06.29.2026 PropStream
Disclaimer: PropStream does not offer financial or legal advice. This article is for informational purposes only. Consult financial and/or legal professionals before building an ADU.
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Key Takeaways
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An accessory dwelling unit (ADU) can be a great way to generate more income from a property. However, your return on investment (ROI) depends on the cost to build one. In this article, we’ll break down how to estimate and lower ADU construction costs, calculate ROI, and more.
What Is an ADU and Why Is Demand Growing?
An accessory dwelling unit (ADU) is a second (usually smaller) residential unit that shares a building lot with another home. It has all the amenities necessary for living, including a bathroom, kitchen, utilities, and its own entrance.
Demand for ADUs has been steadily growing over the last decade for a few simple reasons:
Average National ADU Construction Costs in 2026
According to Angi, the average cost to build an ADU in 2026 is $180,000. However, the cost ranges from $40,000 to $360,000, depending on the ADU type and size.
Roughly speaking, the total ADU cost breaks down like this:
- Materials: 45-50%
- Labor: 40%
- Design: 10-15%
Key Factors That Impact ADU Cost
Of course, many factors can influence ADU cost. Here are the biggest ones to consider:
ADU Type
ADUs can be attached, detached, or inside the primary structure. Below are some common configurations and their average cost ranges.
| ADU Type | Average Cost Range |
| Basement conversion | $60,000–$150,000 |
| Garage conversion | $60,000–$150,000 |
| Attached new construction | $100,000–$216,000 |
| Above-garage construction | $128,000–$225,000 |
| Detached new construction | $110,000–$285,000 |
ADU Size
ADUs cost an average of $150 to $300 per square foot (sq. ft.), with a typical ADU ranging from 600 to 1,200 sq. ft.
| ADU Size (sq. ft.) | Average Cost Range |
| 400 | $60,000–$120,000 |
| 600 | $90,000–$180,000 |
| 750 | $112,500–$225,000 |
| 1000 | $150,000–$300,000 |
| 1200 | $180,000–$360,000 |
Labor Costs
Unless you build the ADU yourself (not advised if you don’t have the skill and experience), you’ll need to hire someone to do it for you. Labor typically accounts for about 40% of your total project costs, but the exact amount can vary significantly by market.
Here are some average ranges:
- General contractor fees: $50–$150 per hour
- Architect fees: $125–$250 per hour
- Structural engineer fees: $70–$250 per hour
- Electrician fees: $50–$100 per hour
- Plumber fees: $45–$200 per hour
- Subcontractors: $150–$250 a day per additional helper
Location
Location is everything in real estate. For example, building an ADU in New York City or Los Angeles will cost more than building one in a rural area. Research your specific market to get a clearer sense of what ADUs go for, and plan accordingly.
Financing Options for ADUs
Most people don’t have enough cash to pay for an ADU outright. Instead, they take out a loan.
ROI Potential and Rental Income Opportunities
In exchange for an ADU’s upfront cost, you can typically expect a return.
According to one estimate, property values often increase 20-35% when a permitted ADU is added. Furthermore, ADUs can potentially bring in an additional $1,200 to $4,000 per month in rental income. As a result, owners can often recover their building costs with rent in 2 to 10 years.
There are a few different return metrics you can use to gauge ADU investment performance:
Cap Rate
First, you could calculate the ROI on a property-level, aka the capitalization or cap rate. This means dividing the (expected) increase in property value by your total costs (and multiplying by 100 to get a percentage).
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Here’s the formula: |
For example, if a property’s value increases by $30,000 and the ADU costs $100,000 to build, your cap rate would be 30% ($30,000 / $100,000 x 100).
Cash-on-Cash Return
Second, you could calculate the ADU’s cash-on-cash return to account for rental income and financing costs. This means dividing the ADU's annual pre-tax cash flow by the total amount of cash invested (and multiplying by 100 to get a percentage).
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Here’s the formula |
For example, if your annual cash flow is $5,000 and your total cash invested is $20,000, your cash-on-cash return would be 25% ($5,000 / $20,000 x 100).
Hidden Costs Many Homeowners Overlook
Before committing to building an ADU, consider some of the costs that often go overlooked:
- Design costs: A professional ADU design can cost 10% to 15% of the total project cost.
- Site prep: This may include clearing, leveling, and grading the space for the ADU and costs about $1,000 to $5,800, depending on the size of the area.
- Permits: The average cost of a building permit is $1,350, but it can be much more in expensive markets.
- Post-construction cleanup and waste disposal: This is an important last step and can cost anywhere from $160 to $1,200. The bigger the job site, the higher the cost.
Tips for Lowering ADU Construction Costs
To lower your ADU costs (and boost your returns), follow these best practices:
Choose a Conversion Over New Construction
Garage and basement conversions ($60,000–$150,000) use existing structure and utilities, making them significantly cheaper than detached new builds ($110,000–$285,000).
Use a Prefab ADU Kit
Prefabricated (or prefab) units are built off-site in controlled conditions, which can reduce labor costs and construction timelines compared to fully custom builds.
Simplify the Design
Sticking to a simple rectangular footprint, standard rooflines, and fewer custom finishes reduces both design fees (10-15% of total cost) and labor hours.
Get Multiple Contractor Bids
Contractor rates can vary significantly, so comparing many quotes before deciding can lower your labor costs.
Check for Local Incentive Programs
Some cities and states may offer grants or other financial incentives to encourage ADU development, so it’s worth researching what’s available in your market.
Estimate Your ADU Project’s Cost With PropStream
For a quick, rough estimate of what your specific ADU project could cost you, PropStream It!
Our built-in ADU Calculator lets you enter the ADU type, square footage, build quality, and optional features to estimate the ADU cost. It also breaks down the cost of individual ADU components, such as the foundation, framing, plumbing, HVAC, permits, architect fees, etc.
*PropStream engages an independent third-party to perform skip tracing.
Note on sources:
All ADU cost data taken from Angi (unless otherwise cited).
