ADU Income & Value
Generating Income
An ADU typically makes money as a rental, but it’s also possible to live in the ADU and rent out the main house. There are several ways to rent out a property
Long term rentals are most typical and operate on leases that last for several months, typically a year
Mid term rentals are popular for traveling nurses, people between properties as they are looking for their next purchase, and other folks who need a place to stay for 2 - 9 months
Short term rentals can be restricted, but if allowed, can make a good return with leases under 30 days (check with your jurisdiction as this is a general timeline and it may vary for your property)
Rentals can be furnished or unfurnished. Short term (and most likely mid term) rentals will need to be fully furnished
Return on Investment (ROI)
To calculate the ROI, you look at how long it will take to recoup the money spent developing the ADU. The most basic equasion looks like this:
(Dev Cost) / (Monthly Rent) = Total Months
There are additional costs that can be figured into the equation, but this gives you a rough idea and is quick and easy.
Your return on investment will depend on how tight you keep your budget, and how much income the rental brings once completed.
Living in the main house and renting out the ADU will typically have a return on investment between 10-12 years
Living in the ADU and renting out the main house can speed that process up by several years
This ROI calculation ignores the value added to the house which speeds up the ROI timeline that much more
Importance of Design
Good design can maximise your ROI, potential profit, and help keep maintenance costs down.
Bad design has hidden costs that will limit profits and make it harder to find and keep good tenants
Quality space means less time looking for renters, higher rents, and better reviews
Budget consious design keeps costs lower
Good design balances both
