Ever since Accessory Dwelling Units (ADUs) entered our lives, things have only gotten better. Thanks to new ADU laws and regulations across Southern California, it’s become easier to bring these tiny secondary suites to life. However, this has raised many questions, perhaps the most common being, “Does an ADU increase my property value?”
That’s why the Go Home Builders team has created this super easy-to-understand ADU guide just for you!
Does an ADU Increase My Property Value?
Absolutely! Any home improvement project that increases your existing square footage will also increase your property value, especially an ADU.
Think about it: when you purchase a house, you pay a price per square foot, right? It’s the same with ADUs. The square footage of the ADU gets calculated into your house’s square footage as well since it is a living space after all. Building an ADU can significantly boost your property’s value (by hundreds of thousands).
Given California’s sky-high property prices, building an ADU on your land is like finding a cheat code for boosting your Return on Investment (ROI).
Does this mean you should invest all your money in building an ADU right now? Not necessarily.
Can ADUs Increase My Property Value in California?
Does a hammer hit nails? Yes, adding an ADU (Accessory Dwelling Unit) can increase your property’s value in California. Typically, the all-in design-build cost for an ADU ranges from $350 to $450 per square foot. Considering that the average home price per square foot in California is around $500, with prices in certain areas like San Francisco or Beverly Hills surpassing $1,000, an ADU can offer a substantial return on investment. By boosting your property’s square footage, an ADU can increase your property’s market value, making it a smart financial decision.
By How Much Can an ADU Increase My Property Value?
The math is pretty straightforward. The average ADU size in California is about 400 square feet. Let’s assume you live in a nice area but not a super expensive one (or if you do, you don’t need to keep reading and can just build an ADU next week). The price per square foot in the neighborhood could be between $650-$850. So, the ADU could possibly add between $260,000-$340,000 to your property value.
That said, the exact value addition depends on several factors, such as ADU size, type, quality, and location. And of course, we’re talking short term; for the long term, it can be more than that. You know how wild California home prices can be.
How to Calculate the Value an ADU Adds to Your Property.
How an ADU Affects Your Home’s Value
Imagine you have two identical ADUs. They are the same size, same design, same in every single way. Except, one is in Palo Alto, the other in Pasadena. Will they have the same value? Definitely not. The location of your ADU is the most crucial factor in establishing its value. Building in the right area can boost your ROI (return on investment). That’s why location is the top reason for the value of an ADU.
Understanding ADU Size and Its Impact on Property Value
Imagine you’re building a 400 sq. ft. ADU and it adds $200,000 to your property value. That’s $500 per square foot. Now, if you build an 800 sq. ft. ADU, it might add $350,000 to your property. Even though the total value increase is higher, the value per square foot drops to $437.50. This happens because while a larger ADU adds more overall value, each additional square foot adds a bit less value than the previous one. This is known as diminishing returns in real estate.
As you keep adding more space, each additional square foot becomes less valuable because the market doesn’t value the extra space as highly as the initial space. Essentially, the first 400 sq. ft. adds more value per square foot than the next 400 sq. ft. because the need for space is being increasingly met. smaller ADUs (around 400 to 600 sq. ft.) are highly desirable as they provide essential living space without being overwhelming.
However, as you build beyond 800 sq. ft., the added space is less critical to most buyers, leading to a lower value per square foot. This is because the market views larger ADUs as less efficient or necessary, especially in areas with space constraints.
Different Types of ADUs to Consider
High-Quality ADU Build and Design
Is Building an ADU Worth It?
Top Reasons to Build an ADU on Your Property:
- Space: Let’s face it, everyone needs more space. A well-planned ADU can give you just that. Whether you need more space to live, host family members from out of town, have a quiet place to work from, or even just a mini getaway for yourself, an ADU can answer all of those questions or at least some of them.
- Income: Thinking of extra income? An ADU can give you just what you wish for. ADU rental has become a hot topic these days. There are two ways of doing it: short-term rental (Yes, you can Airbnb your ADU!) and long-term rental. Having a student, a couple, or even a small family renting your ADU could provide you with a nice, steady income without worrying about management and cleaning fees every other week.
- Property Value: As we covered earlier, building an ADU can increase your property value and may give you a great ROI. It all depends on your current house value and the housing market, of course.
TOP Reasons Why You Should NOT Build an ADU:
- Time: Building an ADU takes time; it’s simple but not easy. An average ADU takes between 4-6 months from start to finish. You must ensure you have the availability to check on the progress from time to time.
- City Regulations: Every ADU requires architectural plans and engineering calculations attached to it. Once you have the plans, you must submit them to the city for approval, a process that can take up to 6 months (depending on the city). Some people have illegal structures on their property and don’t want to share them with the city.
- Invasive: Like every home improvement project, building an ADU can be pretty invasive. You’ll have strangers on your property for a long period. You should ask yourself before you start, “Am I ready for this?”
- Money: Unfortunately, building an ADU is not free. If money is a challenge, you should think twice before getting into it. Most people take a loan to afford it; if you do, make sure you’re 100% comfortable with the payment plan.
- Property Tax: While adding an ADU can be very beneficial, it will increase your property tax. Some less, some more. The exact amount depends on the ADU’s square footage.
We hope that we have given you a frank and realistic look at ADUs. And hopefully answered the question: “Does an ADU Increase My Property Value?” Like it or not, ADUs have entered our lives and are here to stay. ADUs have pros and cons, like all of us 😉 If you are thinking of adding an ADU to your property, contact our Go Home Builders team today and let us build your dream ADU. Contact us today, and let’s Go Build together the perfect ADU for you.
Ready to Start Your ADU Project?
At Go Builders, we’re here to turn your vision into reality. Our team of experienced architects, contractors, and specialists is ready to guide you through every step of your ADU construction process. Don’t navigate the process alone—let Go Builders help you create the perfect space on your property.