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Why you may need an
Accessory Dwelling Unit (ADU)
Learn more about what an ADU is, how it can benefit you and what regulations you need to follow in your city.
What is an ADU?
Accessory dwelling units (ADUs) are home additions intended to be used as fully-functional housing units. They differ from mobile homes and condos in that ownership is typically transferred with the primary residential structure, meaning that there is no need to subdivide the lot. Instead, they are designed to provide privacy and independence for family members who want to live on-site but don’t want to share space with the primary homeowner.
Often, ADUs are used to provide independent housing for aging family members who need a little bit of help around the home but do not want to move into assisted living facilities or become an imposition on their loved ones. This helps to explain why it’s common to hear homeowners refer to their ADU as a “granny unit” or an “in-law unit.” The reality is, however, that this is just one of the many uses for an ADU.
Additional Uses for ADUs
In many jurisdictions, homes that feature ADUs can only be owner-occupied, which means that the owner must occupy either the ADU or the primary dwelling. A lot of homeowners choose to use their ADUs as long-term rentals, though, gaining passive income for themselves and their families.
Property owners who live in vacation towns or big cities may find that they can make more money using their ADUs as short-term rental units, posting as hosts on sites like Airbnb, VRBO, and HomeAway. Not all cities and towns allow this use, though, and those that do often require property owners to pay lodging taxes. Property owners should look into these issues prior to planning a remodel.
Independent Housing for Older Kids
Not all parents love the idea of letting their older teens move into their own separate apartments, but with some supervision, it can be a great way to experiment with increased independence. This, in turn, can leave teens in a better position when they plan to move out of their parents’ homes.
Provide a Safety Net
ADUs can also serve as an effective safety net for adult children who have fallen on hard times. They can also be great for adult children who struggle with chronic health problems or developmental issues that make it difficult for them to live on their own.
Private Guest Accommodations
Those who routinely host friends and family members may prefer to build an addition just for guests. Not only will it give homeowners’ guests some extra privacy, but it will also do double-duty by giving hosts their own space.
Maximize Rental Income
Other property owners prefer to move into their ADUs and rent out their primary houses. This can be especially effective if the property owner has chosen to build a tiny home rather than an attached ADU. Find out more about the different kinds of ADUs below.
Types of ADUs
There are three basic strategies for designing and constructing ADUs. Some property owners choose to build detached structures, while others build externally attached apartments and even more of them build attached internal apartments. Each off these strategies confers a different set of benefits.
When most people think of granny units, they’re likely thinking of detached ADUs. In order to be considered an accessory dwelling, the outbuilding must rest on a foundation, which means mobile homes and wheeled tiny homes do not technically fall under this category.
Detached ADUs provide maximum privacy and minimal disruption for the primary homeowner, which makes them great for those who want to rent their units to short-term or long-term tenants. They can be more expensive to maintain, though, and they’re almost always more expensive to construct. After all, these detached structures will require their own utility hookups and essential appliances.
Attached External Apartments
Most attached external apartments, also known as garage conversions, share nothing more than a wall or two with the primary home. They typically have separate entrances and separate utility hookups and may or may not share appliances like furnaces and water heaters. This type of ADU provides a good balance of independence for guests or tenants and cost-efficiency for homeowners.
Attached Internal Apartments
If a home has an attached internal apartment, most passers-by won’t even notice that there is an ADU. More often than not, these units are found in finished basements or in attics. Although they may or may not have separate entrances, they all have secured doors accessible from inside the home.
Attached internal apartments offer the least privacy but the most cost-efficiency. They’re perfect for families who want to keep an eye on teenage kids or aging parents but tend to be less appealing to long-term renters, which means they may not offer the same kind of return on investment.
The Pros of Constructing ADUs
Most of the benefits of building additions or detached structures with the intention of using them as ADUs should be clear by now. They offer a chance for family members to age in place safely, provide opportunities for multigenerational housing, give guests some privacy, and let homeowners who want to go the landlord route begin taking in short-term or long-term renters. Plus, they can be repurposed over time as property owners’ needs change.
The Cons of Constructing ADUs
The primary disadvantage of constructing an ADU is that it does require a fairly substantial initial investment, although those who choose to rent their units typically have no problem recovering that investment. ADUs also tend to raise property taxes and may be subject to covenants or sale restrictions. It’s important to look into town or city ordinances and obtain proper building codes prior to beginning construction, but contractors can typically help with that.
Paying for ADUs
It’s often possible to use a home’s equity to pay for the construction of an ADU. These structures not only add value to a home but also generate passive income as rentals.
Did you know…
- Your home equity can build your ADU.
- Point will give you $35,000 to $500,000 with no monthly payment and no additional debt.
Accessory dwelling units hold so much promise, but feel so complicated. It seems overwhelming! You can make your ADU dream a reality with proven partners by your side. That’s why we have partnered with Point to provide you with a finance solution that takes the cashflow challenge out of your ADU’s construction.
Check out Rise Builders on Point to learn how to take advantage of home equity alternatives.