How Much Value Does a Mother-in-Law Suite Add to Your Home?
Perhaps you’re concerned about an older parent living alone or your recent college grad paying high rent while they’re just getting their career started. Maybe some rental income from short-term vacationers is appealing, or you’d like a new home gym or office.
Consider converting existing space in your house or constructing an addition to create a mother-in-law suite (also known as an accessory dwelling unit or “ADU”) that adds value to your home and generates rental income. Maybe your home already has an ADU and you’re curious, but either way you’d like to know: how much value does a mother-in-law suite add?
ADUs have been growing in popularity. Rising real estate prices have made ADUs more common in certain markets where affordable housing is difficult to find, while the pandemic created more interest in having extra space at home.
“We’ve seen record prices and some people are just getting priced out of homeownership or making decisions because of financing,” says Rick Ruiz, a top real estate agent in Southern Nevada. An ADU provides the solution when family members team up and purchase a house together.
A smaller, independent residential structure on the same lot as a single-family home qualifies as an ADU as long as it has a separate entrance, kitchen, and bathroom, according to Freddie Mac.
All types of ADUs have the same address as the main dwelling. An interior conversion transforms the basement, attic, or unused room into living space. The in-law suite can be attached to the main house such as a second story addition or apartment built on top of the garage. A detached ADU is usually located in the backyard and is a separate structure from the primary residence.
Does a mother-in-law suite add value to a home?
In large cities, homes with an ADU are priced 30%-35% higher on average than those without one. Numerous factors affect how much value a mother-in-law suite adds, so we talked with leading real estate agents and property appraisers about maximizing your home’s worth with an accessory apartment.
With added living space and multiple uses, it’s not surprising that the value of mother-in-law suites has increased nationally. But keep in mind that your property taxes could also rise if your home is reassessed for a higher amount.
Although an ADU can add square footage to your home’s resale value, your return on investment (ROI) may be too low to recover building costs. In the Pacific region, where in-law suites add the greatest value of $116,931, according to a HomeLight report, homeowners just about break even at 2% ROI. Nationwide, the $77,239 average cost of an ADU has an ROI of -15%.
Renting adds value and cuts costs
Adding a mother-in-law suite might not produce much ROI in terms of resale value, but that may not account for the potential income that an ADU can bring to a homeowner.
Skyrocketing housing costs, particularly high rents, and the rise of platforms such as Airbnb and Vrbo offer the opportunity for increased monthly cash flow to help pay the mortgage and, when it’s time to sell, attract prospective buyers. Another option for older homeowners wanting to downsize or people buying their first property is to move into the accessory unit and rent out the main house.
Symbium, a provider of web applications for residential construction, estimates that property value will increase by 100 times the ADU’s monthly rent. If a comparable unit in your area rents for $1,000 per month, this rule of thumb suggests that the ADU adds $100,000 to your home’s worth. But check your local ordinances to confirm the allowed uses of an ADU.
Renting to strangers isn’t the only way to maximize your ADU’s value. Multi-generational living arrangements, by far the most common use of mother-in-law suites, can yield huge cost savings when parents, in-laws, or adult children contribute their fair share of rent to the homeowner’s mortgage.
In addition, nearby family members can help with childcare or reduce their own housing expenses.
