ADU Build ROI — Cash Flow + 10-Yr NPV + Sale-Time Equity

What This Calculator Does

An Accessory Dwelling Unit (ADU)— granny flat, casita, in-law unit, garage conversion — is the highest-leverage real-estate decision most homeowners will make in 2026. The ADU Build ROI calculator answers four questions in one pass: does the rent cover debt service after tax + insurance? what is the 10-year NPV at a realistic discount rate? what does the ADU add to home resale price? and is the build legal in my jurisdiction? Most online tools handle one of these in isolation; this one runs the integrated decision.

The bias problem in existing ADU calculators is severe. Builder-marketing tools assume 100% occupancy, omit the property-tax reassessment, ignore landlord insurance, model zero closing costs on the financing, and use a single 1.4× resale multiplier regardless of unit type. The result is a glossy “ADU pays for itself in 6 years” pitch that breaks the moment a real tenant turnover, vacancy month, or Texas-style full-property reassessment hits. CalcBold uses the Casita Coalition’s 2024 resale data (1.30-1.40× for detached, 1.05-1.15× for J-ADUs), 7% baseline vacancy (one turnover per year), and state-specific tax behavior — CA Prop 13 partial reassessment vs. full reassessment in NY/NJ/TX. The number you see is the underwriting answer, not the marketing answer.

The Math — Cash Flow, NPV, and Sale-Time Equity

Three independent value streams compound. Cash flowtells you whether the unit is self-sustaining month to month — positive means the tenant is paying your debt; negative means you’re subsidizing the build out of pocket. NPV at 5% normalizes a decade of irregular cash flows into a single present-value number you can compare against any alternative investment. Sale-time equitycaptures the part most homeowners forget: a permitted ADU lifts appraised value 1.30-1.40× build cost for detached units (Casita Coalition 2024) because lenders count the rental income toward the next buyer’s DTI. Unpermitted ADUs appraise at zero or near-zero lift — permits matter.

Worked example: a $180,000 detached 600-sqft ADUat 7.5% over 30 years produces a $1,259/month payment. At $1,800 expected rent × 0.93 (vacancy) = $1,674/month gross, minus $175/month tax + insurance delta = $1,499 net — a positive $240/month cash flow. NPV at 5% over 10 years adds ~$22,700; sale-time equity lift at 1.35× is ~$243,000 against a remaining loan balance of ~$159,000, netting another ~$84,000 in trapped equity. Total 10-year return ~$107,000 on $0 cash out-of-pocket (HELOC-financed). The same math on a $90,000 garage conversion at 1.10× lift produces lower absolute return but higher percentage ROI — conversions are the right answer when lot space or budget is the binding constraint.

How to Use This Calculator

1. Pick the ADU type. Detached new build is highest cost and highest rent + resale lift. Conversions are cheaper and faster but cap below detached on rent and resale.
2. Set size in square feet. Most cities cap at 1,200 sqft. Studio (300-400) is cheapest to build; 2BR (700-1,000) commands the highest rent.
3. Enter your financing rate. HELOC ~7-9%, cash-out refi ~6.5-7.5%, ADU-specific (Renofi, Aven, Foundation Loan) ~8-10%. The calc assumes a 30-year term.
4. Enter expected monthly rent and vacancy rate. Pull a realistic comp from Apartment List or Rentometer for similar-size units in your zip. Family-member tenant ~0% vacancy.
5. Enter the annual property-tax and insurance deltas. CA Prop 13 reassesses only the new portion; most other states reassess the whole property. Verify with your county assessor before building.
6. Pick state legality. CA pre-emption (SB 1069/9 + AB 68/881) and the OR/WA/MT/NH/ME pre-emption laws guarantee right-to-build; local-only zoning means verify with your city before committing.

Three Worked Examples

Example 1 — CA detached, market-rate tenant

$220,000 detached 700-sqft ADU in San Diego, financed at 7.5% HELOC. Expected rent $2,400/month with 7% vacancy. Prop 13 partial reassessment adds $2,400/yr. Monthly cash flow: +$385. 10-yr NPV: ~$36,000. Sale-time equity at 1.35× lift: $297,000 appraised value added. Total 10-yr return: ~$155,000. CA pre-emption removes zoning risk; permits clear in 60-120 days under standardized state plans.

Example 2 — Garage conversion, family member

$95,000 garage conversion (J-ADU) in Austin, cash-financed (no debt). Aging parent tenant at $0 rent— pure multi-gen housing. Eldercare facility avoidance value ~$72,000/yr(Genworth 2025 median assisted-living cost). 10-yr cash flow neutral; NPV 0. Resale lift at 1.10× = $104,500 added value. The ROI here is the avoided eldercare bill, not rental income — the calculator misses this if you only enter market rent. Use the Eldercare Lifetime Cost calculator in parallel to see the avoided-cost stream.

Example 3 — Texas detached, full reassessment

$165,000 detached 650-sqft ADU in Houston, financed at 8% ADU-specific loan. Expected rent $1,650/month, 10% vacancy in seasonal market. Texas full property reassessment adds $3,800/yr to property tax (vs. ~$1,200 in CA). Monthly cash flow: −$140— the unit operates at a small loss month-to-month. 10-yr NPV: −$13,000. But sale-time equity lift at 1.35× = $222,750 against remaining ~$146,000 balance =+$76,750trapped equity. Net 10-yr return positive but cash-flow-trap risk is real — only run this scenario if you have a 10+ year hold and stable income.

Common Mistakes

• Using sticker pricing instead of all-in cost.Builder quote is the shell; add 15-25% for site work (utilities, foundation, drainage), permit fees, design review, and contingency. A “$180/sqft” quote reliably delivers at $220-240/sqft once you connect to sewer + power.
• Setting vacancy to zero.Even premium markets see one turnover every 18-24 months — that’s 4-7% vacancy realistically. Setting 0% inflates 10-yr NPV by $15-30K on a typical unit. Use 7% baseline; lower only with family-member tenant.
• Assuming short-term rental income. CA bans STR on ADUs statewide; most cities ban or limit. Fines $500-5,000/incident. Underwrite at long-term lease rate; treat any STR upside as bonus, not baseline.
• Ignoring property-tax reassessment.CA Prop 13 only reassesses the new portion (build cost × 1.1%). NY/NJ/TX/IL/MA reassess the entire property. The delta on a $500K home reassessed in Texas can run $4-8K/yr, wiping out cash flow. Verify with county assessor BEFORE financing.
• Skipping the §121 capital-gains hit.Renting the ADU >2 years before sale partially loses the §121 primary-residence exclusion proportional to floor-area + time-rented. On a $400K gain, the cap-gains hit can run $20-60K depending on bracket. Pair with Should I Sell My House 2026 if sale is on the 5-10 year horizon.
• Forgetting landlord insurance.Standard homeowners policy doesn’t cover tenant injury, lost-rent, or rental-specific liability. Required endorsement adds $400-800/yr. Some insurers refuse coverage on STR ADUs entirely.

When This Calculator Decides For You

1. Detached if 10-yr NPV > $25,000 AND you stay 10+ years. The break-even on a detached new-build is ~7-9 years against transaction cost + permit-time amortization. Sub-10-year holds favor conversion.
2. Garage conversion if budget < $150K OR lot doesn’t support detached. Lower cost, lower rent, but 1.05-1.15× resale multiple still beats most home improvements (kitchen 0.7×, bath 0.6×, pool 0.4×).
3. Skip if monthly cash flow < −$300 AND no multi-gen avoided-cost. Negative cash flow with no eldercare offset means you’re subsidizing a speculative resale-equity bet. Only justified at high-appreciation markets and 15+ year holds.
4. Skip if state legality is “banned”.Don’t fight city hall on a $180K build. Target jurisdictions with state pre-emption or clear local approval pathway.

When ADU Beats Investment Property

ADU on existing lot beats buying a separate rental in three situations.(1) High-rate environment. ADU financing via HELOC or cash-out refi often beats investment-property mortgage rates by 1-2 points (lender treats it as primary-residence financing, not investment). (2) Permit and zoning advantage. CA pre-emption + standardized plans get ADU permits in 60-120 days; investment-property searches take 3-12 months. (3) Resale tied to primary home.ADU equity transfers at sale of primary residence with §121 exclusion benefit (partial, proportional). Investment property has no §121 — gain is fully taxable. The decision flip is when you’d be buying rental property in a different metro: ADU loses the geographic-diversification benefit. Run the Airbnb vs Long-Term Rental calc on a separate property to see the alternative; if your ADU return beats it after risk-adjustment, build local.