How Much Value Does an ADU Add? [A Comprehensive Guide] (2024)

When you’re considering options for increasing your property valuation – an ADU may seem like a logical choice. However, among the myriad of options and details involved, one question often comes to mind. How much value does an ADU actually add to your property?

This can be a pretty tough question to answer with a concrete number unless you work with a professional company that can help you plan out every detail, including the design work, permits, and even patch-in quotes from local contracting firms.

So, to help you get a sense for the ins and outs of how an ADU may affect your property value – we’ve decided to write this quick, comprehensive guide to help you get the information you need to predict whether or not an ADU would be a good investment to up the numbers.

Let’s dive right in!

What is an ADU?

An ADU is a secondary living area attached to, or built on the property of an existing residence. They are used to generate income or provide an additional living space.

There are three main types of ADUs that we’ll be looking at in this article: attached, detached, and interior conversions. Furthermore, these three types have different sub-types to categorize them further.

How Much Value Does an ADU Add? [A Comprehensive Guide] (1)

Attached ADU

  • Garage conversion (if the garage is connected to the house)
  • Second-story additions (this can be on the house itself or on the attached garage
  • New additions to the home itself
  • “Mother-in-law suite”

How Much Value Does an ADU Add? [A Comprehensive Guide] (2)Detached ADU

  • Garage conversion (when the garage is separate from the house)
  • New construction (building from the ground up)
  • “Backyard cottage” or “granny flat”

How Much Value Does an ADU Add? [A Comprehensive Guide] (3)

Interior Conversion

  • Basem*nt apartment
  • Attic remodel
  • “Junior ADU”

How Much Does it Cost to Add an ADU?

The cost to build an ADU is a bit difficult to generalize. There are so many different types of ADUs, and each one requires a wildly different amount of work.

For example, converting your garage into a new space could cost anywhere from $30,000 to over $60,000. Whereas, a brand-new addition to the home could cost between $50,000 to $100,000, if not more. And to top things off – we’ve seen the total cost for a backyard cottage built from scratch going as high as $360,000 in some rare cases.

While the majority of the cost would come from the construction phase of the project, you should also account for design, planning, getting the necessary permits, surveyor costs, and other costs associated with getting everything in order before you start building.

The best (and easiest) way to get a concrete handle on what you should expect to pay is to consult with an ADU design firm such as ours. These companies have many years of experience in the field and know the process like the back of their hand!

How Much Value Does an ADU Add? [A Comprehensive Guide] (4)

So, How Much Value Does an ADU Add?

Having gotten an idea of what the costs could look like – many people might feel like it all seems like a huge expense. And at this point, you might even be wondering if building an ADU is actually worth it.

An ADU adds value to both your life, as well as your property. This could come in the form of additional income from renting it out, or even a significant boost to your property’s value. And if you choose the right type of ADU, budget correctly, and have the right team helping you along the way – converting a part of your property into a new living space could potentially be one of the best investments you’ll make!

Let’s take a look at some of the more straightforward ways that an ADU project can add value to your property.

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It Can Generate Rental Income

The most common reason that homeowners embark on an ADU journey is to generate additional rental income.

Whether you’re struggling to cover your mortgage or are financially solid, extra income is nothing to shirk at. In fact, detached ADUs can be so lucrative that the rent will cover your mortgage and other housing costs. This means you essentially get to live for free as you pay off your loan!

This is especially true if you have the space to build a 2-bedroom 2-bath unit. This would increase your potential rental income by a significant amount and make it much easier for you to rent the space out as well. Given you choose the right architect for the job and they have the appropriate experience, it wouldn’t cost much more than a single bed and bath unit. This is by far the most highly recommended route as you can gain up to $3,000 extra income per month, depending on your location.

That seems like a no-brainer, doesn’t it?

Look into your zoning capabilities and figure out if you qualify to build an ADU of this nature. And if you’re all set – you definitely won’t regret it!

Will It Be Easy to Rent Out An ADU?

Given the steep trend of rent averages in the Los Angeles area, it is no surprise that ADU vacancies are filling like hotcakes, and homeowners are making a significant amount of money from their rented units. Your ADU is well worth the investment, as it will most likely fill almost immediately.

While this may seem hard to believe, the housing market makes this possible. Trends show that more than 75% of homes house 1-2 person families. These houses, however, were built back when 3-4 person families were the average. This rate has been declining for several years, and nowadays, most families are small and do not need the amount room that an ordinary single-family home generally offers. Instead, they’re looking for something smaller and cheaper. Something exactly like your newly built ADU!

Generally speaking – the income generated from your ADU will not only cover maintenance and utility costs, but it will also pay for itself in as little as a few years – dependent on market fluctuations, of course.

If you want to calculate how long it will take your ADU to pay itself off, there are several calculators available online to help you out.

Also, if you choose to finance the construction of your ADU rather than pay it in cash, the rent generated by the ADU can even cover your loan payments for the ADU itself while still covering a range of other costs (and potentially your living expenses along the way).

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An ADU Will Add to the Value of Your Property

ADUs not only generate monthly income, but they also increase the resale value of your property!

When done right, detached ADUs, in particular, have the potential to increase your property value by a whopping 20-30%. That’s staggering! Even more astonishing, your ADU can give you a practically instant return – we’ve seen some projects add double to the property value compared to the building costs.

However, it’s important that when designing and building your ADU, you keep the rest of your property in mind. If the new space looks out of place or appears awkward compared to everything else, it can actually decrease your property value a bit. In contrast, if your ADU is built in a stylish manner and fits in with your home and neighborhood, it will have an amazing effect on your next valuation! Furthermore, if your home is the only one on the block with an ADU, your property value will correspondingly increase.

How Much Value Does an ADU Add? [A Comprehensive Guide] (7)An ADU Can Create an Investment Opportunity

Building an ADU on your property doesn’t only generate monthly income or raise your property value. It can actually be sold separately from your property!

ADUs are perfect for first-time real-estate investors who don’t quite have the monetary strength to dive into the “open waters” comprised of multi-family homes and condos, among other financially hefty properties.

And who says you can only have one ADU on your property? With the new guidelines effective in 2020, you will be able to build a second ADU on your lot. More specifically, you will be able to build one full-size ADU (1,200 sq ft) and one junior ADU (500 sq feet) on your lot. This means two ADUs generating two streams of income, at the same time increasing the value of the property.

This is also an amazing opportunity for investors already in the field. If you own 5 or 10 properties that already bring in revenue, imagine what adding an ADU to each property can do to both the rental income generated as well as the equity of these properties. Opportunities like this don’t come around very often!

In short, adding an ADU to a property is a great investment, whether you’re a homeowner looking to generate some extra cashflow or an experienced investor.

Conclusion

All in all, the value that an ADU can add to your life is limitless. It all depends on your reason for undertaking the project and what you expect to get out of it.

In other words, it can be as profitable as you choose to make it. As said by Armstrong Williams – “You know what they say, real estate provides the highest returns, the greatest values, and the least risk.”

If you need help getting started, or would like to get a professional opinion on your planned ADU look no further. At Architects LA, we’re the go-to ADU specialists for the entire Los Angeles area. We’ve got over a decade of experience in bringing some of the most high-profile and complex projects to life. We strive to make the entire process leading up to construction a total breeze for the owners. And we’d love to help you as well!

As an architectural enthusiast with extensive knowledge and experience in the realm of accessory dwelling units (ADUs), I can provide valuable insights into the concepts discussed in the article. My expertise is grounded in a comprehensive understanding of architectural design, construction processes, and the impact of ADUs on property valuation.

Firstly, let's dissect the key concepts addressed in the article:

1. What is an ADU?

  • An ADU, or accessory dwelling unit, is a secondary living area either attached to or built on the property of an existing residence.
  • Three main types: Attached (e.g., garage conversion, second-story additions), Detached (e.g., separate garage conversion, new construction), and Interior Conversion (e.g., basem*nt apartment, attic remodel, "Junior ADU").

2. Costs of Adding an ADU:

  • The cost varies significantly based on the type of ADU. Examples include $30,000 to $60,000 for a garage conversion and up to $360,000 for a backyard cottage built from scratch.
  • Costs encompass construction, design, planning, permits, surveyor fees, and other associated expenses.

3. How Much Value Does an ADU Add?

  • ADUs contribute value both to life and property.
  • The potential for additional rental income is a primary motivator for many homeowners.
  • The article suggests consulting with an ADU design firm for accurate cost estimates.

4. Generating Rental Income:

  • ADUs can serve as a source of rental income, covering mortgage and housing costs. Detached ADUs, particularly with multiple bedrooms and baths, can significantly increase rental income.

5. Ease of Renting Out an ADU:

  • The demand for ADUs is high, with trends indicating quick occupancy, especially in areas with rising rent averages like Los Angeles.
  • ADU income may not only cover maintenance and utility costs but also pay for itself in a few years.

6. Increase in Property Value:

  • Well-designed detached ADUs have the potential to increase property value by 20-30%, providing a substantial return on investment.
  • The aesthetic integration of the ADU with the existing property and neighborhood is crucial for maximizing value.

7. Investment Opportunity:

  • ADUs can be sold separately from the main property, presenting an opportunity for real estate investors.
  • New guidelines allow the construction of multiple ADUs on a single lot, creating additional income streams and enhancing property value.

8. Conclusion:

  • The article concludes that the value of an ADU is limitless, emphasizing the profitability of the project based on individual goals.
  • Real estate is portrayed as a high-return, high-value, and low-risk investment, echoing Armstrong Williams' sentiment.

In summary, the article provides a comprehensive guide to understanding ADUs, their costs, and the potential value they add to both life and property. The emphasis on consulting with professionals underscores the complexity of the process and the need for expert guidance, aligning with my commitment to delivering accurate and informed insights as an architectural enthusiast and expert.

How Much Value Does an ADU Add? [A Comprehensive Guide] (2024)

FAQs

How Much Value Does an ADU Add? [A Comprehensive Guide]? ›

How Much Does an ADU Add to Property Value? The exact value addition depends on a number of factors, such as ADU purpose, size, type, and location. That being said, ADUs can add anywhere from $200,000-$500,000 to a California home's property value in the short term.

Are ADUs worth the investment? ›

One study from Porch showed that in large cities, a property with an ADU is typically priced 35% higher than a home without an ADU. Constructing an ADU on your property typically increases the resale value of the property, since the house will be appraised with other homes with ADUs.

How much does a guest house add to property value? ›

Detached guest houses on the other hand, add value as a Line Item Adjustment, typically for $15,000 to $30,000. Appraisers may give even more value to a home with a guest house if there are few comparative properties (i.e. if there are no recently sold homes with guest houses).

Does ADU trigger reassessment? ›

The construction of an ADU does not trigger a complete reassessment of the value of your home. Instead, the county tax assessor will do a “blended assessment” of your property. In a “blended assessment”, the assessor simply estimates the value of the ADU, most likely based on the cost of building the ADU.

How much does an ADU increase property taxes in California? ›

Property tax rates on ADUs in California generally range from 1-1.5% of the construction cost. For example, if the construction cost of an ADU is $300K, you might expect to pay around $3,000 as additional property taxes per year.

What is the ROI of an ADU? ›

What is the ROI on an ADU? While the exact ROI would depend on local rental markets, total construction costs and project financing, the addition of an ADU contributes significantly to the long-term value of your home. On average, an ADU may bring you an ROI of 5-10%.

What's one drawback of an ADU? ›

Space Limitations. One of the biggest drawbacks of living in an ADU is the limited living space.

What adds the biggest value to a house? ›

8 ways to increase the value of your home
  1. Clean and declutter. ...
  2. Add usable square footage. ...
  3. Make your home more energy-efficient. ...
  4. Spruce it up with fresh paint. ...
  5. Work on your curb appeal. ...
  6. Upgrade your exterior doors. ...
  7. Give your kitchen an updated look. ...
  8. Stage your home.
Feb 6, 2024

What adds the most resale value to a house? ›

Projects That Boost Your Home's Value
  • Boost the bathrooms. ...
  • Remodel the attic or basem*nt. ...
  • Get decked out. ...
  • Boost curb appeal. ...
  • Improve energy efficiency. ...
  • Swimming Pools. ...
  • Luxury Upgrades. ...
  • Garage Conversions. Converting garages can add square footage to your home's living area, but most buyers want garages.

How is ADU value calculated? ›

Appraisers say that they estimate the value of an ADU by comparing sales of houses with an accessory unit to other sales in recent months involving houses of similar size, condition and location that don't have ADUs.

Can you deduct mortgage interest on an ADU? ›

However, the IRS allows landlords to deduct a variety of expenses associated with ADU ownership, such as mortgage interest, property taxes, insurance premiums, maintenance costs, and even advertising expenses.

What is the new ADU law in California? ›

AB 976 permanently extends the ability of property owners to construct affordable rental ADUs. These provisions had been in place as of 2020, but were due to expire in 2025. The new California ADU law has now made this a permanent provision, and new ADUs can even be built on the same property as existing rentals.

Are ADU tax deductible in California? ›

Tax Benefits of ADU Building Costs For Personal Residence

If your ADU is a rental unit there is an immediate tax benefit called depreciation. The value of the added ADU is divided by a number of years (often 27.5) and each year you can add that slice as an added deduction against your income.

Can I build 2 ADUs on my property in California? ›

Homeowners are allowed (in most cases) to build one ADU and one JADU per lot. However, local jurisdictions must use objective measures when reviewing ADU/JADU applications. And if a local jurisdiction fails to act on a completed application within 60 days, the application is deemed "approved." (CA.

How much is a square foot at ADU California? ›

Building an accessory dwelling unit can cost anywhere from $300 to $500 per square foot. This pricing can fluctuate depending on your location, plans, overall design, size of the ADU, and the quality of the building materials.

Does an ADU add value to a home? ›

Appraisals can vary based on whether the ADU is viewed as additional living space or as a rental property. But broadly speaking, an ADU in California can realistically add $200,000-$500,000 to your property's value.

Is it better to build an ADU or buy a house? ›

A 2021 Porch Survey found that in the Pacific region of the U.S., homes with an ADU see an average 35% increase in resale value over homes without an ADU. As a long-term investment, a housing option for you and your family, and a potential source of passive income, ADUs are hard to beat!

What is the most expensive part of building an ADU? ›

Second, because ADUs are space efficient, traditionally expensive areas will take up more of the total space. Specifically, the kitchen and bathroom will be the most expensive areas of your ADU — think of plumbing and electrical and finishes.

What is a good size for an ADU? ›

Preferred size for ADUs in Los Angeles

We know that everyone is tempted to go with a bigger ADU. However, we here recommend building your ADU under 750 square feet. There are various reasons for it: Constructing an ADU under 750 square feet is exempt from impact fees.

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