ADU investment financial model
Used to label exports. This will name your .xlsx file.
Walk through this checklist to assess whether your property is a good candidate for an ADU. Check each item that applies.
Select your state and ADU type to see permitting guidance and a typical timeline estimate.
Detached ADUs in California typically take 6-9 months from plans to move-in.
Configure your ADU to get a cost estimate. Costs vary widely by region; these are national averages.
Estimate how much rent your ADU can generate. Check Zillow, Rentometer, or Craigslist for 3 comparable units in your area.
A complete 10-year discounted cash flowDCF: a method to value an investment based on its expected future cash flows, adjusted for the time value of money. projection for your ADU investment.
This table tracks your annual income flow from gross rent down to cash in your pocket after mortgage payments. It answers: "how much money am I making each year?"
| Year | GPRGross potential rent: the total rent you'd collect if every unit was occupied all year. | Vacancy | EGIEffective gross income: GPR minus vacancy. | OpEx | NOINet operating income: the money left after paying all operating expenses, but before mortgage payments. | Debt Service | Cash Flow |
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This table shows the wealth-building side: how your equity grows through loan paydown and property appreciation, plus what you'd walk away with if you sold. It answers: "how much am I worth?"
| Year | NOI | Debt Service | Principal Paid | Interest Paid | Levered CFLevered cash flow: the cash left after paying all operating expenses and debt service. This is the actual money in your pocket each year. | Property Value | Loan Balance | Equity |
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Key metrics to evaluate your ADU investment. Hover over any term to learn what it means.
Plain-English explanations for every financial and real estate term used in this model.
Accessory dwelling unit: a secondary home on a single-family lot (backyard cottage, in-law suite, converted garage).
Net operating income: rent collected minus operating expenses. Does not include mortgage payments.
Capitalization rate: year 1 NOI divided by purchase price. A quick measure of a property's yield without leverage.
Debt service coverage ratio: NOI divided by annual mortgage. Banks want 1.25x or higher. Below 1.0x means rent doesn't cover the mortgage.
Internal rate of return: your annualized return including all cash flows and the sale. The "true" return metric.
Net present value: sum of all future cash flows, discounted to today's dollars, minus what you invested.
Multiple on invested capital: total cash back divided by total cash in. 2.0x means you doubled your money.
Gross potential rent: the max rent if all units are occupied 100% of the time.
Effective gross income: GPR minus vacancy. The realistic income number.
Loan-to-value: the percentage of property value the bank lends. 75% LTV means a 25% down payment.
Discounted cash flow: a valuation method based on projected future cash flows adjusted for time value of money.
Paying off a loan over time with regular payments. A 30-year amortization means 360 monthly payments.
A tax deduction for the "wear and tear" on a building. Residential property uses 27.5 years straight-line on the building (not land).
Capital expenditures: big-ticket items like a new roof, HVAC, or appliances. Not day-to-day maintenance.
Operating expenses: the recurring costs to run the property, including management, maintenance, taxes, insurance, and reserves.
The percentage of time your unit sits empty between tenants. 5% is roughly 2.5 weeks per year vacant.
Annual pre-tax cash flow divided by total cash you invested. Shows what your actual dollars earn each year.
Junior ADU: a small unit (500 sqft or less) created inside an existing home. Lower cost but must share utilities.