2020 and 2021 were the years of the Accessory Dwelling Unit (ADU). These popular self-contained living spaces sprang up in backyards, basements and attics across the country to provide extra square footage for new work-from-home arrangements, distance learning solutions, multigenerational living possibilities, and more.
What, exactly, is an ADU?
When it comes to what can be described as an ADU, zoning laws differ by local municipality, but ADUs are typically an additional standalone structure on the lot of an existing single-family home. An ADU can also be as small as a 250 square foot remodeled space within a home—such as in an attic, basement or garage.
ADUs were one of the pandemic’s most popular additions and, as it turns out, a valuable one. According to a new study from Porch.com, in America’s biggest cities, a home with an ADU is priced 35% higher, on average, than a home without one. There are roughly 1.5 million ADUs across the country, representing 2% of all homes and growing at a rate of 9% year-over-year
The cost to build an ADU can range anywhere from $150,000-$400,000 depending on the size, location, quality of materials, complexity of the project, local contractor rates and more.
Below is an example of a house flip completed by an Anchor borrower featuring the construction of a free-standing accessory dwelling unit.
Our borrower bought this abandoned Los Angeles construction project for $550k and after completing this home and ADU with an additional $380k in construction costs, the property sold for $1.37 million.
As you can see from the purchase price, construction costs and sale price of this project, this flip investor earned a hefty ROI with their decision to include an ADU in their rehab plan.