Across the country, real estate agents noticed a large spike in the number of ADUs, or accessory dwelling units, in the last year. Generally, ADUs are used as separate living quarters within the main property for housing older relatives or financially-struggling children of the primary residents. Sometimes they can also be used to house long-term renters who’ve signed a yearly lease.
However, a new trend has emerged recently, which involves using an ADU as a short term rental. Depending on the location, short-term rentals, which you’ll often find advertised on platforms such as Airbnb or HomeAway, can be very profitable. If you’re a homeowner with an ADU attached to your main property, you may want to consider renting out the extra space to short-term renters. However, there are some negative factors to consider before diving head first.
Short-term rentals have increased thanks to the pandemic
According to HomeLight’s Top Agent Insights for End of Year 2021, 51% of agents across the nation have noted an increase of short-term rental properties. If we only consider those realtors in idyllic vacation destinations, such as the South Central region, approximately 61% of agents have noticed an increase.
The reason? When COVID-19 first entered into our lives, employers and employees alike quickly shifted into remote work environments. Now that workers no longer needed to show up on-site for work, they were gifted the liberty to work wherever their heart desired. Often, employees would opt to work in a desirable vacation destination, clocking in a full workday before heading for the beach or ski slopes.
As need arose, homeowners were quick to answer and short-term rentals spiked. However, if you don’t currently have an ADU on your property, you’ll want to consider the costs of building before taking advantage of these renters.
Costs and profits of ADUs
Short-term rentals are undoubtedly profitable. However, the cost to build one is hefty. Agents estimate that total building expenses come to about $77,239. Nationally, the current average value that an ADU adds to the home is $65,908. This means that building an ADU simply for the sake of increasing your home’s value would leave you with a negative return on investment.
However, the cost and value depends entirely on the region. In the Pacific region, for example, the cost of building an ADU and the value it adds to a property is relatively the same.
If you want to sell your home in the near future, building an ADU would not be the wisest investment. However, if you’re planning to own your home for another few years, building an ADU for rental purposes may be smart. Just be sure to add key features like air conditioning, in-unit laundry machines, and wireless internet. Don’t forget to give it a private entrance as well, so you and your guests don’t have to interact on a daily basis.
The downside? Low property values
While short-term renters may supplement your income favorably, no one wants to live next to them. Vacationers often throw loud parties or generally disrespect the property. Real estate agents have estimated that owner-occupied properties are worth 13.3% less when surrounded by a high-volume of short-term rentals.
If you’re in a desirable vacation destination, many properties in your proximity may open for short-term renters. The result could drastically lessen home values in the neighborhood. If your end goal is to sell your home for the most favorable price, you won’t want to attract short-term rentals to your neighborhood.