About the ADU ROI Calculator
This ADU ROI calculator shows whether building an accessory dwelling unit — a backyard cottage, garage conversion, basement apartment or granny flat — pays off as a rental. Enter the construction cost, soft costs such as design, permits and utility connections, any loan you will use, and the rent you expect. The calculator works out net operating income, yearly and monthly cash flow, cash-on-cash return, yield on cost, the simple payback period and how much value the ADU adds compared with what it costs.
It is meant for homeowners weighing an ADU for extra income and for small investors adding a unit to a rental lot. The operating costs that matter most are the increase in property tax after reassessment, the extra insurance premium, a maintenance allowance and any utilities you pay for the tenant. Vacancy and an optional property management fee are taken off the rent.
Costs vary widely by city, site conditions and whether you build new, convert a garage or prefabricate, so use real contractor bids and a local rent survey. The value added should come from an appraiser or agent who knows how ADUs sell in your area; in some markets it is close to the build cost, in others it is less.
With the default inputs, the cash-on-cash return (year 1) is 10.58%. Change any value above to recalculate instantly.
How to use the adu roi calculator
- 1Enter the construction bid and the soft costs for design, permits and hookups.
- 2Add the amount you will finance, with its rate and term.
- 3Enter the expected monthly rent and a vacancy allowance.
- 4Add the tax increase, insurance, maintenance, utilities and any management fee.
- 5Enter the value the ADU adds, then review ROI, payback and equity created.
Formula and method
Gross rent is monthly rent × 12. Effective income removes the vacancy allowance. Operating costs are the property-tax increase, extra insurance, maintenance (a percentage of gross rent), owner-paid utilities and management (a percentage of collected rent). Net operating income (NOI) is effective income minus operating costs.
Debt service is the yearly payment on any amount financed, using a standard amortizing loan. Cash invested is the total project cost minus the loan. Cash-on-cash return is year-1 cash flow ÷ cash invested, yield on cost is NOI ÷ total cost, and simple payback is cash invested ÷ year-1 cash flow (ignoring rent growth). The chart grows NOI by the growth rate each year and stops loan payments once the loan term ends.
- NOI
- Net operating income per year
- DS
- Yearly debt service on the amount financed
- C
- Cash invested = total cost − loan
- YOC
- Yield on cost = NOI ÷ total project cost
Worked examples
$200k backyard ADU paid in cash, renting for $2,200
Rent of $2,200 is $26,400 a year, or $25,080 after 5% vacancy. Subtracting $2,000 of tax, $600 of insurance and $1,320 of maintenance leaves $21,160 of NOI. On $200,000 of cash that is a 10.58% return and a payback of about 9.5 years, and the ADU adds $20,000 more in value than it cost.
Same ADU with $150k financed at 8% for 20 years
Financing $150,000 costs $15,055.92 a year in payments, so cash flow falls to $6,104 (about $509 a month). Because only $50,000 of your own cash is in the project, cash-on-cash return rises to about 12.2%.
Garage conversion for $105k renting at $1,600
A cheaper conversion earns $18,240 a year after vacancy, less $2,360 of costs, for $15,880 of NOI. On $105,000 invested that is a 15.1% return with a payback of about 6.6 years, which is why conversions often beat new detached builds on ROI.
Frequently asked questions
Is building an ADU a good investment?+
It can be when local rents are high relative to construction costs. Compare the yield on cost — NOI divided by project cost — with what the same money could earn elsewhere: an 8% yield on cost means the ADU repays its cost in about 12.5 years before rent growth, while 10% means about 10 years.
How much rent can an ADU earn?+
ADUs usually rent somewhat below a comparable standalone apartment because they are smaller and share a lot, but above a room rental. Check local listings for studios and one-bedrooms of similar size and finish.
Does an ADU increase property taxes?+
In most US places the new construction is assessed and added to your property’s taxable value, so the yearly tax bill rises. The increase depends on your local rate and how the assessor values the ADU; ask your assessor’s office for an estimate.
How do I finance an ADU?+
Common options are cash, a home equity line of credit, a cash-out refinance, a renovation loan or a construction loan. Enter the amount financed and its rate here to see how loan payments change cash flow and cash-on-cash return.
What is a good payback period for an ADU?+
Many owners aim for a simple payback under 10–12 years. Garage and basement conversions often pay back faster than new detached units because they reuse existing structure, utilities and foundation.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.