Are ADUs A Good Investment? Here’s 8 Reasons Why They Are

May 23, 2022

Accessory dwelling units (ADUs) are gaining steam across the U.S., especially in bustling West Coast housing markets, like the San Francisco Bay Area, where available affordable housing is in short supply. But does the rapid growth of the ADU market make them a good investment prospect? All signs point to yes, and here’s how.

8 reasons why ADUs are a good investment

There’s no shortage of ways an ADU can add value to both your investment portfolio and your quality of life. Eight oft-cited reasons why ADUs are a good investment include:

1. They can provide passive income as a rental unit

Perhaps one of the most compelling and common reasons to build an ADU, adding a second, separate dwelling to your property can bring in additional income each month. Each ADU provides a fully functioning living space just like any house, complete with a kitchen, bathroom, living space, and sleeping space. In areas like the San Francisco Bay Area where rental housing is in high demand, an ADU on your property can provide much-needed housing while benefiting your finances in the long run. In the Bay Area, ADU owners charge an average of $2,200 per month in rent.

Depending on the laws in your municipality, you may also consider renting out an ADU as a short-term stay with features and benefits above and beyond what any hotel can provide. In San Francisco, the average Airbnb is reserved for $191 per night.

2. They increase the value of your property

When it comes time to sell your property, you can expect to fetch a higher price with an ADU in the mix. For starters, detached ADUs add to the total square footage of your home, increasing its value by default. Interior conversions such as garage and basement ADUs can also increase your property value – similar to how renovating your kitchen can increase your home’s value. 

Additionally, most potential buyers are willing to pay more for properties with ADUs. That’s because ADUs create a built-in opportunity for passive income, or for extended family, without needing to manage the construction process on their own. 

How much value ADUs add, however, greatly depends on the ADU you build. This figure can fluctuate depending on the square footage of the ADU, the square footage of the original property, the total square footage of both structures, the type of ADU constructed (whether detached, a conversion, or attached), if it’s built to local code or federal code, and other factors.  But in most situations, with an ADU built to local standards (factory built with permits through a state agency like Department of Housing and Community Development or site built), the ADU will increase the value more than the cost of the ADU.  (ADUs built to federal HUD standard may or may not be more valuable than the cost of the ADU over time.)

Aerial view of homes in a neighborhood
Photo by Breno Assis on Unsplash

3. They can house older family members

More than 17 million Americans care for an older relative. As the population of older adults continues to grow by leaps and bounds, it’s safe to say that more people will find themselves caring for an aging parent, grandparent, or other older family member. However, caregivers and older adults alike still need their own space, and an ADU can provide that. With an ADU, someone can safely grow older in an accessible home that complies with ADA guidelines, all while being steps away from their primary caregiver.

4. They create extra space for work or play

ADUs are incredibly versatile, and they aren’t limited to generating passive rental income. An ADU can fit your vision and serve a multitude of purposes outside of daily living.

Move your home office out of the basement and create a truly separate area for work tasks away from your home sanctuary. You can take calls in peace, away from the hustle and bustle of your home, and even entertain clients outside your private space. 

Similarly, a hobby that takes up a good amount of room – say, woodworking or painting – would be an excellent fit for an ADU. With fully outfitted electric, water, and sewer, you can power equipment and rinse off your brushes all in the same space.

5. They give guests their own private space

If you regularly host friends and family from out of town, an ADU can serve as their own oasis while staying steps away from your door. This frees up guest areas inside your home for other everyday purposes, and guests get more privacy while benefiting from your hospitality. 

6. They make great use of underutilized space

A backyard or adjacent lot has lots of potential to contribute to your property’s overall value. An empty lot, unused basement, or a detached garage you don’t need can either be converted into or serve as the future home for an ADU. This turns that space into a revenue-generating, valuable addition to your property.

7. They can make downsizing easy

“Empty nesters” whose children have moved out have a lot more space on their hands than they know how to utilize for just a single person or two people. But if they love their neighbors and neighborhood, moving out of a familiar place may not be a change they want. An ADU can be the perfect solution. In this situation, empty nesters can construct an ADU on their property and either sell their main home or rent it out for additional, passive income each month.

Couple sitting along a coastline
Photo by Katarzyna Grabowska on Unsplash

8. They can house adult children in their own space

The number of young adults aged 18-29 returning to live with their parents jumped during the COVID-19 global pandemic. While those figures have mostly returned to their pre-pandemic levels, the fact still remains: Millions of young adults live with a parent. These individuals need a place to call their own, and an ADU can serve that purpose. And when that young adult moves out on their own, the ADU can be rented out for additional passive income.

What determines property value once an ADU is built?

If you’re investing in an ADU to increase your property value, there are a few things to keep in mind to maximize what it’s worth. There’s no hard and fast rule or figure that guarantees a certain dollar amount when it comes time to sell your property. The value an ADU brings to your property is primarily calculated based on the amount of square footage it adds to your home.

ADUs contribute to the total square footage of your property. For example, if your current home is 2,000 square feet and you build an ADU that totals 615 square feet, your total square footage will clock in at 2,615 square feet. That number is what you’ll use to calculate how much your property is worth.

The size of the ADU itself is also a factor in determining your property value once an ADU is built. Studio and one-bedroom ADUs – the latter can be hundreds of square feet larger – all have different values assessed to them. As the size increases, so does the value of the ADU. 

Starting your ADU project with Spacial

Living Room of Spacials One Bedroom ADU
Photo by Spacial

An ADU’s value lies in its versatility. Whether you plan to rent it out, house an aging parent, or use it as your home office, an ADU is flexible enough to fit your lifestyle. And with Spacial, the ADU construction process is seamless.

Spacial’s modular system eliminates much of the typical complications of construction. There’s no blueprint to design – just select your model and finishes, and we take care of the rest. This streamlined approach shaves months off the ADU construction process: In fact, the average time to completion is less than a year with Spacial. And once you choose your model, we get right to work assembling your ADU off-site, avoiding messy and noisy construction on your property.

Best of all, through a single point of contact at Spacial, you won’t have to play project manager among all your other responsibilities. Your point of contact handles the permitting, scheduling, and all other parts of the process, so you can sit back and relax as your ADU is built. With a process this seamless, the investment you make in your property’s future is well worth it. Contact Spacial to get started.