02 Jul Unlocking Investment Potential in Northern Arizona with ADUs
How Accessory Dwelling Units Are Reshaping Real Estate Strategy in Flagstaff, Sedona, and Prescott
As housing costs continue to rise across Northern Arizona, investors and homeowners alike are turning to a flexible, high-impact solution: Accessory Dwelling Units (ADUs). Commonly known as guest houses, casitas, or in-law suites, ADUs are secondary residential units on the same lot as a primary home. These small structures—typically studio to two-bedroom spaces—can be detached, attached, or converted from existing garages or basements.
In markets like Flagstaff, Sedona, and Prescott, where housing supply is limited and rental demand remains high, ADUs are emerging as a key value-add for both long-term investors and owner-occupants looking to maximize returns.
Flagstaff: ADUs as a Smart Urban Infill Strategy
Flagstaff’s growing population, coupled with limited land availability and strict zoning, makes ADUs an attractive solution for increasing density without sprawl. The City of Flagstaff has actively encouraged ADU development in recent years by streamlining permitting and easing parking requirements.
Investors purchasing older homes in established neighborhoods are increasingly looking to convert garages or build detached units in spacious backyards. With NAU students, seasonal workers, and traveling professionals creating constant demand, these ADUs can be leased for strong monthly rents, often in the $1,200–$1,800 range, depending on size and location.
Real estate agents representing buyers should highlight properties with large lots, alley access, or existing outbuildings as prime candidates for ADU conversion. With proper permitting, an ADU in Flagstaff can boost both cash flow and resale value.
Sedona: ADUs in the Face of Short-Term Rental Restrictions
Sedona’s unique position as a global tourist destination has made short-term rentals a hot-button issue. With increased local scrutiny and limitations on STRs in residential areas, ADUs provide a compliant alternative for generating rental income, particularly through long-term leases or housing for traveling nurses and remote workers.
In Sedona’s West and Uptown districts, properties with existing guest houses or converted basements are especially attractive to buyers seeking to offset high purchase prices with rental income. Additionally, Sedona’s aesthetic and architectural standards make well-designed ADUs a premium feature that aligns with buyer expectations for quality and style.
Agents should help clients understand local zoning overlays and rental ordinances to ensure ADUs are developed and appropriately marketed in Sedona’s sensitive regulatory environment.
Prescott: Multi-Generational Living and Retirement Planning
Prescott, with its strong appeal to retirees and multi-generational households, offers a slightly different angle on ADU investment. Here, the demand for ADUs is often driven by lifestyle rather than pure income generation. Many buyers are looking for space to accommodate aging parents, returning adult children, or live-in caregivers.
However, savvy investors in Prescott are also leveraging ADUs to tap into the city’s stable rental market. With Embry-Riddle Aeronautical University and Yavapai College nearby, student housing is an ongoing opportunity. Detached units can be rented to local tenants or traveling professionals, offering consistent returns with relatively low overhead.
Prescott’s zoning codes vary by neighborhood, so agents should review specific parcel entitlements and setbacks. Properties with sloped lots, walk-out basements, or accessible side yards can often accommodate ADUs with minimal disruption.
The Bottom Line
ADUs present one of the most compelling property enhancements in Northern Arizona today. Whether in Flagstaff’s urban corridors, Sedona’s tourism-adjacent neighborhoods, or Prescott’s retirement communities, a well-placed ADU can increase rental income, enhance resale value, and create housing flexibility. Real estate professionals who understand local zoning, permitting processes, and tenant demographics are best positioned to help clients unlock this powerful investment tool.