Costs and decisions
ADU ROI: How to Think About the Return
The return on an ADU is not a number anyone can give you in advance. It is a model you build from your own inputs, and the useful part is seeing how it behaves when those inputs turn out worse than hoped.
Two kinds of return
Financial return
If the ADU is rented
- Rent received, less vacancy
- Less operating costs, licenses and upkeep
- Against the full project cost and the cost of borrowing
- Plus or minus any change in the property's value
Household return
If family lives there
- Housing costs a parent or adult child avoids
- Care and help given without a commute
- A move you do not have to make
- Flexibility to change the unit's use later
Most ADU projects are some mix of both columns above, and the mix can change over the life of the unit. A parent lives there for some years, then a tenant, then perhaps you, while family takes the main house. A good model allows for that. It also keeps the two kinds of return honest: household benefits are real, but they should not be dressed up as rental income.
Build the model in four parts
1. Total project cost
Everything it takes to get to a finished, approved unit: design, engineering, city and utility fees, site work, construction, and a contingency for what cannot be known until the work is open. This is the input you can pin down best, and it is the one we help with. See the Utah ADU cost guide and ADU budget planning.
2. Cost of the money
If you borrow, interest and loan costs belong in the model. If you pay cash, the return that money could have earned elsewhere is the comparison. Either way, the ADU competes with other uses of the same funds. See how to finance an ADU.
3. Yearly net benefit
For a rental: rent, less vacancy, utilities you cover, insurance changes, maintenance, license renewals and your time or a manager's fee. For family use: the housing or care costs avoided, stated plainly as your own estimate. Our ADU rental income page explains how to test each rental input.
4. Value at the end
What the ADU adds to the property when you sell, if anything. This is the most uncertain input of all, and it should be treated as a possibility rather than counted on.
The measures worth calculating
- PaybackProject cost divided by yearly net benefit: roughly how many years until the ADU has paid for itself. Simple, and easy to explain to a spouse or lender.
- Yearly returnYearly net benefit as a share of project cost. Useful for comparing the ADU with other uses of the money.
- Cash flowIf you borrow, whether the net benefit covers the loan payment, month by month.
None of these needs complicated software. What matters is being honest about the inputs.
Where the uncertainty lives
Rather than one answer, run three versions of the model: the one you expect, a cautious one and a poor one. Change these inputs between them:
- Rent, which depends on the market when you lease, not when you plan.
- Vacancy and turnover, including time to find the right tenant.
- Project cost, especially site and utility work before the site is investigated.
- Interest rates, if the loan is variable.
- Resale value, which may not reflect what the ADU cost.
If the project only makes sense in the version you expect, it is a riskier project than it looks. If it still works in the cautious version, you have a margin.
Local rules that limit the return
Several rules in Salt Lake County cities cap what an ADU can earn or how it transfers, and they belong in the model:
- Owner occupancy. Every city we cover requires the owner to live on the property in some form, so the ADU usually adds one rental rather than two. In Millcreek, the ADU approval lapses if the home stops being owner-occupied. See ADU owner occupancy.
- Short-term rental bans. Most cities here prohibit renting an ADU for less than 30 days, at least for detached units. Millcreek bars short-term rental of a detached ADU, and Salt Lake City bars it for any ADU. See ADU short-term rental rules.
- No separate sale. Millcreek's code says an ADU "shall not be sold separately or subdivided" from the main dwelling or property. The value is realized only with the whole property.
- Approvals tied to the owner. In Sandy, the ADU special use permit ends on a sale of the property and is not transferable to new owners. Murray's owner occupancy affidavit says a future purchaser will be required to reauthorize the ADU to continue the use. A buyer will weigh that.
What we can and cannot tell you
We can tell you what your property can support, what the project is likely to cost and what drives that cost, and which rules apply to renting it. We cannot tell you what it will rent for years from now, what it will add to your sale price, or what your return will be, and we will not pretend to. A clear cost picture from a feasibility review is the most useful input you can bring to the model.
Questions about ADU ROI
What ROI can I expect from an ADU?
We do not give ROI figures, and we would be cautious of anyone who does before seeing your property and your plans. Return depends on your project cost, the rent or household savings the ADU produces, your financing, your operating costs and what the property is worth when you eventually sell, and each of those is uncertain. What we can do is help you pin down the cost side, which is the part a builder actually knows.
Does an ADU increase my home's value?
It may, but the amount cannot be predicted in advance, and it may not match what you spent. It depends on the unit, the neighborhood and the buyers when you sell. Local rules matter too: in some cities the ADU approval is tied to the owner and has to be renewed or reauthorized by a buyer, which a buyer and appraiser will weigh.
Is an ADU a good investment if I do not plan to rent it?
It can be, but measure it differently. If a parent or adult child lives there, the return is the housing cost your family avoids, the care you can give nearby, or the move you do not have to make. Those are real, but they are values only you can put a number on.
How long does an ADU take to pay for itself?
There is no typical answer. Payback is the project cost divided by the yearly net benefit, and both sides of that change from one property to the next. Run it with conservative inputs, and if the result only works under the best assumptions, treat that as a warning.