An Accessory Dwelling Unit (ADU)—often called a granny flat or casita—is one of the most powerful real estate investments a San Diego homeowner can make.
There are a few types of ADUs that most jurisdictions permit:
- Detached ADU: A structure completely detached from your home, like a small house. Usually a maximum of 1200 sq ft.
- Attached ADU: Often combined with multifamily residences. Usually a maximum of 1200 sq ft.
- Junior ADU (JADU): A smaller dwelling unit that is attached to your primary home – often a garage or basement. Usually a maximum of 500 sq ft.
Thanks to favorable state and local regulations designed to boost housing, building an ADU is now faster, simpler, and offers a remarkable Return on Investment (ROI).
But simply building an ADU isn’t enough; maximizing its financial benefit requires strategic planning from day one. At Price Builders, as San Diego’s ADU construction experts, we guide our clients through the design and build process with ROI, low maintenance cost, and long-term durability as the central goals.
This guide breaks down four essential strategies to ensure your ADU generates the highest possible return, whether through rental income or increased property value.
Strategy 1: Optimize the Design for Build Cost (Minimizing the “I” in ROI)
The most direct way to maximize your ROI is to minimize your initial investment cost. Smart design choices can shave thousands off the construction price without sacrificing quality or appeal.
A. Keep the Footprint Simple
The cost per square foot increases significantly when the design becomes complex.
- Embrace Simple Shapes: A rectangular or square footprint is far more cost-effective to frame and build than a unit with multiple bump-outs, angles, or complex roof lines.
- Design for standard-size appliances, bathrooms, cabinets, and closets: Working with a General Contractor who is familiar with industry-standard sizing for elements throughout your ADU will help you avoid more expensive custom-built components.
B. Use Cost-Effective Utility Connections
Utilities are a hidden budget killer, especially in San Diego.
- Locate Near Existing Services: Design your ADU to be as close as possible to the main house’s existing sewer, water, and electrical tie-ins. Running long trenches for utilities is expensive and time-consuming.
- Go All-Electric: While sometimes a higher upfront cost, avoiding new gas line extensions can simplify permitting and reduce future maintenance costs, aligning with California’s future energy goals. Because state law requires solar for new detached ADUs, choosing electric appliances can take advantage of the energy your array will produce.
C. Choose High-Impact, Mid-Range Finishes
You can achieve a high-end look without purchasing the most expensive materials.
- Mid-Range Cabinetry and Counters: Opt for quality, semi-custom cabinetry and solid surface or quartz counters that will stand the test of time and tenant use. Pair them with stylish hardware for an updated look.
- Durable Flooring: Choose durable, low-maintenance luxury vinyl plank (LVP) or Luxury Vinyl Tile (LVT) flooring throughout the unit. Quality LVP/LVT is textured so that the floor doesn’t look “flat” or cheap.
- Livable Details: Thoughtful choices like including a handshower in the shower, a large kitchen sink, an entry closet or cubbies, or an office nook can broaden the appeal of your ADU to different types of renters and add value through increased marketability.
- Strategic Splurges: Spend money where it counts: the kitchen backsplash, high quality drawer pulls, and lighting fixtures beyond the typical recessed grid are easy ways to add some personality into the design while still being adaptable to many tastes. These small details can provide a “wow” factor that justifies a higher rental rate.
Strategy 2: Design for Maximum Rental Income (Maximizing the “R” in ROI)
Your ADU’s rental value is determined by its appeal to the target market. In San Diego, functional, low-maintenance units with natural light, modern layouts, and outdoor space command the highest rent.
A. Bedrooms Drive the Value
The cost to build a small studio or efficient one-bedroom unit often provides the fastest ROI, but limits your rental potential and appreciation in the future. Two bedroom units can be suitable for small families, but if you’re in an area where roommates are common, including a bathroom for each bedroom can be important.
- Target Young Professionals: San Diego’s thriving job market means a high demand for well-appointed, compact units close to employment hubs. San Diego’s high density of military bases means that there are young people moving into and out of the city constantly – if your property is near a base, you have a great target demographic for rentals.
- Maximize Open Space: Design the living area with an open floor plan to make the unit feel larger than its square footage suggests. Avoid hallways if possible in order to maximize usable space.
B. Must-Have Tenant Amenities
Certain features are non-negotiable for competitive rental rates in San Diego.
- In-Unit Laundry: This is a top-tier amenity. Tenants will often pay $50-$100 more per month for a compact washer/dryer unit in their ADU. Several appliance manufacturers have recently released ventless dryers – for a modest increase in price, these can allow you a lot more flexibility in where you install the washer/dryer set.
- Dedicated Outdoor Space: A private patio or a dedicated backyard area, even if small, significantly increases the appeal and perceived value of a rental unit. San Diegans value outdoor living.
- Privacy: If possible, build a distinct entrance from the road to maximize privacy for both the primary home and the ADU tenant. When designing the ADU, consider the location of windows both for the new building and for the existing structure, and deconflict views between the two. Strategic use of landscaping, tall potted plants, or fencing can enable near-full privacy between the primary home and the ADU.
C. Consider Sound Attenuation for your JADU
If your ADU is attached (like a garage conversion), sound will be a major quality-of-life consideration for both units. Design the JADU so that there are closets along the shared wall/s. A wall with cabinets will be less effective than a closet but still reduce sound travel. Invest in additional sound attenuation (e.g., resilient channels or mineral wool insulation) between the units. This protects your privacy and makes the ADU a more desirable, higher-value rental.
Strategy 3: Build for Long-Term Efficiency
Lower operating costs mean higher net profit every month, maximizing your long-term ROI.
- Insulation is Key: If budget allows, invest in high-efficiency insulation in the walls and ceiling. This reduces utility bills for the tenant (or you) and keeps the unit comfortable year-round, minimizing HVAC wear and tear.
- Energy-Efficient Windows: Choose Low-E, dual-pane windows. They help regulate temperature and reduce noise, increasing tenant satisfaction and property appeal.
- Utilities Metering: While not always required, installing separate electric and gas meters is an option that allows the tenant to pay their own utilities directly, eliminating administrative overhead and ensuring fair usage. Installing separate meters can add $3000-6000 to an overall project. Other options include digital water and electrical use meters that can help you calculate utilities charge-back amounts. Finally, perhaps the simplest way is just to list your rental unit with a flat utilities fee along with the rent.
The Final Step to Maximum ROI
Building an additional unit on land that you already own is an investment that nearly always outperforms any other use of your money. Additionally, it provides much-needed housing in our area. Maximizing the ROI for your ADU hinges on partnering with a San Diego General Contractor who understands the financial implications of every decision. At Price Builders, our design-build approach focuses on delivering quality and functionality for the long term.
Don’t let costly mistakes or design faux pas erode your potential profits. Let us help you design and build an ADU that is an asset to your property and a powerhouse for your financial future.
Ready to start generating income? Contact Price Builders today for a consultation on your ADU project and discover your property’s full investment potential.