No matter how large or small your newly built home is, you may someday want a little more room or a private space. Accessory Dwelling Units (known as ADUs) can be attached to your house or it can be built separately on your property. In some cases, an ADU can refer to a conversion of existing space such as a garage or building a second story above your garage. In others, the ADU is a new attached – or detached – cottage or tiny house.
ADUs are becoming more common around the country for a variety of reasons. One popular use for an ADU is to provide living space for elderly parents or in-laws for multigenerational living, which is why they are sometimes nicknamed “granny flats.” Another popular use is for income from short or long-term rentals. The flexibility of an ADU means you can use it for almost any purpose, including a home office, an art studio, a home for adult children or as an elaborate playhouse or home school for younger children.
While you may not need or want an ADU now, if you want to “future-proof” your home and add flexibility to your living options, it can be smart to think ahead about the possibilities. Perhaps you could check to see if an ADU would fit on your lot and what the existing rules are in your community about these units.
Planning Ahead for an ADU
Local jurisdictions have varied rules about whether an ADU can be built on your property, and those regulations change often. While some locales embrace ADUs as a potential solution to the lack of affordable housing, many impose specific guidelines about their configuration – and renting them. For example, it’s common to have only one ADU allowed on a property. However, some areas allow both an attached ADU such as a garage conversion and a detached ADU. Some locations require one parking space to be available for tenants. Before you buy a house with the intent of adding an ADU – or if you think you may want to add one in the future – you should first check with city zoning regulations that impact ADUs.
In addition to the zoning regulations, you will also need to abide by homeowner association regulations if your neighborhood has an HOA. Review those association documents for references to ADUs to confirm if homeowners are allowed to build additions, which are usually subject to review by an architectural committee. If you don’t see any rules about ADUs, you may still want to ask your builder and a homeowner association representative about any possible issues.
Once you’ve verified that an ADU may be possible, you will want to consider the lot and floor plan you choose to see if an addition or detached ADU could be accommodated. You’ll likely have to meet zoning regulations for how closely you can build to boundary lines. Now is the time to measure to ensure the prospective lot has plenty of space to add an ADU at some point in the future. Look at the placement of the garage to see if adding a second story would be appropriate, or possibly block windows in the main section of the house.
Cost of Building an ADU
Adding an ADU can cost anywhere from $30,000 for a minor garage conversion to as much as $400,000 for an addition or a freestanding cottage. While it’s possible to purchase a prefabricated tiny house for $50,000 to $100,000, you may need to pay for hooking up the plumbing and electricity to your home. And then there’s the expense of preparing and leveling the lot for a new structure – or landscaping changes. And that’s not all; some locations require construction permits.
ADUs come in all sizes. You can choose a small 250-square-foot addition or go large with one that is 1,200 square feet. Your location also impacts construction costs, materials, labor and permits.
If you’re building a home addition, you may be able to refinance with a remodeling loan such as an FHA 203(k) loan or a Fannie Mae HomeStyle mortgage. Another option is to tap into a home equity line of credit.
Financial Benefits of an ADU
For many homeowners, the advantages of an ADU are personal: they want the extra space so extended family members can live with them but still enjoy their privacy. There may be some financial benefits to adding an ADU, as well.
If you live in an area where you can rent your ADU, you may be able to generate an income stream to help pay your mortgage. Or you could save it for a rainy day. The amount you can charge tenants depends on the space you’re leasing and comparable rents in your area. Generally, you can earn more rental income with a larger ADU, especially one with two bedrooms and two bathrooms, as that could appeal to roommates.
Your property value may increase with an ADU, too. Typically, when you add more square feet of living space, a bedroom and a bathroom, your home’s value will appreciate. The increase depends on how you design and build the ADU. If your ADU looks natural on your property and complements your main house, it will be more appealing to future buyers than an addition that stands out as awkward or unattractive.
Disadvantages of an ADU
An ADU isn’t for everyone and can in some cases be a liability. Financially, the extra living space may increase your property taxes the next time your home is appraised. There’s also no guarantee that your home will increase in value because of the ADU. Some buyers may not want detached housing and may prefer more livable outdoor space. But then again, if you converted the garage to living space, they may want the garage to be converted back to its original use before they buy.
While earning rental income from an ADU may be appealing, you should think carefully about whether you want tenants or short-term guests to live in close proximity to you and your household. It could be difficult to find a long-term tenant depending on the level of privacy and space your ADU provides. Guidelines change frequently in different jurisdictions, too, so your rental income could be impacted if short-term stays are no longer allowed.
Many buyers today value flexibility in their homes – and lifestyle – so that they can adapt to different needs of their family at various times. The ability to add an ADU in the future may provide one more option for flexibility.