Building a detached ADU is one of the best ways to add affordable living space to your property. Discover the math behind investing in an ADU in California.
Potential buyers will see your ADU as an asset; they may want to use it as a secondary dwelling unit, a home office, or a guest house for visitors and family. Building an ADU can generate thousands of dollars in property value – far outweighing the cost of construction.
In This Article:
- Is building an ADU worth it?
- How much does an ADU increase house value?
- Generating rental income with an ADU
- ADUs for Short Term Rental
- ADUs for Long Term Rental
- How do I Choose the Right ADU Contractor?
Is building an ADU worth it?
California home values remain the highest in the nation, and California renters pay 43 percent above the nationwide median, leading to immense strain on low- to moderate-income households.
2020 was a big year for ADUs and other types of affordable housing in CA. Many advocacy groups have continued pushing for deregulation for a while now, and in 2020 several crucial laws got passed to remove obstacles to the ADU development process.
Thanks to these simpler regulations, now is the best time to add an ADU to your property. Homeowners across the state are investing in ADUs for in-law quarters, age-in-place housing, or as income from short-term and long-term rentals.
Ultimately, the value that an ADU can add depends on your reason for building it, what you expect to get out of it, and how you use it. An ADU can be as profitable as you choose to make it.
How much does an ADU increase house value?
Does an ADU improve your home’s resale value? Yes. Like most home improvement projects – like an addition or remodel – you should see a boost in your home’s appraised value after building an ADU.
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. And since detached ADUs cost around $200,000, that is an incredible return on your investment.
Can I generate rental income with an ADU?
Another way your ADU can be a solid investment is by generating rental income. Whether you rent out your ADU or primary residence to short-term or long-term renters, you can quickly recoup your construction costs and build wealth through passive income.
Can I build an ADU for long-term rental?
Some property owners don’t want the hassle of managing a STR listing and the cleaning & logistics it entails. For them, a long-term rental might be a better fit. You can rent out your ADU or choose to move into your ADU and rent out the primary residence at market rates.
In municipalities with strict STR restrictions or bans, a long-term rental may be your only option for rental income.
Can I build an ADU for short-term rentals?
Thanks to Airbnb and VRBO, the short-term rental (STR) market has exploded in recent years. ADUs are a great way to get started or expand your STR portfolio without investing in additional property. If you live in a popular community or near a park or tourist destination, you’ll have no problem booking your ADU. So too if you can maximize your space with a 2nd or 3rd bedroom. Specialty-themed listings can attract more bookings and demand a higher per-night fee.
NOTE: Be sure to check with your local municipality on regulations around short-term rentals.
How do I choose the right ADU design/build specialist?
Designing and building an Accessory Dwelling Unit is a large, complex investment. You need someone who knows the ADU laws and has expertise in designing and installing smaller structures.
Here at Backyard Unlimited, we have spent the last decade installing hundreds of accessory structures throughout California. Our team knows the ADU laws and what it takes to get them permitted and approved. We only use our own employees to design, assemble, and finish our structures. It’s not surprising that discerning property owners choose Backyard Unlimited as their ADU design/build contractor to increase their property value.
