An Accessory Dwelling Unit (ADU) is a secondary housing unit built on the same lot as a primary dwelling. They can serve as a rental unit, guesthouse, home office, or for multi-generational living. While the benefits are numerous, a common question we receive from potential clients is, “How much value will an ADU add to my home?”
It’s a complex answer because while ADUs are centuries old, it’s only within the last 20+ years that they’ve become legal (ADUs became legal in Atlanta in 2017). So the data relied on by appraisers and realtors to assign value, is catching up to the flurry of demand. According to a 2021 study by Porch, a home with an ADU in Atlanta is priced 58% higher than a home without one (The national average is 35%). And even though there is a relatively small sample of historical data, here are three reasons why we agree that ADUs can add significant value to your home in the City of Atlanta and surrounding municipalities.
The most obvious reason ADUs add value is that they increase the amount of living space on a property. And that value can grow exponentially in locations where housing is scarce and expensive, such as walkable, urban centers. According to a report by the National Association of REALTORS, “Over 60% of adults want to live in walkable neighborhoods. But only 5-10% of housing stock is located in walkable neighborhoods”
The majority of the Atlanta neighborhoods that we work in, like Grant Park, Edgewood, Reynoldstown, Decatur, Inman Park, Kirkwood, Virginia Highlands, etc., are walkable urban centers with restaurants, parks, corner stores, and amenities close by. So, by adding an ADU, you’re taking a desirable location, known as your backyard, and transforming it into much needed, appropriately scaled, income-producing housing. That is a formula that will result in a dramatic increase in property value!
2. BUYER DEMAND
ATL ADU client, Leigh Hayes, is an Atlanta based realtor with 20 years of professional experience with ADUs, as well as her own ADU in Inman Park. We asked her recently about assigning value to properties with Accessory Dwelling Units:
“What’s important to understand is there is the value that an appraiser will give an ADU and then there is the value that a buyer will give an ADU. Appraisers look at metrics like comps or history of rent. For a buyer, however, the value is going to be different depending on their needs; it might be for a parent, a nanny, an adult kid, or a home office. While you might spend more to build an ADU than it would be worth to an appraiser, in most cases it would translate to a buyer as desirable and they would pay for it. I have buyers currently that find them very attractive and would pay more to buy a home in Atlanta with an ADU.”
3. RENTAL INCOME
A third reason ADUs add value is that they can generate rental income for homeowners. Appraisers will consider the highest and best use of the ADU, and that is most often as a rental unit. Depending on the unit type, our clients' rental income ranges from $1,700 to $2,500 per month for long term tenants, and $3,000 to $5,000 per month for short term tenants, thanks to their desirable locations. Given those compelling numbers, a potential buyer can afford to increase their offer because the rental income will offset their mortgage. There is also a growing trend where homeowners live in their ADU and rent out their primary house, for a season, to travel, or downsize into retirement. This level of flexibility is another attractive feature driving demand for potential buyers.
Popular Reynoldstown Airbnb listed by ATL ADU client
With these factors in mind, we are confident that ADUs will add significant value to homes in the City of Atlanta and neighboring areas. And while it’s important to consider the return on your investment, it’s also good to remember that ADUs provide value in so many other ways. Community, Quality of life, supplemental income, and multi-generational living are reasons alone to build an ADU. In time, your ADU will likely still appreciate as real estate has consistently proven for decades. ATL ADU client, Molly Gunn, put it well, “Appreciation is great, but it’s the icing on the cake. People should consider ADUs for a multitude of reasons. If you do go the rental route, as long as you can make it cash flow for just the price of adding it, it’s absolutely worth it.”