, $6,240 NOI, 5.4% ROE. Detached ADU: $225K invested, $18,720 NOI, 8.3% ROE.

Detached ADUs deliver about 50% better return on equity.

Payback Period

Garage conversion: $115,000 / $6,240 = 18.4 years. Detached ADU: $225,000 / $18,720 = 12 years. Detached units pay you back six years faster.

Property Value Impact

Detached ADUs add more resale value because they're larger, attract a broader renter pool with two bedrooms, and create clearer income streams. Garage conversions can be discounted by buyers due to lack of separation, limited privacy, and awkward layouts.

The Bottom Line

Garage conversions are cheaper and easier. But cheaper is not always better. Detached ADUs cost more but return more cash flow and equity appreciation. If your capital is limited, a garage conversion works. If you want the best return on invested capital and long-term growth, go detached.