Build the ADU on land I own, or buy a second rental with the $190k?

The thing that jumps at me is nine months of construction plus four to six months of permitting. That's over a year of $190k doing nothing while you also pay for something. Does your Option A math have a carry cost in it, or does the yield start on day one in the spreadsheet?

Two mechanics worth having straight before the vote, since both options depend on them.

On the build side, the money usually goes out on a draw schedule tied to inspection milestones rather than in one payment, and permitting and construction timelines are set locally. So the relevant number for Option A is not only the total cost, it's when each dollar leaves and when the first rent arrives. Ask the builder for the draw schedule in writing and ask the permitting office for their current average review time on ADU applications.

On the financing side, there is a distinction that matters for canton specifically. Fannie Mae has a policy effective March 2026 allowing projected ADU rental income to count toward qualifying income on owner-occupied one-unit purchases, up to a capped share. canton's ADU would sit on a rental he does not occupy, which is a different situation, and the treatment of income from an ADU on an investment property is set by the loan program and the lender. Confirm what applies to your case in writing with a lender before you build a plan around it.

Also confirm with the county whether adding a second dwelling changes the assessment or creates a second tax bill on that parcel. That varies by state, and a licensed tax professional is the right person to tell you what it does to your return.

Nobody's mentioned what the ADU does to the lot itself. You're a 7,200 square foot lot. Put a 620 square foot cottage on it and you've used up your remaining buildable area, your yard, and probably any future flexibility on that parcel. If your jurisdiction later allows two ADUs, or a lot split, you've spent the option. I'd want to read the current ordinance and whatever's in the pipeline before I poured a foundation, because permissive jurisdictions tend to keep getting more permissive and the version of the rules you build under is the one you're stuck with.

thicket's point about the appraiser is the one I'd chase down before anything else. Ask two local appraisers, paid, what they've been doing with detached ADUs on single family lots in that specific submarket in the last twelve months. Half of Option A's case is the value add, and that half is an assumption you can actually test for a few hundred dollars.

Separately, canton, read your existing homeowner or landlord policy on that lot. Adding a second dwelling usually means a new policy, not an endorsement, and a builder's risk policy during construction on top. I've seen an owner discover in month seven that the carrier wouldn't write the finished configuration at all.

The paid-off house with no debt anywhere is what I'd take, a 6.7% cash return on new money, in a submarket you already know, with one tax bill. Option B is $96k for $200 a month and a new set of problems in a place you've never been. I'd want the amortization argument spelled out with actual numbers before I'd let it beat that.

verity, the amortization argument is roughly $4,800 to $5,200 in year one on a $199k loan at current rates, which on $96k in is about a 5% return you can't spend. Add whatever appreciation you believe in. It's not nothing. It's also not liquid and it comes with a lender who will want a payment in the month your tenant doesn't.

Low price point markets change this question completely, for what it's worth. Where I look, $190k buys three houses outright and the ADU quote would be more than the house it sits behind. The ADU math only works where the rent supports a $186k build, and canton's does. Mine never will.

Option A puts all $190k into one place and returns more per dollar. Option B puts $96k into one place, borrows the rest, returns less per dollar in cash but builds equity and gives you a second location. Is that the whole shape of the basic tradeoff, or is there something in the fourteen month delay I'm not weighting enough? I want to make sure I have it right, since I've gone through this thread twice now.

juniper, that's the shape. The delay matters more than it looks because it's fourteen months of construction risk on a fixed price that isn't actually fixed, and canton hasn't told us what his contingency line is. I've held land through two ordinance cycles and my view is that the ADU is the better asset and the worse project. If you have the temperament to write draw checks for nine months while nothing comes in, take the yield. If you'd be refreshing the builder's schedule every Tuesday, don't.

parcel's point is the one I'd sit with longest. Spending the last of your buildable area on a 620 square foot unit right as the jurisdiction is loosening up seems like the decision you'd regret in 2029, not 2027.