Do ADUs Really Add Property Value?
Is building an ADU worth it? Discover the varying costs of an ADU and compare it to the value added to your property to make sure it is the right home investment!
Is an ADU for You?
When you’re thinking about ways to increase the value of your home, building an Accessory Dwelling Unit could seem like a good idea, especially since so many California homeowners are jumping on board by building livable space in the comfort of their own backyard. It is a privilege to own real estate, especially in a state like ours, and that is something that takes time and hard work to achieve. Before hopping on the ADU train, you should be 100% confident that this home project is worth your investment.
Just how much does an ADU increase your property’s value? Well, today we’re going to discuss the varying costs of an ADU and compare it to the value it brings to your property to make sure an ADU is the right home investment choice for you.
What is an ADU?
An ADU is an additional living space added to your property. It can either be attached to the home by converting existing space like a garage or it can be detached as a separate building to match your primary residence. There are many different options, and these factors affect the cost of construction. Some other costs to consider are design and permitting.
How Much Does an ADU Cost?
A quick google search on the cost of an ADU is going to give you numbers that range all over the place, and they may not be accurate for your project. You’ll see numbers that start around $100,000 for an entry-level ADU in the San Diego area. Property condition, location, size, unique finishes, and some outside factors like material supply affect the amount it costs to build an ADU.
Though small in size, ADUs tend to cost more per square footage than single-family homes for a few simple reasons:
1. There are fixed costs per location associated with permitting and design fees.
2. Profit margins are smaller for general contractors, designers, and architects.
3. If building a detached ADU, this requires a new foundation, new walls, plumbing, electric, and a separate roof, just like your main home.
4. ADUs have a bathroom and kitchen to make them their own livable space. Bathrooms and kitchens are both considered “expensive” square footage since they require specific finishing materials and appliances.
5. Because the units are smaller in size, the cost per square foot isn’t balanced by additional bedrooms, living rooms, and hallways commonly found in larger homes. This type of space is considered “cheaper” square footage which tends to bring the average cost per square foot down.
Average ADU Cost in San Diego
If you live in the San Diego area, your final cost is going to greatly differ from the final cost of a project in the Midwest. Let’s break it down. The average cost of an ADU in San Diego ranges from $350-$425 per square foot. Sounds expensive, right? The shock value of this high price tag may cause alarm at first, but don’t let those numbers steer you away. There is good news where that comes from thanks to a multitude of financing options as well as the hefty post-project financial return on your investment. Keep reading to the end of the article to discover the true value of adding an Accessory Dwelling Unit to your existing single-family home.
Other Costs to Consider:
Every month, prices fluctuate from outside factors such as increased gas prices, and material shortages, but the biggest cost to consider is related to the condition and location of a property. For example, not all sites are level and new construction may require foundation reinforcement, retaining walls, or additional beams. Because every property is different, it’s important to know the current condition of your property with a detailed Home Diagnostic Report. Every month, prices fluctuate from outside factors such as increased gas prices, fires, and lumber shortages.
With this in mind, here’s a way to look at your ADU investment:
- Look up the average value per square foot in your neighborhood. This month, homes in North Park are selling at an average of $785 per square foot.
- Let’s say you build a 500 square foot unit in North Park for $400 per square foot.
- You may spend $200,000 on your project, but you’re gaining close to $392,500 in value.
- That means you’re adding $192,500 in equity to your property. Plus, that doesn’t even count the added value of rental income that the new space brings.
- Right now in North Park, a 1-bedroom apartment rents for an average of $1,995, so renting out the ADU is a great way to offset the project cost.
Increase Your ADU Investment
The final style of your unit is entirely up to you, and it also influences how much you charge to rent it out. Outdoor finishes like garden spaces are a popular option to get the most out of your ADU investment. Most renters do not have access to gardens and outside areas. With California’s gorgeous weather, a courtyard with an outdoor patio can serve as a second living room that can be used all year round. This is a low-cost upgrade, but it can significantly increase the value and ambiance of your new ADU.
What Other Value Does it Add?
Not only does an ADU add financial value to your home, but it also provides benefits to your lifestyle as a homeowner. Think about all of the potential. Whether you build the space to keep family close, rent out the unit, or use it as a separate guest house for visitors, an ADU has a variety of uses that will make your life easier. If you ever decide to sell your property, the ADU will definitely increase resale value in comparison to a home without an ADU.
Your Investment Dream is Possible!
Keep in mind that ADUs are a long-term investment. If you really want to see a large return, you should prepare to keep your property for several years. ADUs are small in size, but that doesn’t make them cheap. In addition to designing, permitting, and building your ADU, we want to make it easy for anyone to afford making their home their most profitable investment. Our in-house financial department will guide you through the process of choosing the right loan option for your project, starting with a Customized Financial Report that assesses your finances as they currently stand.
If you need help getting started or would like to get a professional opinion on your ADU project vision, look no further. Multitaskr provides ADU services that include permitting, finance, design, and full construction of your new space. With over a decade of experience in home-improvement, we’ve turned dreams into reality time and time again. Our goal is to make the entire pre-construction process not only stress free, but fun for homeowners! Whether this is your first real estate investment or one of many, we are excited to help you achieve whatever goals you have in mind for your property.