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What is an ADU?

ADU's can add significant value to your property, earn a consistent rental income, or provide a home to an aging parent or relative.

An ADU is simply a smaller, secondary home that is built on the same plot of land as the primary residence.

 

ADUs can be of various shapes and sizes. Depending on the reason why you’re building it, you will have to choose the type of ADU that best suits your needs and preferences.

Types of ADU's:

Detached vs Attached

The primary difference between attached and detached ADUs is that, despite being a separate living space, an attached ADU shares a wall with the primary residence and is, therefore, attached to it. A detached ADU, on the other hand, is separated from the primary residence by a piece of open land.

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Garage Conversion

A garage conversion involves switching garage space over to living space as a mini apartment or another type of functional room, such as a home office or bungalow. Before you convert, make sure you really don't need the garage space for vehicles, tools or lawn mowers. You may regret the transition if you end up purchasing a new vehicle, lawn equipment or other items and could have used the garage space!

Interior Conversion

As you might imagine, an internal ADU means that part of an existing home is partitioned off and renovated to form a separate living space. You may choose a lower-level ADU (in the basement) or an upper-level ADU (in the attic). However, it's important to meet all safety and construction conditions for the home. Consider whether adding a fully separate living space in your home meets your needs or whether you'd rather have a separate unit, away from the main house.

Brick Construction

Why build an ADU?

There are two primary motivations behind the addition of an ADU to a single-family home by homeowners. One is to create a passive income stream, and the other is to accommodate the housing needs of a family member. In particular, an ADU can provide a degree of seclusion for younger family members seeking independence, or for older family members who require more supervision or flexibility than an assisted living arrangement would provide. By residing in an ADU, they can enjoy greater autonomy and privacy, rather than being situated in the primary residence alongside other family members.

How much does an ADU cost?

If you are considering adding an ADU to your property, one of the key concerns you might have is the associated costs, especially if you do not currently have an ADU on your premises. However, the expenses of adding an ADU can vary considerably. The upfront costs will depend on various factors such as constructing the unit, adding energy and plumbing connections, and more. It is essential to keep in mind that the type of ADU you opt for can offer several advantages, including the potential for a passive income stream, tax benefits, and an increase in the overall value of your property.

One cost-effective approach is to convert an existing structure on your property rather than adding onto your home or constructing a new unit from scratch. The costs of such conversions can vary depending on the type of structure, materials used, and the quality of the contractor. Generally, you can expect to pay at least $5,000 for converting a garage or shed into an ADU.

How to finance your ADU?

If you’re set on building an ADU, you may want to finance it with a cash-out refinance or a home equity loan. Other options include a home equity line of credit or a construction loan.

Pros & Cons

Pros

  • Additional Income: You may earn rental income by renting out the ADU on your property.

  • Increase In Value: ADUs can add value to the property. Experts believe they will become increasingly desirable because the U.S. housing stock, consisting overwhelmingly of single-family homes, does not offer enough options for the young or the elderly. However, even if someone chooses not to use their unit for family members, they can earn passive income and homeowners tax benefits. Because legal ADUs are only recently becoming common, there is little historical data to rely on.

  • Opportunity For A Curated Space: ADU owners can curate a space that fits their wants and needs for their home/property. For example, if you have an elderly mother-in-law who needs a certain level of independence, you can cultivate exactly the right space for your mutual situation.

Cons

  • Will Require Maintenance: Having rental space means more maintenance and upkeep, including regular cleaning, corrective maintenance and emergency maintenance. Decide whether you have the bandwidth to DIY it or the cash on hand to hire individuals to tackle repair work as necessary.

  • Added Monthly Expenses: Owners must pay for the construction, maintenance, and monthly fees for the unit. You may have to pay these on an ongoing basis, particularly for costs like utility fees.

  • Will Take Up Space: Depending on the type of unit you choose, it may take up space on your property.

FAQ's

Are ADUs legally permitted?

Depending on where you live, you may have to adhere to zoning laws, which can prohibit turning a single-family home into a duplex or adding an external structure. Check your local government for more information, particularly if you plan to build an Airbnb-type rental. You can also check on property taxes, building permit requirements and special permissions.

Will adding an ADU increase my home’s value?

As mentioned before, ADUs may increase your home value and add tax benefits – possibly more than single-family homes. You can check with a real estate agent to help you gauge how it will affect the value of your property.

How does an ADU access utilities?

Most ADUs connect to the main home’s utilities. While an electric company might split the meter between the main house and the ADU, it may not always be an option depending on zoning laws. Additionally, internet and cable companies can create separate accounts for ADUs.

Does an ADU require a kitchen?

ADUs do require a kitchen – this makes it a habitable living space for others.

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