If you have considered ways to add significant value to your home, you will most likely have considered building an ADU. Of all the benefits that an accessory dwelling unit offers beyond the creation of additional living space on the property, the potential increase in your property value is one that most find attractive. Adding some value is one thing, but exactly how much value does an ADU add? We look at what kind of increase you can anticipate and exactly how the construction of an ADU can boost your home’s value.

how much value does an adu add to a house

Thinking about investing in an ADU?

Call us now at 818.900.9626 for a free consultation or Get a Free Quote

How Does An ADU Add Value?

There are a few fundamental ways in which an accessory dwelling unit can increase property value. The value that can be generated depends greatly on location, property type, square footage, and numerous other factors. With this being said, the driving force behind value increase comes from these four aspects:

Direct Value

The construction of an ADU, be it the conversion of an existing space or the construction of a new structure, is always considered a good investment. Not only because of how the space can be used but also because of its excellent ROI.

The addition of an ADU can significantly increase the overall value of your property. Real estate markets, specifically in California, often place a premium on homes with ADUs due to their potential rental income and versatility.

Rental Income Potential

One of the most direct ways ADUs will help to increase property value is by providing an additional source of income. Homeowners can generate rental income by renting out the ADU to tenants, which can help offset any mortgage payments or property-related expenses.

There is no obligation to rent out the property to new tenants, as ADUs can accommodate multi-generational living arrangements, allowing families to live together while still maintaining a level of privacy and independence.

Many prefer to view these dwellings as in-law suites or extra rooms for the family. This is especially relevant in California’s diverse cultural landscape, where extended families often share living spaces.

Market Appeal

Another way that building an ADU will increase your property value is by increasing market appeal amongst both renters and buyers. ADUs offer flexibility, allowing for multi-generational living, housing for caregivers, private guest space, or even a home office — an increasingly high priority amongst house buyers.

This installation can attract a broader range of interested parties, thus potentially increasing demand for the property. Additional rental income for those buying your primary residence is also attractive for those looking to buy.

The increased market appeal may not add direct value to the property. Still, the increased demand will create competition amongst bidders and allow homeowners to take advantage of that with a higher listing on their local real estate agent.

Flexibility and Versatility

ADUs offer flexibility in how they can be used. They can serve as a guest suite, a home office, a studio space, or even a short-term rental for tourists (in areas where permitted). This versatility adds functional value to your property.

ADUs are adaptable spaces that can accommodate changing needs over time. As your family grows or circumstances change, the ADU can evolve to meet new requirements. This adaptability adds to the long-term value of the property.

Beyond Cost

Adding value to your home is based on more than just the resale value alone. Homeowners also need to consider the increased amount of inhabitable square footage, tax benefits, and energy efficiency.

Added space allows homeowners to enjoy their homes in a number of ways which could include having guests stay, creating a dedicated space for hobbies, and just about anything else that you can think of.

Depending on local regulations and tax laws, adding an ADU might lead to property tax benefits or incentives. Homeowners should consult with tax professionals to understand the potential tax advantages of having an ADU.

Many modern ADUs are designed with energy-efficient features and sustainable materials. Incorporating eco-friendly elements can lower utility bills and contribute to a greener lifestyle, which can enhance the perceived and actual value of your property.

how much value does an adu add california

Which Type of ADU is the Most Valuable?

The umbrella term accessory dwelling unit covers a range of different types of construction, but which is the most valuable? Whether you’re looking to directly add resale value, open up a passive income stream through potential rental income, or make your home more attractive to buyers, here is a brief explanation of each type of ADU and how valuable each construction could be.

Detached ADU

A detached ADU is a separate living unit not physically connected to the primary dwelling. It is a standalone structure typically located in the backyard or on the same property but separate from the main house. Detached ADUs can vary in size and style, ranging from small cottages to larger structures with multiple rooms.

In terms of value, this is by far and away the investment that will yield the most in terms of value. Detached ADUs offer much more scope regarding square footage and construction styles. Those looking to earn rental income from an ADU will always fare better with a detached property, as it provides the comfort of privacy for renters.

Attached ADU

An attached ADU is an additional living unit physically connected to the primary/main dwelling on the property. It shares at least one wall with the main house and might even share utilities like water and electricity. The attached ADU is often built to extend the existing structure, such as an added wing or a converted portion of the house.

Despite not offering quite the amount of value as a detached ADU, at least not as a rental property, they can still boost the home’s value. Those who take on this kind of ADU project are usually forced to do so because of limited budget or space on the property.

Garage Conversion ADU

A garage conversion ADU is a type of attached or detached ADU that is created by converting an existing garage into a living space. This involves transforming the garage area into a self-contained unit with its own entrance, living areas, kitchenette, home offices, and bathroom facilities.

Garage conversion ADUs are a popular option for adding additional living space without expanding the footprint of the primary house. Home improvement projects such as a garage conversion can offer great return on investment, often better than the likes of an attached ADU. This is due to the relatively lower cost of interior conversions and building costs, plus the potential monthly rental income such a property could have.

Property Value Vs. Market Value

When considering the resale value of the ADU, it is important to understand the differences between the valuation of the property and future market value.

When you map out the potential design of an ADU, any calculations should be based on your property’s current value and the same with regard to how much rent you may be looking at. Planning for long-term income through rent, or indeed a future sale, is tough, given how quickly the market can change.

The property value is what your home is worth right now, but this can easily be impacted by market value, depending on what is happening around you rather than what you are doing on-site. The great news is that the more of your neighbors who build ADUs, the more likely the market value of all properties in the area will increase.

how much does adu add to home value

Thinking about investing in an ADU?

Call us now at 818.900.9626 for a free consultation or Get a Free Quote

How Much Does an ADU Add to Property Value in California?

If you live in California and like the idea of having an additional property that can generate extra income, create extra square footage, or increase your property value, here is the amount of value you can expect to see in return.

Firstly, there are multiple aspects to consider here, including the type of ADU. Will this be a granny flat? An attached unit? And how much additional square footage will you be looking at? These considerations directly impact construction costs and affect how much value you’ll be able to add to your property.

ADU ordinance differs from state to state and even from one local municipality to another. To keep things simple, we’ll focus solely on California and what kind of return value you may see when building an ADU here.  Californian homeowners construct a range of ADUs on their properties, and both granny flats and garage conversions make up the largest percentage.

As we have stated, the best type of accessory dwelling unit to increase property value is a detached ADU, which will set you back an average of $300,000 – $400,000. You could drive the price of a detached ADU like a granny flat down, of course, with modest interiors and lower-cost materials.

Based on that outlay, many experts in the local housing market in California suggest that an investment property or project can add an extra 30% of the existing market price onto the property’s value.

The cost, on average, of building an ADU is between $300-$400 per square foot. This includes materials, labor, design, architecture costs, permits, and every other construction detail you could consider.

Despite this guide price for original investment, there is no exact dollar amount you’ll see in return, given that it is based on the market valuation of your primary residence. Using the 30% figure is a better way to get an accurate price increase that accessory dwelling units will give you.

In terms of rental income, here are some median prices for ADU rentals here in California:

  • 2-bedrooms – $2,600
  • 1-bedroom – $1,750

You’ll have to factor in monthly costs to these figures, such as property tax, insurance, utility upgrades, landscaping costs, and more, which give you a median income of around $650 per calendar month.

Time To Invest?

How much value does an ADU add? More than enough for you to consider investing money into this project and building a great ADU on your property. Whether you want to house some family members, create a side income, or boost the value of your home, this is a smart move that will deliver results. It’s important to note that regulations and benefits related to ADUs can vary by location, so homeowners should always research and consult with local authorities before embarking on an ADU project.

If you’re interested, contact Build Method for a free quote and we can walk you through and take care of the entire process.