Accessory Dwelling Units (ADUs), also known as granny flats, in-law suites, or secondary units, can potentially increase your property’s Return on Investment (ROI) in various ways. Here are several ways in which ADUs can boost your property’s ROI.
One of the most direct ways ADUs can enhance ROI is by generating rental income. Renting out the ADU provides a steady stream of revenue, helping to offset mortgage costs or providing additional income for the property owner. But don’t just think about renting out the ADU! We’ve seen some homeowners live in the ADU and rent out the main home to increase their rental income. This is a great option for those who want to downsize and need a larger income stream.
According to RentCafe, the average one bedroom apartment in the San Francisco East Bay Area with approximately 827 square feet will cost an estimated $2,570 per month. The average 3 bedroom home for rent in the Bay Area is $4,743 according to Zillow. These numbers are prone to change, so discuss what current rent rates are in your area and for your unique property.
Increased Property Value
ADUs can enhance the overall value of your property. The additional living space and functionality they offer can make your property more attractive to potential buyers, leading to a higher resale value. In a Buyer’s Market, the extra square footage can help you stand out from the crowd and appeal to more buyers. In a Seller’s Market, competition for your home is already high and the extra footage can help you make top dollar on your property. ADUs can boost your property’s ROI in any real estate market!
ADUs are often used for accommodating family members, such as elderly parents or adult children. This multi-generational living arrangement can be a significant selling point and increase the property’s appeal to a broader range of buyers. Furthermore, ADUs can be a great asset so that healthcare workers can live in the ADU while they attend to aging parents, aging parents can live in the ADU while adult children assist the parents, or adult children can live in the ADU to care for aging parents.
With the high cost of senior living, this could be a beneficial option for families who wish to postpone putting their loved one into a senior care community before health issues become more complicated. Many seniors would prefer to live in their own home and near family members. ADUs can boost your property’s ROI, but more importantly, they can help aging family members feel more comfortable and at ease if they can stay in a familiar environment. Studies have shown that seniors who stay in their own home and live near family are often happier and healthier. “The data indicated that those who live with family members have better social integration, well-being and happiness than those who live alone,” cites one study published by the National Library of Medicine.
With the rise of platforms like Airbnb, having an ADU can open up the possibility of short-term rentals. This flexibility can be appealing for travelers and can generate higher rental income during peak seasons or events in the area. Be sure to discuss this option with your city first. Some communities prohibit short-term rentals, but in other communities, it can be a great option!
Home Office or Studio Space
Many people value having a dedicated space for work or creative endeavors. An ADU can be utilized as a home office or studio, making your property more versatile and potentially attracting buyers or renters with specific needs. Additionally, ADUs can boost your property’s ROI with tax write offs. Working from home and utilizing your ADU for business could save you money. Take a moment to call your tax professional or CPA to see what the numbers would look like and if this would be a viable option for your unique circumstance.
And speaking of taxes, depending on your location and the purpose of the ADU, there may be tax incentives or deductions available. Some jurisdictions offer tax breaks for property owners who create affordable housing units or make energy-efficient improvements.
California has created many opportunities to address the affordability housing issue. CalHFA has introduced a grant for homeowners to purchase an ADU. According to their website, “The ADU Grant provides up to $40,000 towards pre-development and non-reoccurring closing costs associated with the construction of the ADU. Predevelopment costs include site prep, architectural designs, permits, soil tests, impact fees, property survey, and energy reports.”
Discuss this option and other opportunities with your lender. You may be pleasantly surprised at the financing programs available today.
Increased Demand for Property
In areas where housing is in high demand, properties with ADUs may stand out and attract more potential buyers or renters. This increased demand can contribute to a faster turnaround when selling or renting out the property. In 2024, Assembly Bill 1033 now allows for ADUs to be sold separately from the main home. This could be a game changer on how ADUs can boost your property’s ROI.
Compared to constructing a new primary residence, building an ADU can be a more cost-effective way to add living space to your property. The relatively lower construction costs can result in a higher ROI.
Before adding an ADU to your property, it’s crucial to check local zoning regulations and obtain any necessary permits. Additionally, consider the preferences and needs of your target market to maximize the impact of the ADU on your property’s ROI.
ADUs Can Boost Your Property’s ROI
Do you want to learn more about how an ADU can boost your property’s ROI? Call ADU Warehouse today! We’re your one-stop-shop for all things ADU and we’re happy to answer any questions you may have. We work with reputable lenders, insurance brokers, real estate specialists, landscapers, and more to guide you every step of the way. We also help you file your permits and our real estate partners will conduct property valuations before and after your ADU project and can share rental information with you. We’re here to serve you!