ADUs — What are They, and Should you Add One?

ADUs, or Accessory Dwelling Units, are the latest trend in real estate. The extra room on the property provides the perfect setting for additional space in your home while providing privacy. However, the separate unit is still a part of your property, and you may reap many benefits as a homeowner.
Here’s everything you must know about ADUs.

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What are ADUs?

ADUs are secondary housing units on your property. They are separate from your main home and offer many options, including serving as another place to live. They provide privacy, just like your home, but aren’t separate properties with a separate PIN, value, and mortgage.

They can be attached or detached, depending on your property’s layout, room on the land, and local zoning laws.

Types of ADUs

There are several types of ADUs. The right option for you is the one that provides the space you need for the intended purpose.

Detached ADUs
Otherwise known as cottages, detached ADUs provide a separate dwelling on your property. They are a part of your property, but the people living there can have complete privacy. The unit is usually small but adequate.

Attached ADUs
Attached ADUs are an addition to the existing house. It’s new construction on the house that you can use as a separate dwelling unit.

Garage or Basement Conversion
Garage or basement conversions are a complete renovation of your existing basement or garage into another living unit. Garage and basement conversions often have their own entrance, providing residents with more privacy.

Ways to Use ADUs

There are many ways to use ADUs, and there’s no right or wrong way. Some common uses include:

Provide older relatives with a separate living space with privacy while keeping them close

  • Rental property for extra income
  • Provide caregivers with a safe and close place to live while caring for relatives
  • Provide a quiet space for office work whether you work from home or own a business
  • Provide guests with a private place to stay while visiting
  • Provide recent college grads with their own space without the cost of buying or renting yet

Factors to Consider with ADUs

Before adding an ADU to your property, there are some factors you should consider:

You’ll Likely Need a Permit

Most areas require you to have a permit to add to your property. In addition, depending on where you live, zoning requirements may control what you can build, how you handle parking or the size of the unit.

The ADU is a Part of the Primary Property

You can’t sell the ADU as a separate property. It’s a legal part of the original property. This may work in your favor because it might increase your property’s value, which may mean higher profits when you sell.

Size Matters

Just like you need a permit to build an ADU, you also need to know your area’s limits. Some areas only allow very small ADUs of 500 square feet, and others allow larger units. Know the guidelines before building.

Consider Aesthetics

There’s no right or wrong way to build an ADU. You can blend it with the primary residence, making it look like a uniform part of the home, or be more modern and have it contrast for a more eye-catching piece of real estate.

To determine what’s best, look around your area and see what other homeowners have done.

Do ADUs Have Benefits?

You might wonder why anyone would build an ADU. There are many requirements and restrictions, and you’ll likely increase your tax bill, so what are the benefits?

First, you might increase your property value. A higher value has many benefits. For example, you can use the larger amount of equity for other purposes, such as debt consolidation, to buy another property, or pay for large expenses.

Second, you may be able to create a supplemental income by renting the ADU out to tenants. If your area allows it, you can advertise the property for rent and be a landlord, collecting rent while maintaining the property.

Also, if you’re thinking about downsizing, you can rent out your primary residence and live in the ADU. This is a great way to stay where you are without the large expense of your primary property.

Financing ADUs

As you probably imagine, it costs a pretty penny for ADUs. If you’re converting an existing structure, you might get by with $20,000 – $50,000, but if you’re building from scratch, you’re looking at $100,000 – $400,000.

So how do you finance it?

If you have equity in your property, you can use it to finance the ADU. A cash-out refinance, or home equity line of credit are often great options. You can usually tap into up to 80% of your home’s equity minus any outstanding liens. If you have enough equity in your home, this can be a great use of the funds.

When you reinvest the funds in your home, you increase its value and immediately see a return. If you also rent the property or downsize, saving yourself money on the cost of living, it can benefit you even more.

Final Thoughts

ADUs are a great way to enhance your current home. Whether you’re looking for more room for aging relatives, college grads, or guests, or you want to supplement your income, there are many benefits of ADUs.

The key is to ensure they’re allowed in your area and to abide by the zoning laws. Every area has different rules that you must follow, including how you use ADUs. When you follow the rules, have affordable financing, and make choices that increase your property’s value, ADUs can be one of the best choices you make for your home.

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