In the past year, real estate agents have noticed an increase of ADUs, or accessory dwelling units. Generally, ADUs are separate living quarters within a property, most commonly used to house family members of the primary owners. These can also be used to house long-term renters, such as renters who’ve signed a monthly lease.
Recently, however, there’s been an uptick in ADUs used as short-term rentals, which can be extremely profitable depending on the location. It’s no wonder then, that so many homeowners have signed up for platforms such as Airbnb, HomeAway, and VRBO in order to market their ADU. However, while short term rentals may have initial financial perks, homeowners should consider the negative factors before diving head first.
Short-term rentals are on the rise after the pandemic
According to HomeLight’s Top Agent Insights for End of Year 2021, 51% of agents have noted an increase of short-term rental properties in their markets. Those realtors in idyllic vacation destinations — such as the South Central region — have especially noticed the trend, as 61% of agents in that area noticed an increase.
So what’s the cause for the increase? When COVID-19 ordered the nation to stay home and remote work became normal, many workers decided to move their home office somewhere more remote. Employees were on the lookout for short-term rentals that allowed them to work a full day at home before jetting off to explore the area once they’ve clocked off.
As need arose, homeowners were quick to answer and short-term rentals quickly increased throughout the country.
How valuable is an ADU when it comes time to sell your property?
While short-term rentals are profitable, the cost to build one is hefty. Agents estimate that total building expenses come to around $77,239, while the value for an ADU is about $65,908 nationally. 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.
So why would you consider building an ADU for short-term renters? To put simply, as long as your ADU garners plenty of bookings from short-term renters, you should eventually see a profit. Though, be sure that your property is located in an area that would be appealing to travelers. According to HomeLight’s Report, 60% of real estate agents claim proximity to a city center is a top location factor that increases a short-term rental’s value in the market, followed closely by proximity to a college campus or body of water.
If your property is in a desirable location, next think about features that will set it apart. To attract renters, your ADU will need a private entrance, air conditioning, in-unit laundry machines, and WiFi, so make sure those amenities are featured in your ADU.
Beware short-term rentals lowering property values in your neighborhood
To put it simply, no one wants to live near a property with short-term renters. Vacationers often throw loud parties or generally disrespect neighbor boundaries. Real estate agents have estimated that an owner-occupied property is worth 13.3% less when surrounded by a high volume of short-term rentals.
Basically, if you’re in a desirable area for travelers, many properties in your proximity may open for short-term renters. Once that happens, home values in your neighborhood will drop. If you want to sell your home for the best value, remember that taking on short-term renters will negatively affect your neighborhood’s overall property value.