On average, accessory dwelling units (ADUs) can increase property value by 20-30%. That means if your home is valued at $500,000, adding an ADU could increase its value by $100,000 to $150,000.
ADUs — such as granny flats, in-law suits, or backyard cottages — provide much-needed space and flexibility for today’s changing family dynamics, making them a lucrative investment for homeowners.
That said, that property value increase depends on several factors, including location, size, design, and local market demand.
Factors That Influence ADU Value Increase for Property Owners
Here are a few factors to keep in mind when determining how much value an ADU will add to your home or investment property.
Type of ADU
Most ADUs can be separated into two categories — detached or attached. A detached ADU, which is a standalone structure separate from the main house or building, generally adds more value than an attached ADU, basement, or garage conversion.
Detached ADUs are popular because they offer complete privacy, making them ideal for rental purposes or multigenerational living. An attached ADU, on the other hand, shares at least one wall with the main house and may be limited in size and privacy.
Garage or basement conversions, which turn these areas of your home into a separate, livable space, can add value but may not be as valuable as purpose-built ADUs. Garages and basements often have lower ceilings, limited natural light, and fewer design options, limiting value.
Size & Design of ADU
Additionally, the size of the ADU matters. A bigger, well-designed, and aesthetically-pleasing ADU with functional space and modern amenities will boost your property’s appeal and value.
ADUs with more square footage have more space for those amenities that buyers want, such as multiple bedrooms, a full kitchen, larger bathrooms, and a work-from-home office space. This allows renters or property owners more flexibility and lifestyle value compared to smaller, studio-style units.
Durable roofing, proper insulation, beautiful flooring, sustainable features, and sturdy foundations are also more appealing to potential buyers and tenants, ensuring long-term value.
Rental Income Potential
One of the biggest financial benefits of adding an ADU is the potential for rental income. If the ADU can be rented out as a long-term rental or a short-term vacation rental, you’ll get a steady stream of income.
In high-demand rental markets, ADUs can generate thousands of dollars per month. The ADU can increase desirability for future buyers and investors looking for income-generating properties. Homes with rentable ADUs tend to sell faster and at higher prices than comparable homes without them.
Location and Market Conditions
The location of your property and the current housing market conditions play a significant role in determining how much value your ADU will add. In high-demand rental markets, ADUs can substantially increase property value by providing much-needed housing options.
Some cities have ADU-friendly policies, such as low or no permit fees, allowing larger ADUs and minimal restrictions so it’s easier to build and benefit from an ADU.
Permitting and Compliance
ADUs that meet local building codes and zoning regulations are more likely to add value than unpermitted units, which can actually be a legal and financial liability.
Building codes and zoning regulations vary. Working with an experienced contractor or architect familiar with ADU regulations can streamline this process and ensure your structure is in compliance.
Benefits of Adding an ADU to Your Property
ADUs offer numerous benefits beyond just increasing property value. Here are some key advantages for homeowners and investors.
Additional Rental Income
Renting out your ADU, either long-term or as a short-term vacation rental, can give you and your family a steady source of passive income. This money can help you offset mortgage payments, property taxes, and maintenance costs or significantly change your lifestyle.
Multigenerational Living
Family dynamics are changing and more families are opting to live together longer for personal and financial reasons. ADUs create a separate living space for loved ones — including elderly parents or grandparents, adult children, and other extended family members — while giving you privacy and boundaries.
Flexible Space for Homeowners
Life can change quickly, and ADUs allow your home to adapt along with you and your family. ADUs can serve as a home office for remote work, guest house, art or fitness studio, storage space, and so much more, providing additional usable space tailored to short and long-term needs.
Potential Tax Benefits and Incentives
Some areas, especially those where housing is limited, offer tax incentives and grant options for building ADUs. This can help offset the costs and boost your return on investment.
Find Out if an ADU Is a Good Investment for You
If you’re considering adding an ADU, weigh the costs against potential benefits. While upfront expenses can be high, long-term benefits such as increased home value, rental income, and additional living space may outweigh the initial costs.
With growing housing demand and shifting urban planning policies, ADUs are becoming a sought-after feature.
If you’re interested in understanding how much value an ADU could add to your property or how much your existing property with an ADU is worth, a professional property valuation can provide precise insights.
Our team of real estate valuation experts can provide a fast and accurate property valuation in as little as five business days! Contact us today to get started.