ADU Cost in Indiana in 2026

ADU costs in Indiana range from $58,000 for a basic garage conversion in Evansville or Muncie to $268,000+ for a high-end ADU in Carmel. The most common Indianapolis build — a 600 sq ft mid-range ADU — costs $120,000 to $180,000. Bloomington runs $110,000–$165,000. No impact fees in Indianapolis-Marion County keeps permit costs to $700–$4,000 — among the lowest in the Midwest.

In most Indiana cities, yes — and this is what makes Indiana unique among Midwest states. Indiana state law prohibits cities from banning short-term rentals outright. Indianapolis allows STR with a $150/year permit. Zoning restrictions still apply (verify your zone permits STR), and Indianapolis still requires owner-occupancy, so you must be living on the property while renting the ADU short-term. Other Indiana cities and townships have their own STR ordinances.

Indianapolis caps detached ADUs at 750 square feet or 40% of the primary home's finished floor area, whichever is more restrictive. This means if your primary home is 1,600 sq ft, your ADU is capped at 640 sq ft (40%), not 750 sq ft. If your home is 2,000+ sq ft, the 750 sq ft cap applies. Confirm your effective cap with the Indianapolis Department of Metropolitan Development before finalizing your design.

Yes. Indianapolis requires the property owner to occupy either the primary residence or the ADU as their principal residence — confirmed by affidavit at permit issuance. You cannot build an Indianapolis ADU and rent both units while living elsewhere as a pure investment. This owner-occupancy requirement applies even if you plan to use the ADU for short-term rental — you must be living on the property.

A mid-range 600 sq ft ADU in Indianapolis costs $130,000 to $180,000 all-in and generates $1,200 to $1,600 per month in rental income. Cash-on-cash ROI runs 10–11%, with a payback period of 11–13 years. Bloomington offers better ROI (11–13%) — comparable rents to Indianapolis at 15–20% lower construction cost. No impact fees in Indianapolis-Marion County keep the total investment lower than many comparable Midwest markets.

Indiana state law explicitly prohibits local governments from banning short-term rentals outright. Cities can regulate STRs through zoning ordinances — requiring permits, limiting zones, imposing operational rules — but they cannot impose a blanket ban. This is a significant policy difference from Illinois (Chicago bans ADU STR), Michigan (Grand Rapids and Detroit ban ADU STR under 30 days), and Ohio. It gives Indiana ADU investors more income strategy flexibility than most Midwest markets.