The property tax math on an ADU has a hole in it when family lives there first

Take a detached 700 sq ft ADU, bid at $196,000 with a fixed price contract and two named exclusions (utility upsize and any soils remediation), permit approved, cash in hand with no borrowing needed. A common plan is to have a family member live in the unit for two years at no rent, then rent it at market, which comps might put at $1,900 to $2,100 for a new detached unit in a given area. The first 24 months under that plan produce zero income and roughly $2,600 of annual carrying cost in insurance and utilities, plus whatever the property tax change turns out to be. The hole worth flagging: many counties reassess on new construction, and an assessor's guidance often adds the new unit to assessed value at cost, which can raise property tax somewhere around $2,400 to $3,000 a year on a 1.4% effective rate. Reassessment practice on new construction varies by state and county, so this is not something to treat as settled without confirming directly with the local assessor. If the number holds, the first two years run roughly $11,000 of negative carry before a dollar of income arrives, on top of the $196,000 build cost. An alternative worth considering is charging a below-market rent, say $600, that covers the carry. That changes the family dynamic, and how a below-market family rental gets treated for expense purposes is a question for an accountant rather than a general answer. The underlying decision is whether the free years are worth the carrying cost, or whether a family arrangement and an income property are really two different projects being funded by one building. There is rarely a clean answer, and there is no need to rush one.