Here's what building an ADU in San Diego will really cost, and what you might get back

Backyard homes, known as Accessory Dwelling Units (ADUs), are reshaping residential life across San Diego. Spurred by policy changes and a growing housing shortage, more homeowners are adding second units to their properties for extra income, family use, or long-term investment.

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So what does it really cost to build an ADU in San Diego in 2025, and what kind of return can you expect?

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The Cost of Building an ADU in San Diego in 2025

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ADU construction costs vary depending on size, layout, permitting, and your chosen building method. The two main building methods, site-built and prefabricated (or prefab), offer different advantages.

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Site-built ADUs, constructed on location using traditional building methods, cost on average between $300,000 and $450,000 in San Diego. This includes soft costs (like architectural plans and permits), utility hookups, and construction labor. They take longer but offer full design flexibility, which is ideal if you want the ADU to match your home or meet specific needs.

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Prefab ADUs are built in a factory. Typically, they’re shipped to the location in sections and craned into place. Prefab units cost average between $250,000 and $350,000, depending on size, finishes, and site conditions. Many companies offer pre-designed models that range from 400 to 1,200 square feet, with installation timelines as short as six months.

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While prefab is often faster and cheaper, tricky lots that have limited access or uneven terrain can require extra crane work or site prep, pushing up costs. Site-built units, while pricier, can be customized to fit the lot and lifestyle more precisely.

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ADU Financing Tools for 2025

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Paying for an ADU has become more manageable thanks to evolving financing tools.

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The California Housing Finance Agency (CalHFA) continues to offer its ADU Grant Program, which provides up to $40,000 to qualifying homeowners to cover predevelopment costs like plans, soil testing, and permit fees. These expenses are often early hurdles that can derail projects. As of 2025, hundreds of San Diegans have already taken advantage of the program.

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Traditional options like home equity loans and cash-out refinancing remain popular, particularly for homeowners with significant equity.

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A newer tool gaining traction is the Debt-Service Coverage Ratio (DSCR) loan, which uses projected ADU rental income to determine eligibility. This is especially helpful if your personal income isn’t enough on paper, but your property’s potential is strong.

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And here’s something new: In 2025, the city launched a pilot loan program that offers low-interest financing to homeowners who commit to renting their ADUs at below-market rates for 10 years. Depending on uptake and results, these loans could be available throughout San Diego by late 2025.  (Source: https://sdhc.org/)

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What You Might Get Back

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With rents in San Diego continuing to rise, ADUs offer attractive income potential. In many parts of the city, a well-designed one-bedroom ADU can rent for $2,500 to $3,500 per month ($30,000 to $42,000 annually), as detailed through recent listings in Apartments.com, Zillow, and Redfin.  

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ADUs also add to property value. According to a 2024 study by UCLA’s Lewis Center for Regional Policy Studies, permitted ADUs in Southern California increased home values by $150,000 to $300,000, depending on size and integration with the main residence.

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Even if you don’t plan to rent, the long-term benefits can be substantial. ADUs are increasingly used as guesthouses, home offices, or long-term housing for aging relatives or adult children—often offering cost savings compared to assisted living or rental costs elsewhere.

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Site-Built vs. Prefab: Which Approach Makes Sense for You?

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When it comes to building an ADU, there’s no universal solution, just the right fit for your goals, timeline, and budget.

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Prefab ADUs offer speed, simplicity, and increasing design sophistication. These factory-built units arrive mostly complete and are installed on-site with minimal disruption. With fixed pricing, predictable timelines, and fewer design decisions, prefab is a strong choice for homeowners seeking efficiency and clarity throughout the process.

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Site-built ADUs, by contrast, are constructed from the ground up on your property. This approach allows for full customization; you can mirror the architectural style of your main residence, incorporate high-end finishes, or tailor the layout to suit unique family needs. While site-built projects typically take longer and cost more, they often deliver higher resale value and long-term adaptability.

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If your priority is speed, simplicity, and rental income, a prefab unit may align best with your objectives. But if you’re building with family in mind or envisioning a long-term addition that integrates seamlessly with your home, a custom-built ADU might be the better investment.

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Final Thoughts

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In 2025, building an ADU in San Diego isn’t just viable, it’s a smart way to respond to both personal and market needs. Whether you choose a prefab unit for quick rental income or a custom design for long-term family use, today’s construction and financing options offer real flexibility.

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Start by evaluating your lot, exploring local zoning, and comparing builders. Talk to lenders familiar with ADUs and see if you qualify for state or local grants. A well-planned project can create new space, new income, and new possibilities for the future.

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Quick Tip: ADU financing can get complex, and programs change often. Work with financial advisors who specialize in ADUs—they’ll know the latest programs and how to make them work for you.

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Xavier Rodriguez is with ADU Geeks, San Diego’s leading ADU consulting and project management firm. In 2024, the company was ranked No. 1 on the San Diego Business Journal’s Fastest Growing Private Companies list in the Small Business category, achieving 594.3% revenue growth.