Adu Calculator

ADU Investment Calculator

Use this calculator to estimate the potential costs, rental income, and return on investment for building an Accessory Dwelling Unit (ADU) on your property.

ADU Project Details

Rental Income & Expenses

Understanding Accessory Dwelling Units (ADUs) and Their Investment Potential

An Accessory Dwelling Unit (ADU) is a secondary housing unit on a single-family residential lot. Often referred to as granny flats, in-law units, backyard cottages, or secondary units, ADUs are becoming an increasingly popular solution for homeowners looking to generate rental income, provide housing for family members, or simply increase their property value.

Why Consider Building an ADU?

• Rental Income: One of the primary motivations for building an ADU is the potential to generate significant monthly rental income, helping to offset mortgage payments or provide a new revenue stream.
• Increased Property Value: A well-designed and constructed ADU can substantially increase the overall value of your property, offering a strong return on investment upon sale.
• Housing for Family: ADUs provide flexible living arrangements for aging parents, adult children, or other family members, allowing them to live close by while maintaining independence.
• Addressing Housing Shortages: In many urban and suburban areas, ADUs contribute to increasing housing density and affordability without requiring new land development.
• Flexibility: An ADU can serve multiple purposes over its lifetime – a rental unit today, a guest house tomorrow, or a home office.

Key Factors Influencing ADU Costs and Income

The financial viability of an ADU project depends on several variables. Our ADU Investment Calculator helps you estimate these factors:

• ADU Size: Larger units generally cost more to build but can command higher rents.
• Construction Cost per Square Foot: This varies widely based on location, materials, finishes, and labor costs. Urban areas typically have higher per-square-foot costs.
• Soft Costs: These are non-construction expenses like architectural design, engineering, permits, and impact fees. They can add a significant percentage to your total project cost.
• Estimated Monthly Rent: Research local rental markets to determine a realistic rent for an ADU of your size and amenities in your area.
• Vacancy Rate: Account for periods when your ADU might be vacant between tenants. A typical rate is 5-10%.
• Property Management Fees: If you plan to hire a property manager, factor in their fees, usually a percentage of the gross monthly rent.
• Annual Maintenance & Repairs: Like any property, an ADU will require ongoing maintenance, repairs, and occasional upgrades.
• Annual Property Tax Increase: Building an ADU will likely increase your property's assessed value, leading to higher annual property taxes.

How to Use the ADU Investment Calculator

1. ADU Size (Square Feet): Enter the planned square footage of your ADU.
2. Estimated Construction Cost per Sq Ft: Input a realistic cost per square foot for construction in your area. This can range from $200 to $500+ depending on quality and location.
3. Soft Costs (% of Construction): Estimate the percentage of your construction cost that will go towards permits, design, and other non-building expenses (e.g., 15-30%).
4. Estimated Monthly Rent: Based on local market research, enter the expected monthly rent for your ADU.
5. Vacancy Rate (%): Input an estimated percentage for tenant vacancy (e.g., 5% for a month out of the year).
6. Property Management Fees (% of Gross Rent): If you plan to use a property manager, enter their typical fee percentage.
7. Annual Maintenance & Repairs ($): Provide an annual estimate for upkeep.
8. Annual Property Tax Increase ($): Estimate the additional property tax you'll pay due to the ADU.

Once you've entered all the details, click "Calculate ADU Investment" to see your estimated total project cost, annual income and expenses, Net Operating Income (NOI), Cash-on-Cash Return, and the Simple Payback Period.

Example Scenario:

Let's consider a homeowner in a moderately priced area:

• ADU Size: 600 sq ft
• Construction Cost per Sq Ft: $300
• Soft Costs: 20%
• Estimated Monthly Rent: $1,800
• Vacancy Rate: 5%
• Property Management Fees: 10%
• Annual Maintenance & Repairs: $800
• Annual Property Tax Increase: $600

Based on these inputs, the calculator would provide estimates like:

• Total Estimated Construction Cost: $180,000.00
• Total Estimated Soft Costs: $36,000.00
• Total ADU Project Cost: $216,000.00
• Gross Annual Rental Income: $21,600.00
• Total Annual Operating Expenses: $3,540.00
• Net Operating Income (NOI): $18,060.00
• Cash-on-Cash Return: 8.36%
• Simple Payback Period: 11.96 years

This example demonstrates how an ADU can be a significant investment, offering a solid return over time. Remember that these are estimates, and actual costs and returns may vary.