When considering options for adding to your San Diego property’s value, an ADU may spring to mind. But how much value can an ADU realistically add to your property in the San Diego area?
Answering this question can be complicated. To have a concrete value, you’ll need professional help to help you work out the numbers, including the design work, permits and licenses, and quotes from contractors.
In this article, you’ll learn about how much value an ADU can add to the value of your property, and other important considerations associated with ADUs.
What Exactly is an ADU?
Also known as an accessory dwelling unit, an ADU is a secondary housing unit on a single-family residential lot.
Most property owners use them to generate extra income or to provide extra living space. Your ADU strategy will depend on what San Diego neighborhood your property is located in, as well as the property type.
ADUs can be categorized into 6 types:
Detached new construction ADUs.
Garage conversion ADUs.
Basement conversion ADUs.
ADUs above workshops or garages.
Addition ADUs or bump-out ADUs.
Interior conversion ADUs.
In this article, however, we’ll focus on the three main types of ADUs: attached, detached, and interior.
Attached ADU: This style of ADU is typically attached to the primary house, such as space above an existing garage. This type of ADU will typically have a maximum size of around 1200 square feet.
Detached ADU: This style of ADU is typically a newly built or existing structure that is detached from the primary dwelling. It’s usually situated at the back yard of a property. Since they are entirely detached from the main home, they require their own mechanical appliances and utility hookups.
Interior Conversion: This is where part of the primary residence besides the basement is converted into an ADU.
How Much Does an ADU Cost to Build?
Estimating the cost of installing an ADU can be difficult. Like many aspects of renting out your home, it can depend greatly on the style of your property and the area its located in.
Different ADUs will usually require vastly different amount of work. Consider the following example:
Suppose you want to convert your existing garage into a new living space. Doing so could cost you anywhere between $30 000 and $60 000, depending on the condition your garage is in and the changes you require.
The cost of building an entirely new structure could end up costing you anywhere between $50 000 and $100 000.
Although the bulk of the costs are typically construction-related, designing, planning, permits, and surveyor costs are just some of the other costs you should account for as well.
To get a good overview of the expected costs, your best bet is to consult an ADU design firm. Their years of experience in the field can help you make the best decision about how to go about the entire process.
What Value Should You Expect an ADU to Add?
At this point, you’re probably thinking that adding an ADU seems like a huge expense. But while that may be true, an ADU can add immense value to your life.
The value an ADU could take the form of extra rental income, if you choose to rent your ADU out. An ADU could also add value to your property value. If you complete the process properly, an ADU could potentially be one of the best investment decisions you’ll make.
As a Rental Income Generator
Most people who build ADUs do so to generate extra rental income.
Maybe you’re looking for extra rental income because you’re looking to cover your mortgage, diversify your investment portfolio, or simply to earn that extra passive income.
How much you can expect to earn depends on how big the ADU will be. A 2-bedroom 2 bath unit, for instance, can be a great investment if you have the space.
Generally speaking, you can expect up to $3000 in extra income per month, depending on the location.
At that rate, you can expect the ADU to pay itself off in a few years. There are several online calculators that help you figure out just how long it may take for your ADU to pay for itself.
To Increase Your Property’s Value
An ADU will not only generate an extra income, but can also help increase the value of your property.
In particular, a detached ADU has the potential to boost your property’s value by as much as 30% if done right. What’s more, the returns can be practically instant.
With that being said, make sure that the designing doesn’t take away the property’s appeal. If the new space looks awkward, chances are that your property’s value could even take a hit.
On the other hand, a stylish and appealing ADU can have an amazing impact on your next valuation.
What are the Tax Implications to Building an ADU?
Once you’ve built your ADU, your property will have to be assessed for tax purposes. Broadly speaking, the tax will be 1% of its determined market value. So, supposing your ADU is valued at $100 000, this means that your tax bill could increase by $1000.
Now, compare that to the potential rental income you could potentially make by renting your ADU out. Whether that would be $1000 or $2500 per month, it’d be more than enough to justify the construction costs and the added taxes.
To get a better perspective on the tax implications, talk to a tax professional. Choose one who has prior experiencing with ADUs if you can.
The Bottom Line
In conclusion, an ADU can add limitless value to your life, depending on your reason for building it and what ROI you’re looking for.
Of course, you should seek professional help whenever necessary. If you’re looking for help setting up an ADU or managing any other aspect of your San Diego rental property, get in touch with the experts at North County Property Group today.