real-estate · 2026-05-01
Project the ROI on building an Accessory Dwelling Unit — total construction cost, financing impact, rental income, and payback period.
| ADU square footage | 600 |
| Construction cost / sqft | $350 |
| Monthly rent | $1,900 |
| Monthly opex (utilities/maint) | $300 |
| Construction loan rate % | 7.5% |
| Loan amortization (yrs) | 20 |
| Permits + impact fees | $8,000 |
| Total ADU cost | $218,000 |
| Monthly cash flow | -$156 |
| Annual return on investment | -0.9% |
ADUs (granny flats, casitas, in-law suites) are heavily marketed as easy income. The math is more nuanced. Construction cost has doubled since 2019, rent ceilings are local, and the financing payment frequently consumes most or all of the rental income.
Cash-flow positive ADUs typically:
Where it doesn't:
ADUs add 25-35% to property value at sale — independent of rental cash flow. Owners holding 7+ years often justify the build on the value bump alone, with rental income as a secondary benefit.
Depends. Many jurisdictions require separate gas/electric meters for rented ADUs (CA SB-9 properties: yes). Water typically shares with main house. Sewer connection: separate hookup fee can be $5-15k. Get a utility-extension quote before pulling permits — this is where ADU budgets blow up.
City-by-city. Many CA cities (LA, SF) restrict ADUs to long-term rental only (>30 days). Some require 1-year minimum tenancies. Some allow STR if owner-occupied main house. Check local ADU ordinance + STR ordinance before financing the build assuming Airbnb income.
ADUs trigger reassessment of the new construction (not the entire property) under most state laws — typically the construction cost gets added to assessed value. CA Prop 13 protects the main house; only the ADU value adds to the tax bill. Annual tax impact: ~1.1% × ADU construction cost.