Tiny Homes Are the New Home Add-Ons That Will Make the Value of Your Property Soar

By Julie Taylor

February 19, 2025

An increasing number of young people, priced out of the traditional real estate market, are opting for tiny homes and accessory dwelling units as a way to break into homeownership.

However, now could be the perfect time for current homeowners, regardless of their age, to consider investing in one as well.

This is especially true of homeowners who want to increase the value of their property and appeal to the increasing number of buyers seeking homes that accommodate multigenerational families.

As far as real estate investment opportunities go, tiny homes or ADUs on existing property can be an affordable option with a high return on investment. 

"The ROI depends on factors such as construction costs, rental income potential, and long-term property appreciation," says Whitney Hill, co-founder and CEO of SnapADU, a leading ADU design-build firm in San Diego. "A well-designed ADU can increase a property's value significantly."

If you're in a high-demand rental market, "this can be a great way to generate additional income to offset expenses or to house a family member such as a mother-in law," says Cara Ameer, a real estate agent with Coldwell Banker who operates in both California and Florida.

In this tough economy, multigenerational living is certainly gaining popularity.

"As prices of goods, housing, and medical costs increase, more families are moving in together to save money," says Denise Supplee, a real estate agent and co-founder of SparkRental in Doylestown, PA. "This increases the demand for multiunit homes, homes with in-law suites, and/or granny pods, ADUs, or tiny homes."

"It depends on the property values in a particular neighborhood, of course," says Zander Diamont, co-founder of Minimal Living Concepts, Arizona's leading builder of ADUs.

Diamont describes a common scenario he's encountered: "If you build a 600-square-foot ADU at a cost of $350 per square foot, the total construction cost would be $210,000. In a neighborhood where the property value is $500 per square foot, the ADU could add up to $300,000 in value to your property. This represents a potential return on investment of $90,000."

As a general guideline, Ameer suggests that an ADU can boost a property’s value by at least 30%, though this can vary.

ADUs are built on a permanent foundation, while tiny homes are often constructed on wheels or trailers.

A tiny home is a stand-alone dwelling that emphasizes smaller features and efficient use of space.

"Tiny homes generally range from 100 to 400 square feet," says Diamont.

ADUs are secondary living spaces that are independent of the primary dwelling unit and meet certain zoning rules, according to Ron Myers of Ron Buys Florida Homes in West Palm Beach, FL.

To be classified as an ADU, the structure "must be more than 150 square feet and include a bathroom and kitchen or kitchenette," says Hill.

If it doesn't meet those requirements, it might qualify as a bonus room, addition, or guest quarters, but not as an ADU.

When it comes to whether or not you can rent out your tiny home or ADU, there are a lot of considerations.

"Whether you can rent out a tiny home depends on local zoning laws, HOA rules, and short-term rental regulations," says Alecia Taylor, interior designer at CabinetNow.com. "Some cities are more lenient, while others have strict rules on renting out ADUs or tiny homes. It’s important to check whether your community allows for long-term or short-term rentals, and whether you need special permits for that purpose."

If you are allowed to rent out your property, they're skyrocketing in popularity on rental platforms like Airbnb, according to Adam Hamilton, CEO of REI Hub in Richmond, VA. "They're great for short-term rentals or long-term rentals, as detached units allow hosts and tenants to have more privacy and independence," he says.

Zoning regulations for ADUs or tiny homes can vary widely based on your location, "so it’s important to check with local authorities about minimum lot sizes, setback requirements, and maximum square footage," says Taylor.

New regulations and restrictions concerning tiny homes and ADUs are constantly being introduced.

"These laws are usually on the state level, and they often have to do with things like how many ADUs are permitted per lot," says Seamus Nally, CEO of TurboTenant in Fort Collins, CO. "So it’s important to stay up to date on any new legislation."

In California, for instance, detached ADUs can be as large as 1,200 square feet—while in Oregon, they can be only up to 75% of the primary dwelling's size, with a maximum of 900 square feet for detached units.

Regarding foundation requirements, most ADUs need a concrete slab with reinforced footings.

Although not all tiny homes require a foundation, most are better off with a permanent one, particularly if you plan to connect to conventional utilities and adhere to local building codes.

Most tiny homes on foundations are connected to the primary home's utilities, whereas tiny homes on wheels usually have RV hookups.

Typically, ADUs connect to the primary home’s utilities, according to Hill.

"This includes tying into existing water lines and sewer laterals," she says. "If the property uses a septic system, a separate system may be required for the ADU."

Design restrictions might also apply when it comes to planning your ADU or tiny home.

"Some municipalities enforce design compatibility rules, meaning your ADU has to complement the style of the primary home or the neighborhood at large," says Kanika Bakshi Khurana, principal interior designer and founder of Kanika Design in San Francisco.

If you live in a townhome or an HOA community, there are usually additional rules and regulations regarding ADUs and tiny homes, so it's important to review them before beginning construction.