What is an ADU?
An accessory dwelling unit, or ADU, is a type of secondary housing unit, which means that it can be anything from an apartment above someone else's garage to something more traditional such as attached homes or cottages on large lots.
While everyone may envision a specific type of property when they think about an ADU property, in general all ADUs are designed for dual use and contain both residential space and additional amenities like storage areas. While they are often used as rental units, ADUs can also be perfect for family members who want to live close by but still have their own space.
Why Invest in an ADU?
Local ordinances across the country are changing to allow for more flexibility in building accessory dwelling units. This is creating opportunities for investors who are looking to add value to their property and generate additional income. ADUs provide a versatile option for homeowners and investors alike. They can be used as long-term rentals, short-term rentals, home offices, or even guest houses.
Investing in an ADU is a smart way to increase the value of your property while also generating additional income. With the right location and market conditions, you could see a significant return on your investment.
ADUs are rapidly gaining popularity as people look for alternative living arrangements. These small dwellings offer a versatile way to increase the value of your property while also generating additional income. If you're thinking about investing in real estate, an ADU should definitely be on your radar. Here are some of the most compelling reasons why:
Generate Additional Income
ADU properties can be a great source of additional income. If you have an extra room or space in your home, you can easily convert it into an ADU and rent it out. This can help to offset your mortgage payments or even provide you with some extra income.
Get More Space
Another reason to invest in an ADU is that they can provide you with additional living space. If you have a growing family, an ADU can provide you with the extra space you need. You can also use an ADU as a home office, art studio, or any other type of space that you need.
.ADUs can be attached to the primary residence or they can be detached. They can be converted from an existing structure such as a garage or shed, or they can be newly constructed. The size of an ADU varies depending on local regulations but they are typically much smaller than the primary residence, ranging from 300 to 1,000 square feet.
Types of ADUs
Detached new construction ADUs, also sometimes called backyard cottages or "granny flats" depending on the jurisdiction, are a great way to live in style with all of your amenities without having an unwanted addition popping up next door. These are completely new structures that are built on your land from the ground up and can be designed to match the style of your home. The average cost of a detached ADU is $125,000, but this number will vary depending on the size and location of the unit.
Attached ADUs are constructed as an addition to your home, often above the garage or converted from an existing space like a basement. These are generally smaller than detached ADUs and are less expensive to build, with an average cost of $85,000.
There are also many jurisdictions that allow for the conversion of existing structures like garages or sheds into ADUs. These are often the most economical option, with an average cost of $50,000.
Building an ADU
There are a few things to keep in mind when you're planning on building an ADU. The first is to make sure that your property is zoned for this type of construction. This will vary from city to city so it's important to check with your local zoning office.
You will also need to obtain a building permit from your city or county. The process for this can vary but you will likely need to submit plans for the proposed ADU and have them approved.
Once you have your permit, you can begin construction. It's important to note that you will likely need to hire a contractor for this type of work.
Financing an ADU
There are a few different ways to finance the construction of an ADU. One option is to take out a home equity loan or line of credit. This can be a good option if you have equity in your home and you're comfortable taking on additional debt.
Another option is to get a construction loan. This is a type of loan that is specifically for the purpose of building an ADU. Construction loans can be difficult to obtain so it's important to shop around and compare rates.
You could also finance the construction of an ADU with cash or by using savings. This is often the most economical option, but it does require that you have the funds available upfront.
Operating an ADU
Once your ADU is complete, you'll need to decide how you're going to use it. One option is to rent it out long-term to generate income. This can be a great way to offset the cost of your mortgage or property taxes.
You could also rent out your ADU short-term, through a service like Airbnb. This can be a great way to generate income when you're not using the space yourself.
Another option is to use the ADU as a home office or guest house. This can be a great way to have additional space without having to rent an office or hotel room.
Making the Decision
If you're thinking about investing in real estate, an ADU is a great option to consider. These small dwellings offer a versatile way to increase the value of your property while also generating additional income. Keep in mind that you will need to obtain a building permit and hire a contractor for the construction of your ADU.
Have you ever considered building an ADU? What are your thoughts on this type of investment? Let us know in the comments below.