Introduction
ADUs are an excellent investment for several reasons. First, they are relatively inexpensive to build compared to other housing projects. Second, you can rent and earn income from your property. Third, there are tax benefits associated with building an ADU that can help offset some of your costs and turn a profit!
- Building Costs: The average cost of building an accessory dwelling unit (ADU) ranges between $50-$75 per square foot, depending on its size and features. If you plan on building an 800-square-foot studio apartment with two bedrooms and one bathroom, expect to pay anywhere from $40 – $60K for construction materials alone! If you plan to add more rooms to the original house, expect those costs to increase quickly!
- Tax Benefits: There are many financial incentives available when it comes time for filing taxes each year, including deductions explicitly related to mortgage interest payments made during the construction period and depreciation schedules used while calculating taxable income after the completion date has passed.
Rental Income Potential
Los Angeles is a big city with a lot of people. The rental market is competitive and increasing yearly, but many apartments are still available. According to RentCafe, the average one-bedroom apartment in Los Angeles rents $2,922 per month as of January 2019, which has risen steadily over the past decade.
Renters looking to live in their ADU may be able to save money by choosing an older building or one located outside of central Los Angeles; however, if you’re planning on renting out your unit as well as living there yourself (which we recommend), then it’s best if you build an ADU on your garage space or your backyard property. Plus, there’s the benefit of significantly increasing the value of a property.
Property Value Increase
Building an ADU can significantly increase the value of a property. According to HomeAdvisor, adding square footage to a home through an ADU can result in up to a 30% increase in property value when selling. By having an ADU, homeowners are essentially adding more livable space to their property, which is desirable for potential buyers. Additionally, a separate living space like an ADU can make attracting and retaining tenants in the rental market easier, increasing the property’s overall value.
The average price per square foot in Los Angeles County has increased by $100 since 2012, and it’s expected to continue rising steadily through 2023. ADU construction on your lot means more space and value for your family – plus extra income from renting out the second unit.
Multi-Generational Living
An ADU can also provide a great living option for multi-generational families, like aging parents, adult children, or other family members who want a separate living space but still want to be close to their loved ones. This can provide privacy and independence for family members while still allowing for close proximity. Sometimes ADUs can be built upward by adding a second story to your home where your other residents can reside.
Flexibility
An ADU can also provide flexibility for homeowners. The space can be used for various purposes, such as a home office, guest suite, rental unit, or even a personal gym. This can make your home more functional and versatile, providing a space that can adapt to your changing needs over time. If your family is outgrowing your current home, or if you need to home your grandparents near your home, there’s no better option than an ADU.
Sustainable Living
An ADU can also be an environmentally friendly option. Many ADUs are designed with energy-efficient features, such as optional solar panels, energy-efficient appliances, and green building materials. This can help reduce your carbon footprint and lower energy bills, making it a sustainable living option.
Adding an ADU to your home can provide various benefits, from extra rental income and increased property value to flexibility and sustainable living options. If you have the space and resources to add an ADU to your home, it can be an excellent investment that pays off both financially and functionally.
