We are often asked about home values when owners are deciding whether or not it is worth it to build an ADU. Owners want to know how much value an ADU will add to their property.
We are always honest: we can’t know for sure. We are not financial advisors, licensed real estate appraisers or tax assessors. But our team’s experience and logic informs our decisions and conversations we have with owners. For most use cases of ADUs, the decision to build an ADU is based purely on need. If you need a home on your property for a parent or child, then building a home likely makes sense.
If the ADU is intended for rental, then from an investment standpoint – it likely depends on your financing goals, funding source and time horizon.
If the ADU is intended purely to maximize the property value, then an important consideration is how long you intend to own the property. If you are only going to hold the property for a few years, it may or may not be worth the investment, depending on the location, type of ADU, the type and condition of the primary home and market conditions.
If you are going to hold it for a longer period, then there is a chance it will be worth it. Housing values historically double roughly every 30 years, with a massive jump since 2020. Construction costs are not expected to decrease, between labor or materials. It is highly likely to be cheaper to build today than it will be in 10 or more years. So building today locks in the cost of construction today, a similar value proposition as investing in solar panels, for example.
Because the ADU laws are still new in RI and MA, we don’t have enough available data to know for sure how much an ADU will add to the property value in the immediate or long term. Historically, the national average has shown that properties appraise for about 30% more with the addition of an ADU. More data specific to New England will come in, however, with every new ADU project that is financed.
A recent Blue ADU client in RI went through the financing process and the home was appraised at $500,000 current value, and $750,000 after construction of the ADU. The construction cost of the ADU was approximately $200,000. We were thrilled to see this result. That’s a $50,000 increase in equity immediately after construction is complete. We do not expect this to be the case with every ADU project, but we look forward to gathering more data with every financed ADU project we design.
