Today, more than 20% of US cities actively encourage accessory dwelling units (ADUs) as a remedy to housing shortages.
These relatively modest homes in backyards or above garages can provide families a crucial source of income and housing flexibility during difficult times.
First, cut through zoning regulations and permitting. Next, look for funding opportunities such as federal or state grants, low-interest loans, or other financial incentives.
ADUs increase property value while also creating living space for older relatives or tenants.
What Are Accessory Dwelling Units
Accessory dwelling units, referred to as ADUs, granny flats or in-law units, are independent secondary housing units. They’re typically smaller in size and are constructed on the same lot as a primary residential property. These units provide a more realistic solution to filling housing gaps while also providing affordable living options.
They provide an important option for families of all sizes. In fact, single and two-person households comprise nearly two-thirds of all U.S. Households. More than half of all American homes are bigger than necessary to house the households that live in them. ADUs provide an eco-conscious option by maximizing the use of existing space.
1. Definition of Accessory Units
ADUs are often limited by zoning laws determining where they can be built and what design standards they should follow. These regulations provide for ADUs to fit the character of the neighborhood and meet local building code requirements.
The permitting process for ADUs involves obtaining necessary approvals and submitting documentation, such as site plans and architectural drawings, to local authorities. In-law suites, the most popular type of ADU, need to follow housing regulations to be legal. Guest houses are another common variant of ADUs that also need permits to operate.
If you fail to get these permits you may find yourself in legal and financial hot water.
2. Purpose of Accessory Dwelling Units
Homeowners enjoy ADUs as well, gaining additional rental income and an increase in property value. These units can play an important role in addressing homelessness and increasing housing choice by providing more affordable options in communities across the country.
ADUs also add significant value through additional livable space, making properties that have them more functional and valuable. This additional space increases the appeal of homes to prospective buyers or renters.
This increased value can mean significant monetary returns for homeowners, as well as positive impacts on local economies.
3. Types of Accessory Dwelling Units
ADUs can be apartment homes, in-law suites, tiny houses, and more. You might encounter detached units, as with a tiny house in the backyard. Attached units, as with an apartment over a garage, or converted spaces, like a basement apartment.
Additional costs of building an ADU. Construction, materials, and labor expenses also differ wildly depending on the design and location. Homeowners have a variety of funding sources available, including loans and grants, to help pay for their ADU projects.
This momentum continued into 2021, as new ADU funding laws were introduced. These laws are meant to allow homeowners to increase their living space in an affordable way.
4. Difference Between Tiny Houses and ADUs
Although ADUs and tiny houses have many things in common, they are not the same in terms of size, legality, and intent. ADUs often must meet defined kitchen standards, providing them with the appliances and space needed for complete, independent living.
Developing a code-compliant ADU requires thoughtful planning of space and design to make the most of usable space and meet code requirements. Tiny houses also make great accessory dwelling units (ADUs).
Not every tiny house fits the legal definition of ADUs, so it’s important to know these differences when considering adding in a secondary dwelling.
Legal Aspects of ADUs
Understanding the legal landscape of Accessory Dwelling Units (ADUs) is essential for anyone thinking of adding one to their property. This includes working through local zoning regulations, local permitting processes, and local legalities that can differ depending on what type of ADU you’re dealing with.
Let’s explore each of these points in greater detail.
Zoning Regulations for ADUs
Zoning laws play an enormous role in determining the viability of building an ADU on your parcel. These regulations are meant to respect the character of existing neighborhoods while accommodating the realization that we need more housing in places where people want to live.
For instance, in Portland, an initial rule would have required ADUs to be no larger than 33 percent of the principal dwelling. This rule limited them to a maximum of 500 square feet. These types of restrictions help maintain the secondary size and function of ADUs to the primary residence.
These rules are far from universal. For instance, in Denver, the maximum size of ADUs is limited to 650 square feet for lots less than 6,000 square feet. However, many municipalities require the provision of off-street parking for at least one vehicle per ADU.
This mandate can severely limit the places ADUs can be built, especially in cities where land is often at a premium. Being aware of these zoning wrinkles will better prepare you to navigate your ADU project and hopefully sidestep some of the pitfalls!
Permitting Process Explained
Additionally, the permitting process for ADUs can be convoluted. However, it remains critical that these be done in accordance with local building codes and standards.
That process usually includes the submission of PDF architectural plans and the payment of plan check fees at a minimum. There are a few cities doing the work to find ways to make this process more cost-effective.
For instance, in Portland, they’ve begun waiving system development charges—which saves homeowners up to $19,000 per permit. This decrease in costs incentivizes homeowners to build ADUs by decreasing the barrier to entry.
Streamlining the permitting process also increases the efficiency of project timelines. This benefits both homeowners and the broader community by getting more housing supply online faster.
Law and Legality of In-Law Suites
In-law suites, a common form of ADU, can have their own legal quagmires. Likewise, owner-occupancy requirements can discourage the small-scale owner-investors who build and manage the bulk of these units.
As ADU advocate Spevak points out, this can be a huge challenge with these requirements. They can limit investment opportunities as property owners have to reside on-site.
Getting rid of such requirements has proven to sharply increase ADU construction, most notably through recent reforms in California. Cities will attract more property owners to pursue the development of accessory dwelling units (ADUs) by providing them with flexibility.
This move will increase housing stock and enable more extended family living situations or rental opportunities.
Permit Necessity for Guest Houses
Guest houses, another common form of ADU, need special attention paid to their permit requirements. Depending on the jurisdiction, the need for and difficulty of getting a permit can be overwhelming.
In many places, the permitting process is quite straightforward. In others, it might mean getting it to need to go through stricter design review measures especially.
In California, less than 4% of investor-owned properties have ADUs on them. The complex and daunting permitting process is a big part of why this number is so low.
By simplifying the requirements, properties owners and investors can find building guest houses more appealing. Providing incentives, like waiving some fees, might make them even more attractive.
Benefits of Building ADUs
Advantages for Homeowners
There are many benefits to building ADUs, especially for a city with a severe lack of housing like San Diego. These structures are an affordable way to increase housing stock, but also create a continuous, long-term income stream. A two-bedroom ADU can generate more than $4,000 per month in rental income.
This additional money can all but eliminate your financial burden and allow you to create sustainable savings in the long run. ADUs give homeowners invaluable flexibility. They provide a place for other family members to live and work virtually.
An ADU can provide a serene, distraction-free space. It’s an ideal place for those looking to get away from home distractions, increasing productivity and job satisfaction. ADUs built with universal design principles are much more accessible options for people with mobility differences.
They provide a connected, multimodal living experience that improves mobility and accessibility for residents of every age and ability.
Community and Economic Impact
In addition to the individual benefits they provide to homeowners, ADUs promise significant community and economic benefits as well. These units are a concrete solution to housing shortages. They offer additional housing units in already built out, urbanized areas where additional housing is sorely needed, like in San Diego County.
As affordable rental options, ADUs also contribute to creating more inclusive communities. They are an important source of housing support for low-income households and seniors. This aspect successfully integrates a wide range of demographics into neighborhoods, adding depth to the community fabric.
Realizing return on investment from an economic standpoint, the investment in ADUs can yield impressive returns. In markets like San Diego, the cash-on-cash return can exceed 15%, making them a lucrative opportunity for homeowners looking to maximize their property investment.
Therefore, ADUs serve a dual purpose of benefiting community well-being and stimulating economic development.
Value Addition from Guest Houses
ADUs make for great guest houses, injecting both flair and functionality into your property. Their versatility truly makes them an asset to any home! Whether you build a new ADU or transform a garage into an ADU, it’s an investment worth making.
It increases the value of your current space and saves you money! These in-law suites or guest houses give homeowners much-needed space for visiting family members or friends, improving the overall homeowner experience.
The opportunity to age in place grows more attainable with such arrangements. As families look ahead to their future housing needs, ADUs provide a flexible and family-oriented solution.
They respond to shifts in life stage and help facilitate multigenerational living without the need for major home improvements. Homeowners can improve their property by making an investment in ADUs.
Beyond improving their quality of life today, this investment also future-proofs their homes to better accommodate developing lifestyle needs.
Financial Considerations for ADUs
ADU Cost Overview
Getting a full picture of the financial landscape of Accessory Dwelling Units (ADUs) begins with an understanding of costs. With the median cost of building an ADU at roughly $200,000, overall prices typically are between $80,000 and $200,000+. This price difference is highly variable based on size, materials, and location.
Building an ADU in a high-demand area such as California can become cost-prohibitive. This investment can increase your home’s value by up to 35%. It’s a huge investment that needs to be budgeted and planned for very carefully.
When you’re budgeting, don’t forget to include your hard costs in ADU construction. Don’t forget other costs like permits, design fees, and landscaping! These costs can pile up quickly so it’s important to have a clear financial plan in place.
Funding Options for Homeowners
Financing an ADU will require looking into a number of funding options, each of which come with their own advantages and caveats. Home equity loans, sometimes also known as second mortgages, let you borrow a lump sum based on your home equity. This option only makes sense if you’ve created a lot of equity.
However, remember that the interest rate on these loans will likely be higher than your first mortgage, plus they have their own closing costs and other fees associated. A Home Equity Line of Credit (HELOC) provides you with a revolving line of credit. This flexibility provides you the opportunity to pull funds at your own convenience.
Homeowners need to be careful about cash-out refinancing. If they bought their homes when interest rates were up, they would be looking at potentially higher net borrowing costs. Most lenders are willing to lend you 80% to 85% of the value of your home. Simply subtract your existing mortgage balance, and you can find out how much you may qualify to loan.
New ADU Funding Laws 2021
Recent changes in ADU funding laws have opened up new avenues for financing, mainly benefiting homeowners in urban areas. These laws are intended to make ADUs more attainable by lowering the regulatory burden and providing financial assistance.
An increasing number of states provide grants to individuals to build ADUs. Others have programs that offer low-interest loans, which can greatly lessen the financial load. These laws frequently make it easier to get approvals, cutting down on the time and money needed to get permits that are sometimes required.
Thanks to these legislative changes, homeowners can now earn an ROI of 5%-10%. They can do this by capturing rental income and the increase in the value of their properties, making accessory dwelling units (ADUs) an attractive means to create additional income.
Practical Requirements for ADUs
Accessory Dwelling Units (ADUs) are a hot trend among homeowners looking to enhance their residential housing stock. They’re also an incredible way to expand your living space or earn additional rental income through an accessory unit. Understanding the practical requirements is key to navigating ADU regulations.
Kitchen Requirement Details
Every ADU needs to have a functional kitchen. This requirement has a significant effect on the unit’s overall design and utility. The kitchen would need to have at least a stove, refrigerator and sink.
These are not just luxury conveniences, they are requirements for the space to even qualify as a legal dwelling. A galley kitchen or other space-efficient, compact layout works well in limited square footage. That allows it to maintain an active character without the sense of crowding.
ADUs also tend to incorporate space-saving innovations that have an outsized impact. Features like pull-out pantries and under-cabinet lighting enhance convenience and livability. The materials you choose will affect the long-lasting quality and upkeep of the kitchen as well.
If you know that the ADU will be used long term, opt for durable surfaces such as quartz or granite countertops. They’re aesthetically beautiful and they’re functional!
Space and Design Considerations
As you plan the space and design for an ADU, keep these important factors in mind. This will allow you to ensure you are meeting the requirements and maximizing the unit’s potential.
ADUs can be up to 70% the size of the primary house! Detached units are not allowed to exceed 900 square feet. They need to be a minimum of 190 square feet just to function as an acceptable living space.
This range gives homeowners the flexibility to design the ADU to fit their needs, whether the ADU is an attached bedroom or a standalone cottage.
Zoning regulations are a whole other layer of complexity. Too frequently, they also stipulate that the primary residence be owner-occupied. Some jurisdictions don’t allow owners to live in the ADU.
This setup also creates an avenue for them to rent the larger property of the main house. This level of flexibility can be particularly attractive in urban areas where the demand for housing is strong.
One study from Portland in 2017 found that 32% of accessory dwelling units (ADUs) were listed as short-term rentals. This conclusion highlights their enormous potential to address housing supply crises.
Parking is often the sticking point, particularly as many of the properties that are good candidates for ADUs provide no more than a one-car-wide driveway.
This limitation adds an important layer of nuance that must be considered in the planning stage to avoid running afoul of local ordinances. Other jurisdictions simply give homeowners the clear go-ahead to build ADUs without running into arbitrary or overly rigid development regulations.
This newfound freedom can dramatically speed up the approval process.
Conclusion
Creating an Accessory Dwelling Unit (ADU) is about so much more than just adding a bonus space. It increases property appreciation potential and generates cash flow. The legal process can feel intimidating, but it’s essential to protect your investment. By understanding your rights and the law, you can protect yourself and your housing situation. ADUs provide a perfect answer for a need of expanding families or a wise financial choice for long-term profit. Financial planning is essential. When you have proper budgeting and a clear idea of costs, it makes for a much smoother process. Practical considerations such as utilities and space layout are also important. Each choice affects how functional and comfortable your ADU will be. Take a plunge on this once-in-a-lifetime opportunity and learn about the benefits. Whether you want to create more room for family or make a smart real estate investment, ADUs offer a smart solution. Learn more and find out how ADUs can work for you.
Frequently Asked Questions
What is an Accessory Dwelling Unit (ADU)?
An accessory dwelling unit (ADU) is a self-contained, secondary housing unit located on a single-family residential lot. Typically, it’s a small apartment that can be attached to or separate from the primary residence.
Are ADUs legal everywhere?
No, whether an accessory dwelling unit (ADU) is legal or not depends on where you are. Consult your local adu regulations and ordinances. Other jurisdictions promote ADUs as a means to bolster their stock of affordable housing.
What are the benefits of building an ADU?
ADUs deliver benefits by providing extra income through renting, increasing property value, and creating flexible living arrangements for family members or guests.
How much does it cost to build an ADU?
As with any construction project, costs depend largely on the design, location, and materials chosen for the accessory dwelling unit. On average, building an ADU costs $100,000 to $300,000.
What financial incentives are available for ADU construction?
Other cities provide tax credits, reduced fees, or low-interest loans to encourage accessory dwelling unit projects. Finally, explore your local government programs for specific incentives related to adu regulations.
What are the basic requirements for building an ADU?
Accessory dwelling units (ADUs) still require a building permit, a permitting process, and a zoning code that allows them. Be sure to consider size, access, future parking, and utility connections in advance.
Can an ADU be rented out?
Yes, accessory dwelling units (ADUs) can be rented out, providing homeowners a great source of passive income, especially in markets with high demand for housing options.