The cheapest way to add a rental unit to your Utah property
If your house already has an unfinished basement that can be legally converted, that is almost always the cheapest way to add a rental unit. It uses space you already own and paid for. A detached ADU built in your backyard costs more up front. What it buys you is a separate entrance, full market rent, no shared walls with your tenant, and a second legal unit on the property rather than a rented part of your own house.
The four realistic options, compared
Most Utah homeowners looking to add rental income are choosing between four things. Here is how they actually compare. Cocoon builds ADUs, so read the last column knowing that, and note that we have put the basement first because for a lot of people it is the right answer.
| Basement conversion | Garage conversion | Cocoon backyard ADU | Buy a condo to rent out | |
|---|---|---|---|---|
| Realistic all-in cost | $40,000 to $120,000, depending on what the space already has. Utah figures cluster around $50,000 to $100,000. You also avoid impact fees, worth $5,000 to $15,000. | $60,000 to $150,000. More than a basement, because plumbing, insulation and often a new floor have to be run from scratch. | Typically $85,000 to $200,000 all in. A 300 Series one bedroom typically lands at $113,000 to $126,000. | Salt Lake County's median condo was $417,900 in the second quarter of 2026, with entry level nearer $360,000. Utah County townhomes sit around $425,000. |
| Monthly rent it earns | Below a detached unit. Shared entrance and shared walls both pull the rate down. | Varies with whether it is attached to the house and has its own entrance. | $1,200 to $2,500 a month on the Wasatch Front, at full market rate. | Full market rate for the unit, less HOA fees. |
| Timeline | 6 to 10 months is typical for a Utah ADU project: 2 to 3 months of permitting, then 4 to 7 months of work. | Similar to a basement, 6 to 10 months, with the same permitting stage at the front. | Depends on your city's permitting and your lot. We give you a real timeline after a site walk. | As fast as a purchase closes. No construction. |
| Permit burden | Permits required. Egress windows, ceiling height and fire separation are the usual sticking points. | Permits required, plus you may need to replace the parking the garage provided. | Permits required. City ADU fees in Utah run $3,500 to $9,000. Cocoon handles the permitting. | None. You are buying an existing unit. |
| Effect on your own living space | You give up the basement permanently, and you share the building with a tenant. | You give up the garage and its storage. Often shared walls too. | None inside your house. You give up yard space instead. | None. The unit is somewhere else entirely. |
| Adds a legal unit to your property | Yes, as an internal ADU where the city allows it. | Yes, where the city allows it. | Yes. A detached ADU on your lot. | No. It adds a property, not a unit on the one you own. |
Conversion costs and timelines are 2026 Utah market figures from published ADU cost research. Condo prices are Salt Lake County second-quarter 2026 medians. Cocoon figures are our own. Every one of these is a range for a reason, and your lot decides where in the range you land.
Where the basement genuinely wins
If you have a basement that is already framed, already has a reasonable ceiling height, and can take an egress window without cutting into a foundation wall in an expensive place, finishing it is the cheapest rental unit you will ever add. You are paying for finishes and code compliance, not for a foundation, a roof, a building envelope or a new utility connection. Those four things are most of what makes any detached structure cost what it costs.
Be honest with yourself about two conditions, though. The first is whether the basement can actually be brought to code, because egress and ceiling height are the two requirements that most often turn a cheap project into an expensive one. The second is whether you want to share a building with a tenant. A basement apartment means shared walls, usually a shared entrance or a side door a few feet from your own, and noise travelling in both directions.
Where a detached ADU wins
An ADU costs more up front. Four things come back the other way.
- Separate entrance and no shared walls. Your tenant arrives and leaves without passing through or beside your living space. This is the difference most landlords say matters most after the first year.
- Full market rent. A detached one bedroom unit rents at the top of the range rather than at the discount a basement apartment takes.
- You keep your house. No basement given up, no garage given up, no storage lost. You give up yard instead, which for many lots is the space that was doing the least work.
- It adds a legal second unit to your lot. Utah's SB284, in effect since October 1, 2026, made detached ADUs a permitted use on qualifying parcels of 11,000 square feet or more, without a conditional use permit. A permitted detached ADU is a durable addition to the property rather than a room you rent out. Note that Lehi and some other cities require you to live in one of the two homes, so this is a way to add a unit, not a way to turn the whole lot into rentals.
The payback math, using real numbers
Here is the arithmetic for a Cocoon ADU, using our verified cost range and the actual rent range on the Wasatch Front. This is gross payback: all-in cost divided by annual rent. It ignores vacancy, maintenance, property taxes, insurance and any financing cost, all of which are real and all of which push the true figure out.
| Scenario | All-in cost | Rent | Gross payback |
|---|---|---|---|
| Studio, strong rent | $85,000 | $2,000 a month | About 3.5 years |
| 300 Series one bedroom, mid rent | $113,000 to $126,000 | $1,500 a month | About 6.3 to 7 years |
| 300 Series one bedroom, soft rent | $126,000 | $1,200 a month | About 8.8 years |
| Larger or difficult site, top rent | $200,000 | $2,500 a month | About 6.7 years |
What moves your number most. The all-in figure is the home plus site work. Cocoon homes typically run $63,000 to $109,000 before site work, and site work, utilities and city fees typically add 35 to 50 percent on top. A flat lot with utilities close by lands near the bottom of that. A sloped lot, a long utility run or an expensive city sits near the top. That spread is worth more to your payback than the model you choose.
See what an ADU costs in Utah for the full breakdown, and Utah ADU rental income for rent by city.
Why an ADU built by one team costs less than a traditional custom-built ADU
A traditional custom-built ADU in Utah generally runs $200,000 to $400,000 and up. A Cocoon ADU typically lands at $85,000 to $200,000 all in for the same kind of unit on the same kind of lot. The gap is not a difference in whether the unit is built on your property, because both are. It comes from three things.
- The floor plans are pre-engineered and repeated. Drawing a one-off ADU from scratch means paying for design and engineering that gets used once. We build the same plans repeatedly, so that cost is already spent.
- Materials are standardized and bought in volume. Repeating the same plans means repeating the same material package, which we buy at volume pricing rather than at one-off order pricing.
- One team does design, permitting and construction. The traditional route is a general contractor marking up every subcontractor on the job. Our own Utah crew builds it, so there is no layer of markup sitting on top of each trade.
Custom design is where the saving disappears. If you want a plan drawn specifically for your lot, you are buying the traditional route and should expect traditional pricing.
Common questions
What is the cheapest way to add a rental unit to a house in Utah?
Finishing an existing basement into a legal apartment is usually the cheapest, because the foundation, roof, walls and utility connections already exist and are already paid for. The costs that remain are finishes and code compliance. It is only the cheapest option if the basement can actually meet egress and ceiling height requirements without major structural work.
Is a backyard ADU worth it if a basement conversion is cheaper?
It depends on what you are optimising for. A basement is cheaper per dollar of rent. A detached ADU earns full market rent, gives both households a separate entrance and no shared walls, and leaves your own house intact. If you plan to live alongside the tenant for years, the separation is usually what people say made the extra cost worth it.
How much rent does a backyard ADU earn on the Wasatch Front?
Between $1,200 and $2,500 a month, depending on the city, the size of the unit and the finish level. Well-finished units in Salt Lake reach the top of that range. Our Utah ADU rental income guide breaks the numbers down by area.
What does a Cocoon ADU cost all in?
Typically $85,000 to $200,000 including site work. The home itself typically runs $63,000 to $109,000 depending on the series, and site work, utilities and city costs add roughly 35 to 50 percent on top of that. A 300 Series one bedroom usually lands at $113,000 to $126,000 all in.
Do I need a permit to add a rental unit in Utah?
Yes, for a basement conversion, a garage conversion and a detached ADU alike. Utah city ADU fees run roughly $3,500 to $9,000, and the specific requirements vary by city. Our Utah ADU rules by city tracker covers what each city currently requires.
Is buying a condo a better investment than building an ADU?
A condo is a separate property with its own mortgage, HOA fees and management, and it does not increase the value or capacity of the land you already own. An ADU adds a second legal unit to your existing lot with no HOA and no second property to buy. The condo route makes more sense if you do not have usable yard space or do not want construction on your property.
Find out what your lot can take
Tell us your address and what you are hoping to earn, and we will tell you honestly whether an ADU or a basement is the better move for your property.
Talk to Cocoon Homes