ADUs can add new functionality to your home, which is the main reason homeowners consider creating one. But many also wonder, “Does an ADU add value to your home? Will you get your initial investment back, or are you more likely to come up short?”
If you’re trying to figure out, “Does adding an ADU increase property value?” and also want to learn about ADUs, including what they are, what you can do with them, and more, here’s what you need to know.
What Is an ADU? The ADU Definition
ADU stands for “accessory dwelling unit.” When it comes to the ADU definition, ADU refers to any secondary house or apartment that’s part of a larger main house property. A guest house and mother-in-law suite are prime examples of an ADU, as well as a basement apartment. However, those aren’t the only kinds of ADUs around.
One defining characteristic of an ADU is that it’s an “accessory” dwelling. You can’t buy or sell the ADU separately. Instead, it remains attached to the primary property in the legal sense, even if it’s a detached dwelling.
What You Can Do with an ADU
ADUs usually serve one of two functions. First, many homeowners use ADUs to provide homes to aging relatives or family members who need direct support from family members. With an ADU, the family member maintains a degree of autonomy. However, they are also close enough to receive help whenever the need arises.
Second, ADUs have earning potential. Depending on where you live, you may be able to rent out an ADU to a long-term tenant, giving you a reliable source of income. Listing the ADU as a short-term vacation rental could also allow you to make some money from the dwelling without having someone living on your property full-time.
It’s important to note that ADUs aren’t allowed in all areas. Some municipalities have zoning laws that restrict ADUs. If your home is part of an HOA-covered neighborhood, the HOA could have rules as well. In either case, they may bar ADUs entirely, limit their number within a certain region, or restrict the overall size.
Additionally, some areas that permit ADUs may restrict how they’re used. For example, you may be allowed to secure a long-term renter or have a relative reside there but might be barred from listing the property as a short-term or vacation rental.
Since laws can vary by city and state, you’ll want to check regulations near your home before attempting to add an ADU to see if there are any restrictions. Additionally, adding an ADU to an existing property almost always requires a building permit, so you’ll need to check the rules for acquiring one of those, as well.
How Much an ADU Costs
The cost of a new ADU depends on several factors. Whether you’re converting an existing space, adding an addition, or building it separate from the main house plays a role. Generally, attached ADUs cost less than detached ones. Additionally, converting existing living space – such as a finished basement – typically comes with a smaller price tag than updating an unfinished room and making it an ADU.
The overall size and chosen features are a critical part of the equation. As the square footage goes up, so can the price tag. Similarly, if you select higher-end finishes and features, you’ll pay more than if you stick with lower-cost materials and limit the extras.
Generally speaking, an ADU could cost $30,000 to build or $300,000+. It all depends on the outcome you want to achieve.
Does an ADU Add Value to Your Home?
In most cases, an ADU does add value to your home. However, if you’re wondering, “how much value does an ADU add?” the answer is, “It varies.” Additionally, depending on the initial cost, final result, and general desirability in your region, the return on investment (ROI) from adding an in-law suite or other kind of ADU may also vary.
ADUs are highly desirable in some situations. Homeowners may appreciate their earning potential, particularly in higher-cost areas where rental housing options are limited or regions with lots of tourism. Others can envision using the space for a family member, causing the property to stand out from homes that don’t offer one.
However, when you build an ADU, making a sacrifice usually comes with it. For example, detached ADUs take up yard space or limit how you can use the land, while garage conversions mean there isn’t a usable garage.
Whether the trade-off is worthwhile depends on your primary goals. If you plan on using the ADU as a living space for a relative or as a source of rental income, the investment may be worthwhile because it provides you with the desired functionality. Essentially, it helps you use your house in the best way based on your needs, so the sacrifice isn’t as concerning.
If you’re adding an ADU solely to make your house stand out when you go to sell, you’ll need to consider how ADUs are perceived in your market. Desirability matters, as an ADU won’t lead to a significant rise in resale value if buyers aren’t looking for ADUs.
Additionally, you’ll have to determine how the sacrifice that came with adding the ADU impacted your property value. For instance, if you turn a garage into an ADU but buyers prefer properties with garages, the ADU might not lead to a significant price increase.
In most cases, the answer to the question, “does an ADU increase property value?” is “yes.” But by looking at the full picture, you can estimate the overall financial impact and ROI. When in doubt, speak with a real estate professional about the desirability of ADUs in your area. That way, if you’re plan is to sell for top dollar, you can choose an approach with the best ROI.
How to Add an ADU to Your Home
If you want to add an ADU to your property, there are several ways to go about it. First, you can look at updating existing spaces to create an ADU. If your basement has a separate entrance, turning it in an ADU could be a viable option. This is particularly true if the basement is already finished and has other features, like plumbing running to that level.
Converting a garage is also worth considering. Often, garages are fairly sizeable and are primarily open spaces, so you may be able to create several rooms or use a loft-style design approach. However, since they aren’t living space, you’ll need to bring it up to an appropriate standard. You may need to run new plumbing, electrical, and HVAC, as well as address the flooring, insulation, and garage door.
You could also go with an addition. This allows the ADU to share a wall with your home, potentially reducing the total cost and making adding utility connections easier. However, it usually involves building from scratch, something that can be costly and time-consuming.
Finally, you could potentially explore a detached ADU. With these, you could either build from the ground up or go with a manufactured option, like a prefab mother-in-law suite or a pre-built tiny home. Often, this approach is the most expensive. You’re essentially adding a new house to your property, and that isn’t a small feat.
Still, a detached accessory dwelling unit is worth considering if you want extra privacy, as it doesn’t connect to the main house. Plus, it could make it more attractive if you’re creating a rental, allowing you to find a short- or long-term tenant with greater ease.