How Much Value Does an ADU Add?

While it is widely known that ADUs increase property value, the exact amount of value added depends on several factors. In this blog post, we will explore the definitions of home value, compare different types of ADUs, and give insight into cost-benefit analysis for accessory dwelling units.

Property Value vs Resale Value

What is the difference between property value and resale value? And which does an ADU improve?

Property value refers to the appraised value of a property determined by a professional real estate appraiser. Resale value is the market value, or how much people are willing to pay to purchase the property.

While these two values are not always the same, ADUs increase both appraised property value and market/resale value. Property value can increase by as much as 30%, while ADUs have been known to boost resale value by 50% or more.

Types of ADUs

ADUs can be divided into different categories depending on the unit’s proximity to the main house and construction method. Each of these variables impacts the overall property value increase.

Proximity to the Main House

Detached

A detached ADU is located in its own contained structure, separate from the main house. Detached ADUs can be built ground-up or converted from a detached garage or other auxiliary structure.

Pros

• Typically adds the most value
• Adds square footage to property
• Offers more privacy than attached units

Cons

• Generally more expensive than attached or interior ADUs (particularly so for ground-up detached)

Attached

An attached ADU is a unit attached to the main house. Attached ADUs can be a new-build addition to the home, or converted from an attached garage.

Pros

• Sometimes adds square footage
• Second-best value increase (after detached ADU)

Cons

• Offers less privacy than a detached ADU
• In the case of a garage conversion, it takes away the functionality of said structure (i.e. you no longer have covered parking or storage if you convert the space to an ADU)
• ADU ordinance dictates that one can only extend the size of one’s home by 50% of its original size. For example, if your current home is 1,400 square feet, your attached ADU can be no more than 700 square feet.

Interior/JADU

An interior ADU (also called a Junior ADU or JADU) converts existing space within your home (like a basement, attic, or rec room) into an accessory dwelling unit.

There are a number of factors that distinguish JADUs from attached conversion ADUs. Learn more about JADUs in this blog post.

Pros

• Usually the lowest cost option for adding an accessory dwelling unit

Cons

• Doesn’t add square footage
• Offers less privacy than detached or attached ADUs
• Generally adds the least amount of value (but it does add value!)

Construction

Ground-up vs Conversion

Whether your ADU is built from scratch or converted from an existing structure, it will still add value to your property.

Ground-up construction is often more expensive than conversion, but similarly sized units create a comparable property value increase. Therefore, converted units often have a higher ROI than ground-up: while their values are roughly the same, conversions have lower construction costs.

Conversions are limited to the footprint of the original structure, but have the advantage of keeping reduced setbacks.

Read our guide to garage conversion ADUs to learn more about the benefits and drawbacks of this option.

Prefab vs Custom Built

Generally speaking, custom built ground-up ADUs increase property value more than prefabricated units. While prefab units are sometimes cheaper, custom ADUs are typically made from higher-quality materials and last longer.

Cost-Benefit Analysis

When you add an ADU, you are investing in your property. It is worthwhile to make sure you are getting a good return on investment (ROI) before proceeding.

You can estimate your project’s ROI by considering the added property/resale value of the unit plus potential rental income (if you plan to rent out your ADU) and subtracting the construction and permitting costs. Keep in mind that the size and style of ADU (e.g. attached vs unattached) will impact ROI.

Detached conversion ADUs often provide the best ROI since detached ADUs offer the greatest property value increase and conversion is generally less expensive than ground-up construction.

To maximize your ROI, consider hiring a full-service ADU company like Otto. Otto offers design, permitting, and construction management along with transparent pricing, so you don’t need to worry about hidden costs or fees.

Bottom Line

Regardless of which type you choose, accessory dwelling units are always a great investment! While some types may have a higher ROI than others, all ADUs add value to your property and increase resale value. If you plan to rent out your unit, factoring in rental income increases the value of the investment even further.

Contact Otto today for a free consultation and discover how much value you can add to your property.