Garage conversions are the cheapest way to add finished living space — $100-$180 per sq ft in 2026 versus $220-$400 per sq ft for a new addition. A standard 400 sq ft two-car garage conversion runs $40,000-$72,000 for non-ADU finished space, $65,000-$120,000 when built to ADU standards (separate entrance, kitchen, bath).
Three conversion scopes
Basic finish ($60-$90/sf): insulation, drywall, paint, basic flooring, replace roll-up door with wall and window. Living space ($120-$180/sf): adds baseboard heat or mini-split, upgraded electrical, solid-core interior door, finish flooring, lighting. Full ADU ($200-$300/sf): adds kitchen, bathroom, separate exterior entrance, code-compliant egress, and either separate utility metering or properly sized shared services.
The code issues that kill garage conversions
Four code issues derail most garage conversions. Floor height: garage floors are often 4-8 inches below adjacent living space for water runoff; raising requires pouring a new slab. Ceiling height: code requires 7 foot minimum ceiling for habitable space; many garages are 7'6 which is fine until adding insulation takes you below. Egress: bedrooms require two means of egress (door + window); the big roll-up door becomes a wall, so you need a window meeting minimum size (5.7 sq ft opening) for any bedroom. Fire separation: attached garages have 1-hour fire-rated separation between garage and house; removing that changes fire exposure requirements.
California ADU conversions (the special case)
California state law specifically protects garage-conversion ADUs from most local restrictions. Cities cannot require replacement parking, cannot charge impact fees on garage-conversion ADUs under 750 sq ft, and must approve permits within 60 days. Pre-approved ADU plan sets (offered free by many cities including LA, San Jose, Sacramento) can cut design and permit time by 50%. This is the single best ADU opportunity in the country right now.