How this is calculated
Three numbers decide an ADU, and only one of them is the construction quote.
All-in cost is the hard cost — your per-square-foot quote times the floor area — plus the soft costs. Design and engineering, plan check and permit fees, impact fees, a separate water or electric meter, and the sewer lateral. Builders quote hard cost because hard cost is what they sell; the soft costs land on you afterwards and routinely add fifteen to twenty-five percent.
Annual return is rent less vacancy, less maintenance and management, less the insurance change for a second dwelling with a tenant in it, less the property tax on the reassessment — and then less the loan payment. Cash-on-cash return is what remains divided by the cash you actually put in, not by the project cost. Breakeven rent is the monthly figure at which what remains is exactly zero.
The reassessment, which is the point of this tool
Building an ADU is new construction, and new construction is reassessed. In California the assessor values only the addition and adds it as a separate line — your Proposition 13 base on the existing house is not disturbed, which is the reassuring half of the answer. The other half is that the new line is permanent, it grows every year, and at typical rates it takes two to three hundred dollars a month out of the rent before you have paid for anything else.
The value the assessor adds is not what you spent. It is the market value the ADU contributes, which in most markets is somewhere between sixty and eighty-five percent of construction cost. It appears on the assessment notice after the final inspection — and if the figure looks wrong, that notice is appealable like any other: run it through the appeal calculator.
Worked example. An 800 sq ft detached unit at $350/sq ft is $280,000 of hard cost. Design $18,000, permits $9,500, impact fees $7,200, utility connections $12,000 and the sewer tap $9,000 add $55,700 of soft cost — 16.6% of a $335,700 project.
Put in $60,000 and finance $275,700 at 6.75% over thirty years: $1,788 a month, $21,460 a year.
Rent at $2,950 is $35,400 gross. Take off 6% vacancy ($2,124), 10% maintenance ($3,540), $900 of extra insurance and $2,760 of new property tax on $240,000 of added value, and net operating income is $26,076. After the loan, $4,616 a year — a cash-on-cash return of 7.7% on the $60,000.
Breakeven rent is $2,492, so there is $458 a month of cushion. Take the reassessment out and breakeven would be $2,218 — the tax line alone is worth $274 a month of rent, every month, forever.
What this does not account for
- Carrying cost during construction. A nine-to-fourteen-month build means loan interest with no rent against it. On this example that is roughly $15,000–$20,000 that never appears in a builder’s pro forma.
- Capital expenditure. Roof, water heater, appliances and flooring all come due eventually. Serious investors reserve 5–8% of rent for it; this model does not.
- Resale value. Appraisers treat ADUs inconsistently and comparable data is thin in most markets, so the appraised contribution frequently lands well below cost. Treat it as a bonus, not the case.
- Tax treatment. Rental income is taxable, and depreciation, mortgage interest and operating expenses are deductible against it. That is a material swing in either direction and it belongs with an accountant, not a web page.
- Cost overruns. Site conditions, soil, sewer depth and utility distance are the usual culprits. The “build 20% over” scenario exists because 20% over is normal.
- Permit timelines. Three months in a ministerial-approval city, two years somewhere hostile. That is a real cost of capital and it is not modelled here.
- Rent control and local letting rules. Short-term letting is banned for ADUs in many California jurisdictions, and some cities apply rent stabilisation to new units.
Why this site has no “get a quote” button
Search for an ADU calculator and nearly every result belongs to a company that builds them. Their calculator outputs their price list, and the property tax line is missing because it argues against the sale. We do not build ADUs, do not take referral fees, and do not sell your details. Every default here is visible and editable, including the ones that make the answer worse.
Common questions
Does an ADU trigger a reassessment of my whole property?
In California, no — only the new construction is assessed, and the existing house keeps its Proposition 13 base. In states that revalue on a cycle, the whole parcel is looked at again anyway and the ADU simply makes that look worse. Either way, budget the tax on the value added and treat it as permanent.
What size ADU can I build?
California prevents a local agency from banning an ADU of at least 800 sq ft with four-foot side and rear setbacks and a sixteen-foot height. Many cities permit 1,000 to 1,200 sq ft detached. Converting existing space — a garage, part of the house — is treated more permissively again.
Do impact fees really disappear under 750 sq ft?
In California, yes: impact fees may not be charged on an ADU under 750 sq ft, and above that they must be proportional to the main dwelling’s square footage rather than charged at the full single-family rate. That one rule is why so many ADUs are 749 sq ft. Outside California, budget $5,000–$25,000 and ask the counter for the fee schedule.
Is a garage conversion a better deal?
Usually on cost — the shell exists, so hard cost drops by a third or more, and converting existing space avoids most setback problems. It is worse on rent, it costs you the garage, and ceiling height, egress windows and moisture at slab level are where these projects go wrong.
Should I use a HELOC or a cash-out refinance?
If your existing mortgage is at 3%, refinancing the whole balance to fund an ADU is usually a very expensive way to borrow $275,000 — the HELOC leaves the first mortgage alone. Model both here; the payment difference is the whole answer and it is often larger than the rate difference suggests.
What rent should I put in?
Look at what comparable one and two-bedroom units in your immediate area are actually let at today, not asking prices and not a builder’s projection. Then run the “rent 10% lower” scenario, because that is the one that decides whether this is a good idea in a soft year.