April 18, 2024

Business Bib

Business & Finance Blog

Can an Accessory Dwelling Unit Increase Home Value?

3 min read

Median home prices in America might have topped $400,000, but that doesn’t mean that you can’t find ways to push the sale price of your home up a little. There are many common approaches.

People will do small repairs that improve the home’s appearance. They might do a medium-sized remodel on an outdated bathroom. They’ll call in landscapers to clean up their yards and spruce up the flower beds.

If you’re thinking in the long-term, though, there are home upgrades that increase value. One option that might not have turned up in your research is an accessory dwelling unit.

Wondering if or how an ADU increases value? Keep reading to learn the essentials.

What Is an Accessory Dwelling Unit?

An ADU is a separate structure on your property that serves as an independent living space. In most cases, they include the essentials, such as:

  • Electricity
  • Plumbing
  • HVAC

Most include a small kitchen, a bathroom, and a bedroom. Depending on the size and design of the unit, you might see a separate living room area. In others, it’s more like a studio apartment that treats the bedroom and living room as a shared space.

Some people get custom-designed ADU while others use pre-made designs. You should, however, expect your contractor to ask for as built drawings of your home. It helps them understand where things like utility lines are, which can prove important if those lines are underground.

Why Build an ADU?

People build ADUs for a variety of reasons. In some cases, it’s purely financial.

Let’s say you live in a high-cost area like California. You can build a California accessory dwelling unit and rent it out to offset some of your own costs.

You might build one as a guest space for visitors. Some homeowners build them as an apartment-like experience for a college-age child. Your child gets some separation from the nuclear family, but you don’t worry about them living in some sketchy part of town because rent is cheap.

Can an ADU Increase Home Value?

In general, yes, an ADU can increase your home’s value by as much as 30% It’s important to note, however, that the increase will vary depending on your location.

For someone looking for an investment property in high-cost areas, an ADU is an incentive because they rent both spaces. In areas where the real estate market isn’t as hot, you may see a more modest overall increase in your home’s value.

Is an Accessory Dwelling Unit Right for You?

An accessory dwelling unit isn’t the kind of home upgrade you do as a quick way to boost your home’s value. The building process can take up to a year depending on your location.

As a long-term investment in the right area, it can make sense. Someone who plans on selling their home in five years might build one to bring in some extra money and get a boost in home value when they sell.

Looking for more real estate finance tips? Check out the posts over in our Finance section.