I think you'll find the cost to convert the shed to a habitable space which meets code requirements exceeds the cost of new construction. In any case, be sure to check the applicable zoning regulations to see if it is permitted.

If you are using amplified sound, you'll need to work on the acoustics to keep the noise from bothering your neighbors. Check with city hall about their noise ordinances. Charles Ross Homes has addressed the main issue.

IMO better to build an actual ADU to code for your area.

Whichever way you decide to go - full renovation or starting new (maybe even a pre-fab unit?), have you considered a ductless AC u it instead of using up window space

Not sure if you live in an area where you don’t need any heat but these units do provide heat when necessary. Here’s a link to ductless units: https://www.lowes.com/pl/Ductless-mini-splits-Room-air-conditioners-Air-conditioners-fans-Heating-cooling/3538099968

To clarify, I am not looking to create an additional bedroom or livable space. As you can see, it’s currently structure as a workshop (previous owner left behind a workbench). We don’t plan to rent or even use it as an additional bedroom. Rest of the backyard has a large olive tree and very little space for me to consider going for a ADU size unit.

With COVID, we need an additional office space to work from home. And by music room, I just mean having an audio setup where I can listen to music through good speakers. Not for band practice :)

I’m in the San Jose area. It does get down to 45F or so in winters and as high as 100F for a few days in summer. The smallest ductless unit I found is 9000BTUs for 250 sqft.

Thanks for info. It'd be the perfect spot for extra office space, so I can see why you are exploring converting the shed to workable space. The wood shingle roof gives the impression it may be quite old since those roofs haven't been allowed in many years. Have you checked with city hall to see if a permit was pulled way back when? It'd be good to be prepared since dollars to donuts that working extensively on this structure is going to trigger a code review. You may need to upgrade your electrical service panel if you put in a/c.

It'd be worth looking into small prefab units to see if they'll fit your needs if this structure doesn't work out.

Here's some inspiration: https://shedsunlimited.net/blog/backyard-office-sheds

I did look at a couple of prefab units including Studio Shed, Autonomous, etc. But between dismantling this structure and putting in a prefab, I'm looking at a budget of $30K+ notwithstanding the time on permit process.

I can even live with a smaller window cooler and use a space heater during winters to avoid upgrading the electrical panel.

I think your plan sounds totally reasonable for what you have. This is a great way to use the shed! Love it

Finally found a contractor to do the remodel and started work yesterday. I need some help in finding the right insulation for the interior walls. Ideally I need something that provides acoustic as well as thermal insulation. I found this product from Rockwool - https://www.rockwool.com/products/safensound/?selectedCat=safensound® downloads
Would it work? If I don’t provide a suggestion, I think he would just go with a generic HD insulation product.

Thanks for posting this question. My husband and I are going through the same process. We’re trying to figure out where to start and how to budget for everything that is needed. Where or how did you find a contractor?

I found a contractor through Nextdoor. I was trying to keep costs down but it's difficult to find good handymen.

Looks good. What are your favorite aspects? Will there be an a/c unit?

My plan is to install a ductless AC as suggested earlier in this thread. Getting a circuit breaker installed on exterior wall for now and postpone install after reroofing. Favorite aspect so far is having a dedicated space suitable for both work and relaxation! It’s well insulated and I wired it for surround speakers so I am excited about setting about a home theater.