How to Maximize the Return on Investment of Your ADU
If you’re one of the many homeowners in San Diego currently considering building an Accessory Dwelling Unit, or ADU, one of the questions on your mind is probably whether or not an ADU is worth it. In other words, you’re wondering how to maximize your return on investment with an ADU. Here at Speciality Home Improvement, we are experts in building ADUs. Whether you call it a granny flat, an in-law suite, a backyard cottage, or something else entirely, ADUs are both a practical and economical way to increase your home’s value.
If you’re not familiar with ADUs, they are typically two or three-room living units designed as separate dwellings from single-family homes located on the same lot. They are self-sustaining and include both kitchen and bathroom space, making them ideal for rentals or aging family members.
In addition to the average 51% increase in resale value when you build an ADU on your property, here are some ways that you can maximize your return on investment with an ADU.
Rent it Out
This is probably self-explanatory, but renting out your ADU to tenants is the best way to increase your return on investment. Rental income can supplement your regular income and truly give you a way to make money while you sleep. But how much can you expect to earn in rental income from an ADU? And how long will it take you to recoup the cost of your initial investment?
Let’s say, for example, that you currently have a 2,400 square foot home. It’s worth about $700,000. You decide you want to build an 800 square foot ADU on your property. You might expect to pay around $230,000 to $300,000 for your new ADU. If you’re curious about where we’re getting these numbers from, take a look at our ADU Calculator! It’s a handy tool to help you figure out what you can expect to spend and earn from an ADU. Building an ADU might sound expensive, but the question you should be asking is what kind of return you’ll get on your investment.
If you charge $2,500 a month for rent, you’ll make about $30,000 a year from your ADU. Over twenty years, you can expect to make around $600,000, far exceeding your original investment. Of course, there may be other factors to consider, such as existing mortgage payments, that affect your return on investment, but renting out your new ADU is one way to significantly increase your return on investment. Renting your ADU can also give you a break on your property taxes!
Create a Home Office
Another way to increase your return on investment with an ADU is to transform your new space into a home office. One effect of the recent COVID-19 pandemic is a shift to working from home. Some employers have even offered incentives to employees to create home offices, including reimbursement. And, if you’re self-employed or own your own business, you can get tax breaks from your home office as well! The square footage that is dedicated solely for work may be an income tax deduction come tax time. Be sure to consult with your tax advisor for details on how and when this deduction can be taken.
And there’s another way to increase your investment here too. You can share your new home office with friends or coworkers. Coworking spaces are starting to catch on across the country and they’re not a bad way to make some money for yourself. Obviously, building an ADU as a home office will look different than building one as a living space, so you could potentially see your costs go down as well.
Another advantage to transforming your ADU into a home office or coworking space? Any tenants will probably clear out around 5 pm!
But what if you don’t want to rent out your ADU? Maybe you’re building it to provide an aging family member with their own space or give your adult child a space of their own while they work or attend school and save money? If that’s the case, you can still maximize your return on investment with an ADU by keeping a few simple guidelines in mind!
First, you should make sure to choose a design-build contractor to build an ADU in San Diego. Design-build processes streamline planning, reduce miscommunication, and, ultimately, save you money by keeping your project on track and within budget. You should also try to keep your ADU simple in terms of both design and footprint. Most ADUs don’t need to be more than three rooms. They should stay between 700 and 1,200 square feet. If your ADU is larger than 1,200 square feet, you’re not building an ADU, you’re building a second home. Using sustainable materials can also help keep your costs down.
However, no matter how much you invest into building an ADU, odds are that it will drastically increase the value of your home. Studies show that an ADU can increase home value by as much as 35%! In Southern California and San Diego’s hot home market, that can be a huge increase in value. In other words, how do you maximize your return on investment with an ADU? Simple. You build one.
If you’re thinking of building an ADU in San Diego, choose to work with a true ADU Specialist. At Speciality Home Improvement, we’ve been serving the San Diego area since 1993. Contact us today and see what our expertise can do for you.