Accessory Dwelling Units: A Complete Guide

Lauren NowackiDecember 14, 2021

An accessory dwelling unit, also known as an ADU, can be a great way to add additional living space or dip your toes in real estate investment without having to buy a second property. A type of secondary housing unit, an ADU can be a place to house overnight guests, a private space to practice a hobby, or a rental unit that produces extra income. With housing prices and costs of living soaring in 2021, ADUs have become even more popular in certain areas of the country – providing more affordable housing and helping offset higher living expenses.

Read on to learn more about these versatile additions to your home and how to use them to your full advantage.

What Is An Accessory Dwelling Unit?

Accessory dwelling units are individual apartments or living spaces that are located on a property that has a main home or another residential unit. Though an independent unit, an ADU cannot be sold or purchased separately from the primary home. These units go by several names, including granny flats, in-law suites, accessory houses, carriage houses or, in Hawaii, Ohana units.

What Qualifies As An Accessory Dwelling Unit?

ADUs can be attached to the primary home or not, but will usually have a separate, private entrance. To qualify as an ADU, the unit must have a fully functional kitchen, full bathroom and living space. Often, you won’t be able to access the primary home from inside the ADU.

Unlike multifamily properties, which have their own separate utilities and addresses, an ADU will typically share the same utilities and address with the primary residence.

Types of Accessory Dwelling Units

There are several different kinds of accessory units. The type of ADU that’s best for your property will depend on several factors, including your budget, the amount of space you have available, local zoning laws and the type of structures you already have on your lot.

 

Detached ADUs: Sometimes referred to as backyard cottages, detached accessory dwelling units are not attached to the primary home. They are stand–alone units on the property.

Additions or attached ADUs: As its name suggests, this is an ADU that is attached to the home – whether it’s a part of the home that was turned into an ADU or built on the home’s structure later.

Above garage ADUs: An above garage ADU is created by building a second story on top of a one-story garage. If the garage is connected to the home, this would be an attached ADU.

Garage conversion ADUs: This type of garage ADU is created by converting existing space in the garage into livable space. This may be done by using extra car space, ceiling space or the entire garage.

Basement conversion ADUs: This ADU is created by converting a basement into an ADU. This space must have a kitchen, full bath, plumbing, ventilation and its own exterior entrance.

How Much Does An Accessory Dwelling Unit Cost?

There are too many factors that impact the cost of building an accessory dwelling unit to give an exact amount. You’ll need to factor in things like your location, the size and type of the accessory home, whether you’re using an existing space or building one from scratch and the type of finishes you choose, including flooring, countertops, cabinetry and appliances.

To give you a general idea, here are the average costs for various ADUs, according to HomeAdvisor:

  • $40,000 – $125,000 for an attached, in-law suite addition
  • $45,000 – $100,000 for a detached guest house
  • $110 – $250 per square foot for an apartment above the garage

What Are The Rules Around Accessory Dwelling Units?

Just as the cost to build an ADU will vary by state, so too will the rules and zoning regulations around building them. Prepare for your build by doing your research.

Understand Local Zoning Ordinances And Building Codes

When it comes to what you can and can’t build, every neighborhood is different. For example, some areas may have height and square footage restrictions, only approve certain types of ADUs, require building permits, have parking restrictions, enforce certain design criteria or charge fees.

You’ll want to check local ordinances and building codes to see what your area allows. If you’re part of a homeowners association (HOA), you’ll want to check their requirements and restrictions as well.

ADUs are common in such areas as California, Portland, Seattle and Florida and have seen an increase in popularity across the country. However, even in places where ADUs are common, there is resistance from local governments and private citizens who tend to proclaim, “Not in my backyard!” So keep in mind that you may receive pushback, even if ADUs are allowed in your area and you follow rules and regulations to a tee.

Uses For Accessory Dwelling Units

An ADU can be used in many ways, including generating income. Property owners or home buyers may want an ADU on their property to use in the following ways.

  • Office or work-from-home space
  • Guesthouse
  • Long-term rental, like an apartment
  • Short-term rental, like an Airbnb or other vacation rental
  • Smaller, single-family home for property owner, while renting out the primary home
  • Kid’s playroom
  • Living quarter for in-laws or other family members
  • Living space for in-home caregivers
  • Yoga studio or meditation space
  • Home gym
  • Workshop
  • Study or library
  • Place for a loved one to quarantine comfortably
  • Affordable housing for college students

Keep in mind that local zoning ordinances may restrict how you can use ADUs or have specific rules around such use. It’s best to consult local laws before building your ADU for a specific purpose.

Accessory Dwelling Unit Financing

You can purchase a home that includes an accessory dwelling unit for most loans. However, there are some exceptions. For example, properties with certain ADUs (including income–producing ADUs) are not eligible for USDA loans.

If you are looking for a way to finance the building of an ADU on your property, you may be able to get a construction loan. However, some lenders will not do construction loans for ADUs and even if they do, they’re not always the best option for homeowners. Other financing options include a cash-out refinance, home equity loan, home equity line of credit or a personal loan.

The Bottom Line

An accessory dwelling unit is a secondary housing unit on the property that can be attached or separate from the primary home. It can provide additional living space or be rented out to generate income. There are rules and regulations on building an ADU and they vary by location. Before building one on your property or purchasing a home with an ADU, check your local laws and zoning ordinances.

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Lauren Nowacki

Lauren Nowacki is a staff writer specializing in personal finance, homeownership and the mortgage industry. She has a B.A. in Communications and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.