I would need a lot more info to say much. First is this even allowed in your area many do not allow apts. above garages . As for the ROI that really depends on your area. The school district IMO has no real effect on that but a university or college would . I would need to see your property and the plan for accessing this apt. and a layout for the apt. for sure

Will it appraise or add market value? Probably not.

Would it add economic value with the combination rent for the apartment and saved expenses for the 784sf of garage/storage area? It could.

Many remodeling projects don't add enough in market or appraisal value to justify, but those homeowners really don't want to know that and will let the rising market help them out over time.

Sometimes its a marriage saver.

Really the main goal is space. I have a 2yr old that is taking over the house and we want to have another child so our 3rd bedroom which is now a guestroom/office needs to go, and the living space above the garage if where I plan to move it to. Treating it as a rental property is just a bonus option if I want to go down that route in the future, more likely a place for a teenager or aging relative. I've run out of space in my home and I don't want to deal with a home addition right now due to 1. even more cost but more importantly 2. both me and my wife are currently working from home full time. 175k just seems like an awful lot for this structure but at the same time I am basically building a tiny house on my property. I will enjoy it and use it, I'm just a numbers guy and don't want like 100k of this to be a total sunk cost if I reappraise the house afterwards.

How will the habitable space above the garage be accessed? Exterior stair? Interior stair? What sort of climate conditions do you have on an annual basis?

Will the garage be separate from your existing house or linked in some manner?

It will be interior stair, 10ft ceilings in garage, 8ft on second floor. all finished/insulated and will be heated/hvac both upstairs and first floor. While I can look at buying a bigger house, I have a unique property (3 acres but sandwiched between two 10+ acre properties with a private driveway that goes through) so selling for a bigger house I'm turned off by because I'll need to pay A LOT more to feel just as secluded. It sounds like the 175k im paying is about average for what I am getting, so feeling way more comfortable with the decision to move forward. Appreciate the feedback all.

Does your zoning allow you to have a 2nd residence on your property? If considering it for a rental, are you going to have separate water/sewer/electrical hookups? Would it be required to have a separate address?

Will this be a factory-built garage or site-built?

Does it have to be a full apartment? Maybe just an extra room over the garage (w/a bathroom) will be sufficient for your needs and cost a lot less.