ADU rental ROI by city + unit size

ADU ROI — frequently asked

• What's a realistic ROI for a new Puget Sound ADU in 2025?

  Net cap rate of 5.4–6.8% for a code-built, professionally managed long-term-rental ADU is typical across the region. That assumes 5% vacancy, 8% maintenance reserve, 8% management if outsourced, full property tax reassessment under RCW 84.40.0301, and current insurance. Owner-self-managed pushes net cap to 6.5–7.5%. Higher than most stabilized small multifamily syndications in 2025.

• How long until an ADU pays for itself?

  Cash-on-cash break-even depends on financing structure. Cash purchase: 11–14 years on rental net. HomeStyle 30-year financing at 7% rate: positive cash flow from month one in most Eastside/Seattle markets, with ~30 years to full mortgage payoff (then it is pure cash flow). Including appreciation, total return typically beats SP500 long-run after-tax over 10 years.

• Does an ADU increase my property's appraised value?

  Yes, but not always dollar-for-dollar with build cost. Typical Puget Sound 2025 valuation: $1.05–$1.45 of appraised value per $1 of build cost on lots with strong ADU demand (Seattle SFH neighborhoods, Eastside transit-adjacent, Tacoma's North End). On rural or low-rent lots, ratio drops to $0.85–$1.05 — still positive, smaller margin.

• What's the tax impact on net ROI?

  Washington has no state income tax — major advantage versus California, Oregon, or any income-tax state. Federal: rental net is taxable at marginal rate; you depreciate the building 27.5-year SL per IRS Pub 527; passive-activity rules apply per IRC §469. Effective federal tax on ADU rental net for most owners after depreciation: 8–18%. We do not give tax advice; talk to your CPA with our rent and depreciation numbers.

• Can I take depreciation if I live in the main house and rent the ADU?

  Yes — the ADU portion is depreciable rental property even though you live on the same parcel (Pub 527 allows partial-property rental). You allocate basis between the rental ADU and your personal residence using a defensible method (square footage is common). Talk to your CPA about cost segregation if the ADU is 1,000 sq ft and the build cost is high enough — it can accelerate years of deduction.

• How do appreciation projections work?

  Case-Shiller Seattle MSA shows a 5.1% long-run annual appreciation (1990–2024) with significant year-over-year volatility. We model three scenarios on every roi page: conservative 2.5%, base 4.5%, aggressive 6.5%. Use base for planning; treat aggressive as upside, not a baseline assumption.