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Renting an ADU

ADU ROI: is an ADU worth it for you?

By the HyreADU research desk. Last checked .

The short answer

ADU ROI is the yearly net rent divided by what the ADU cost you, and payback is the cost divided by yearly net rent.

Both run on your own bids and your own local rent; no national figure holds up because build costs and rents vary so widely.

An ADU can also be worth it without rent, by housing family or adding flexibility.

The two formulas

  • Simple return = (yearly rent − vacancy − yearly costs) ÷ total project cost.
  • Simple payback in years = total project cost ÷ (yearly rent − vacancy − yearly costs).
  • Total project cost includes design, permits and fees, site work, utilities, construction and financing costs.

Run it on your own numbers

Use real bids for the cost and HUD Fair Market Rent plus local listings for rent. The ADU ROI calculator runs three rent cases on one cost, the ADU payback calculator gives the years to break even, and the ADU loan calculator shows the payment if you borrow. None ships a default price.

What the ROI number leaves out

  • Value added to the property, which is hard to measure. Our research on ADU value found no defensible national percentage.
  • Tax effects, which we do not model and on which we give no advice, apart from the added property tax the ADU property tax calculator works out on your rate.
  • The value of housing family, which no formula captures.
  • Risk: vacancy, repairs and rule changes.

When an ADU is worth it without rent

For many owners, the return is not rent. The 2021 UC Berkeley survey found 16 percent of California ADUs housed a relative or friend at no cost.

A unit that lets a parent age nearby, or an adult child save, can be worth it on terms no ROI calculation shows. See ADU for aging parents.

When an ADU is not worth it

An ADU is hard to justify when site work or the utility connection is very large relative to the rent the area supports, when the money must be borrowed at a rate the rent cannot cover, or when the lot leaves only a cramped unit.

Our permits vs completions research shows many permitted ADUs are never finished, which suggests money often decides.

A mistake to avoid

The mistake to avoid is a return based on the cheapest bid and the highest rent you have heard. Model a pessimistic case first. If the project only works in the best case, it does not work.

What to do next: check your lot with the ADU feasibility checker, read the questions to ask an ADU builder, then tell us about your project. Matching is not live yet, so we reply with information, not a quote.

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Questions

What is a good ROI on an ADU?

We publish no benchmark. Compare your return with other uses of the same money, such as paying down debt.

How long does an ADU take to pay off?

Divide your total cost by your yearly net rent. The result varies too much to state a typical number.

Does an ADU increase home value?

Often, but there is no reliable national percentage. An appraiser decides for your property.

Should I count financing costs?

Yes. Interest is part of what the ADU costs you.

Sources

HyreADU is a publisher. It does not design, permit or build ADUs, has no partner builders, and gives no legal, tax, lending or engineering advice.

Rules vary by state and city; California rules are labeled as such. Spotted an error? Tell us through our corrections page. Licensed professionals can also contribute as named sources.