The accessory dwelling unit market was valued at 3.3 billion in 2023 and is projected to reach $10.6 billion by 2030. Property owners continue to use accessory dwelling units (ADUs) to generate rental income, accommodate multi-generational living, and add value to their primary residence.
If you have recently constructed an accessory dwelling unit (or you’re in the process of building one), it’s essential to understand the impact this ADU will have on your total property value. In a worst-case scenario, your upfront costs could exceed the potential property value increase–in which case, the ADU will never pay for itself.
On average, an ADU project can cost up to nearly $200,000, but is the total impact on property value proportional to those upfront costs? We’ve got those answers and more.
In this article, we’ve compiled a list of the common ADU types and provided insight into their return on investment potential.
ADU’s With The Highest ROI
The garage conversion is one of the more affordable ADU project options you can choose. As you’ll notice in the table below, all costs will vary based on location and even the difficulty of the project.
The garage conversion offers a higher return on investment thanks to its manageable cost and the significant value it can add to your home.
While attached ADUs and above-garage ADUs provide cost savings by leveraging existing structures, detached ADUs offer the most privacy and rent potential but require new foundations and separate utilities, increasing costs.
Tiny home ADUs are the least expensive option but have zoning restrictions and limited resale appeal, which can impact their ROI. No matter the ADU type, location, demand, and construction difficulty, it will ultimately influence costs and the overall return on investment.
| Rank | ADU Type | Approx. Cost Range | Average Size (Square Foot) | ROI Potential | Estimated Value Increase |
| 1 | Garage Conversion ADU | $50,000 – $100,000 | 300 – 600 | High (60–80%+) | $80,000 – $180,000 |
| 2 | Attached ADU | $100,000 – $250,000 | 400 – 800 | High (60–70%+) | $130,000 – $340,000 |
| 3 | In-Law Suite | $60,000 – $150,000 | 350 – 700 | Moderate to High | $100,000 – $255,000 |
| 4 | Above-Garage ADU | $150,000 – $300,000 | 400 – 800 | Moderate to High | $180,000 – $425,000 |
| 5 | Detached ADU | $150,000 – $350,000 (or more) | 400 – 1,200 | Moderate (50–70%) | $225,000 – $510,000 |
| 6 | Tiny Home | $30,000 – $100,000 | 100 – 400 | Moderate | $55,000 – $170,000 |
Source 1, Source 2, Source 3, Source 4
Types of ROI to Consider
When analyzing the ADU value and its return on investment, it’s easy to think about how much more a property will be worth when the project is completed. However, that is not the only ADU add value to consider.
Let’s say, for instance, a homeowner in Los Angeles does a garage conversion that adds $150,000 to the home’s value. The construction costs for this conversion were $80,000, translating to an 87% return on investment.
The property owner has three types of ROI in this instance:
- Immediate Equity Increase: The property increased in value by $150,000, with $70,000 being over and above construction costs.
- Ongoing Rental Income: Monthly cash flow that offsets construction costs and loans and eventually yields profit.
- Long-Term Appreciation: Over time, the value of both the main house and ADU may grow, especially in markets with housing shortages.
ADU Cost Breakdown (What You May Be Missing?)
While the overall construction costs are usually at the forefront of your mind, other costs are associated with building an ADU that will impact your ROI.
| Cost Category | Typical Range | What to Expect |
| Permit & Impact Fees | $5,000 – $25,000 | Costs vary by city; some areas offer discounts or waivers. Required permits include building, electrical, plumbing, and zoning. |
| Utility Hookups | $5,000 – $15,000 | New water, sewer, or gas lines may be needed. Detached ADUs often require trenching, increasing costs. |
| Architectural Fees | $3,000 – $10,000 | Custom designs must meet local codes. Hiring an ADU-experienced architect can prevent costly mistakes. |
| Construction Costs | $100 – $400 per sq. ft. | A detached unit costs more than an attached unit due to foundation and roofing needs. Costs also depend on materials and labor in your area. |
| Financing Options | Varies | Home equity loans offer lower rates; construction loans are more flexible but may have higher interest. |
| Property Taxes | Varies (based on ADU value) | Property taxes increase based on the ADU’s assessed value, not the total home value. Rates depend on local tax laws. |
How ADUs Affect Home Appraisals (Why ROI Can Vary)
While we have given you ranges for what you can expect, a property appraisal will ultimately be needed to determine ADU’s return on investment. With an ADU add, you can almost always expect an increase in value (as long as proper permitting and ADU ordinance regulations are followed), but the amount varies.
- Appraisal Method: Appraisers use comparable sales when possible, but in areas with fewer ADUs, they may use a cost-based approach (construction costs plus expected ROI), which can impact valuation.
- Square Footage May Not Fully Count: Some lenders and appraisers don’t count ADU square footage in the same way as the main house, especially if it has a separate entrance.
- Detached vs. Converted Space: Detached ADUs typically appraise higher than garage conversions since they are fully independent living units.
- Local Market Demand: ADUs in high-rent areas often receive higher appraisals, as seen in places like the San Francisco Bay area, where additional living space is in high demand.
ADU Investment vs. Renting the Land (Alternative Monetization)
Depending on the type of land and space you have, there is also the additional option to take that space and turn it into monthly rental income through vehicle, boat, or RV storage (rather than building an ADU on it). The additional square footage doesn’t necessarily need to be converted into additional living space to help you capitalize on potential rental income.
Platforms like Neighbor.com make it easy to rent out your garage, driveway, or yard for storage. In most cases, only minor upgrades, such as security cameras and lighting, are needed to prepare the space.
This option requires far less capital, fewer permits, and a quicker path to profit compared to building an ADU. However, the trade-off is that resale value remains largely unchanged, and rental income may be lower than a fully completed ADU.
Final Thoughts
Remember that while an ADU can be a viable channel for passive income (should you choose to rent your above-garage or detached ADU), you can also earn supplemental income by renting the vacant land you have–no construction necessary.
Before investing, consider your options.
