"Will a Guest House or Granny Flat increase the value of my property?"
"How much will the new Accessory Dwelling Unit be worth once it is complete?"
I get asked a variation of these question almost daily, and the answer is simple. It really depends on the type of Guest House you are building on your property. You see, there are three main types of ADU's. Detached ADU's, Attached ADU's, and Garage Conversion ADU's. Not all types are created equal in terms of how much the new Guest Home will increase your property value. We'll discuss each ADU type and list them in order of property value created.
A detached Guest Home or Granny Flat, which is separate from the existing home, will be the most valuable when complete. The reasons for this are quite simple. With a detached guest house you are adding additional livable square footage to the property which appraisers can use to determine how much your property is worth. For example, a new 1,000 sqft granny flat adds 1,000 sqft of new livable space to your property. With an average cost per sqft of approximately $470 in the City of Los Angeles, your new 1,000 sqft detached ADU could increase your property value by an average of $470,000.
For an investment of around $250,000, homeowners in Los Angeles can add an average of $470,000 to the value of their property. In this example the average Los Angeles homeowner would make an 88% return on investment (ROI) for simply making the decision to build a beautiful new guest home or granny flat on their single family zoned property.
An attached Guest House or Granny Flat is added as an addition to your existing home and is the second most valuable type when complete. Since it is attached to your existing home there is a little less privacy than with a detached unit, but appraisers will still use a cost per square foot analysis when determining the value of the new construction, and the $470 sqft average for the City of Los Angeles would still be applicable.
The real reason why an attached unit is usually less valuable than a detached unit has to do with the ADU Ordinance affecting the amount of square footage you're allowed to build when the dwelling unit is attached to your existing home. You see, with an attached unit you are only allowed to increase the current size of your home by 50%. So if your current home is 1,200 sqft, then the maximum size of an attached ADU would be 600 sqft. And an additional 600 sqft would increase your property value by $282,000, which is still a huge increase, but below the amount a new detached ADU would increase the property.
A Garage Conversion ADU is when you convert your existing garage into an Guest Home or Granny Flat, and although this type of ADU will usually increase your property value substantially, the increase will be less than both detached and attached units. Garage Conversions are great because they are typically the least expensive to build, but unfortunately in the process of converting your garage you lose the use of your garage for its intended purpose, which can decrease your property value slightly. This slight decrease in property value is outweighed by the increase in property value that the new Garage Conversion will provide, but the loss of the garage is what makes this ADU type the least valuable in terms of resale and property value.
That being said, the number one reason we suggest converting your garage into a guest home is for rental income. In Los Angeles a garage conversion Granny Flat can command $1,500 - $3,000 per month in gross rental income. Compared to the relatively modest investment a garage conversion requires, the payback of your original investment in the form of monthly rental income can be phenomenal.
Determining which type of Accessory Dwelling Unit is best for your lifestyle and budget can be difficult. That is where we can come in and advise you on what your options are and what makes the most sense for you and your property.
Whichever type of accessory unit you chose to build, rest assured that you are adding substantial value to your property. All three ADU types are really great options depending on your specific situation, and we're happy to help you determine which type is best for you. Give us a call at (213) 423-0470 or send us a note and claim your FREE property analysis.
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