How Much Value Does an ADU Add?

4 Replies

Does anyone have any research on how much ROI an accessory dwelling unit brings to the property? For example, if my house is worth 600K, and I invests 100K in the project, and turn around and sells it tomorrow -- what would an estimated increase look like? I've heard 70% ROI thrown out there and I'm just curious what BP community's experience has been. I realize that ADU's are best for long term investments, just trying to crunch some numbers.

My mom lives in San Diego (suburbs - La Mesa specifically) and she has a granny flat attached to her garage. It was like this when she bought the house in the early 90s. I've been discussing with her converting the full garage and instead of having a teeny 250 sq ft granny flat converting it to 800 sq ft apartment and renting it out. Currently, she's using it for her home office (and losing out on the rental income!) Even as it stands it looks like she could rent this for at least $700/mo. 

All depends on your market. I would advise you check comps for recent sales with ADU's similar to your sq. footage/neighborhood/rooms and baths. Get a realtor involved if your data is insufficient or inconclusive.

When comparing comps -- do you think you could compare it to houses with the new amount of sq footage? 

Ex: My house was 1700 sq ft. I built an ADU that's 800 sq ft. I can look at value of houses in my neighborhood that are ~2500 sq ft. Or is that flawed logic? There just isn't a lot of ADU data.

Here in Austin, ADUs are popular as rentals and can be sold separate from the primary residence, if a Condo Regime is drafted and filed, per the Texas Uniform Condominium Act. This strategy works here, but may not be available in your market. 

Typically, the smaller the square footage for residential properties, the higher the price PSF. I would think two independent structures should have two comps, reflecting the use and appraised value of each (as far as the floorplans go).
 

@Caitlin Bigelow

As @Mike Walker said, this can differ from market to market. However, I'm interested in this question and have made it a point to ask every Austin area appraiser I've met in the past year or so, "So, how do you handle an ADU's contribution to appraised value?" The answers vary, of course, but they have all independently said that they usually take 1/3 to 1/2 of the "main" home's $/sqft. and apply that to the ADU. This heavily depends on the quality and finish-out.

Also, if it's the only home with an ADU in the neighborhood (or otherwise no comparable sales with an ADU), appraisers can have a hard time proving value. I ran into that with a seller whose home is literally the only home with an ADU in a rather large neighborhood.

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