A Complete Guide to ADUs: Definition, Costs, Pros, and Cons
BY ADU.WORKS
JANUARY 23, 2023
Introduction
ADU Definition: What is an Accessory Dwelling Unit?
Accessory dwelling units provide additional living spaces for young or elderly family members who need support and help low to mid-income households save resources. In many cases, ADU owners might also use their units as additional space that serves as a guest house, studio, storage, or office space.
They’re also great investments, as you can rent them out. Many aspiring property investors often turn a basement or garage into an ADU and rent it out for passive income. And because they’re relatively cheaper to build, you can offer these homes at lower rates and still make a decent profit. These are just some examples of ways to build wealth through ADUs.
People have recently been inclined to acquire this form of housing in many cities in the United States, especially in California, where real estate prices have soared tremendously. This is mainly because an ADU is relatively more affordable than other traditional forms of single-family home construction.
Moreover, an ADU provides full amenities and meets safety and building codes and local jurisdiction requirements. All this provides comfort and supplies affordable housing to communities across the country.
Overview of ADU types
Not all ADUs are the same. They differ depending on where it is built and located with respect to the primary home. Here are the different examples and types of accessory dwelling units:
Detached Units
Detached ADUs are separate from the primary home. These ADUs do not share any walls with the primary dwelling and include converted structures that are detached or newly constructed. It is usually built in the backyard and has its own kitchen, toilet, bath, and living area.
Attached Units
Some ADUs are attached to the primary home. They’re usually an addition or expansion to the primary home for dwelling or storage. However, they’re built so that it is still a separate space.
Interior Conversion
Interior conversion ADUs, are also called Internal ADUs. These units convert a portion of the primary home into a separate living space. Areas that may not be used by the homeowners, such as a basement or attic, can be converted into additional living space.
Garage Conversion ADU
A garage conversion is a type of ADU that transforms the garage into an alternative dwelling space. Instead of housing a car, a garage can be turned into an ADU that one can use as a bungalow, mini-apartment, or any other dwelling space.
Understanding an Accessory Dwelling Unit (ADU)
What's the Difference Between Primary Dwelling and Accessory Dwelling?
An accessory dwelling unit is different from the primary dwelling space because it is usually smaller than the primary residential unit. ADU owners choose to build these homes detached or attached to the primary one as these can be used for rental housing or to house elderly parents or adult children.
How Much Does it Cost to Build Accessory Dwelling Units?
The cost of building an accessory dwelling unit depends on the size and proposed design. These depend on zonal regulations, geotechnical site conditions, and fire hazard zones, among other local requirements. Other factors that affect your ADU’s price are the proposed building system, materials and finishes, and licensed contractors.
Many cities have already placed local zoning regulations that support and permit ADUs. So, before considering building one, check with your local jurisdiction.
Building unregulated or unpermitted ADUs may affect other projects on your premises due to penalties and violations with the jurisdiction, potentially affecting the process of selling your home in the future.
Financing Options for ADU Construction
Several financing options are available when constructing ADUs. One of the most popular would be through a housing renovation loan. Due to its growing popularity in California, other financing options are specially designed to build ADUs.
Here are some financing options you can consider if you’re in California:
CalHFA ADU Grant
A CalHFA ADU Grant is the state's Housing Finance Agency grant program that gives you up to $40,000 that you can use to pay for costs associated with your ADU. The best part about this financing option is that it’s not a loan, meaning you don’t have to worry about interest rates or payments. Check out this article we wrote about the CalHFA ADU Grant to learn more about this financing option.
Cash-out Refinancing
Cash-out refinancing involves refinancing your first mortgage to access some of the home equity you’ve already built up through time. You can use those funds to then fund your construction.
Renovation Financing
By taking out a renovation loan, you’ll be able to access a predetermined amount based on the equity of your primary home.
Home Equity Loans
A home equity loan is essentially a second mortgage. You can use this to access a portion of your home equity to take out a lump sum that you can use to pay for your ADU. On average, a lender can allow you up to 85% of your home’s value minus the outstanding first mortgage to a maximum of $150,000.
Pros and Cons of ADU
Pros
Here are some of the advantages that make ADUS one of the most preferred housing choices among property owners.
Additional income potential through renting
Homeowners who wish to gain additional income may collect rent fees from tenants but more relevant, it is a way of providing affordable housing options to the community. Checking the average prices for rent in your area may be beneficial to ensure that the rental fees you collect can serve as a great return on your investment.
Increase in property value
Having ADUs became popular as they tend to add value to properties, making it better with property appraisal when homeowners choose to sell the property. Homeowners shall still consult with real estate professionals to know how much value an ADU could bring to the premises.
Unseparated Families
In residential areas across California, households are commonly split to fit budget constraints. Some members are forced to live in affordable within-state or out-of-state neighborhoods However, as the adoption of ADU housing grows and local jurisdictions promote ADUs, families no longer have to be separated. Moreover, the savings from cheaper mortgages or rent gives them more financial wiggle room to cover other expenses. No more scrimping on groceries or missing out on utility bills just to cover housing bills. This benefit greatly improves people’s quality of life.
Freedom to Live and Move
Despite being on the same premises as a single-family or multi-family home, an ADU shall have its own permanent and independent provisions for living. Residents of accessory dwelling units have their kitchen, sleeping quarters, and other amenities, so they have full freedom to live comfortably.
Freedom to Live and Move
Despite being on the same premises as a single-family or multi-family home, an ADU shall have its own permanent and independent provisions for living. Residents of accessory dwelling units have their kitchen, sleeping quarters, and other amenities, so they have full freedom to live comfortably.
Cons
Like any other housing option, ADUs have their own sets of challenges. Here are some challenges that you should be aware of so you’re fully prepared for all scenarios.
Zoning and permit requirements
Various zoning and permit requirements may limit how a certain ADU is built and used. These vary from state to state, so it is recommended to check with your local city or state’s authorities before building an ADU.
Increase in property taxes and other expenses
When building such, property tax also increases, which may reduce earnings from a total potential rental income. If you’re planning to rent out an ADU, you’ll also have certain maintenance costs. However, you can use some of the rental income to pay for those expenses.
Challenges with construction
There are many issues related to construction that can hold your building project back, such as weather, financing approval, safety code approval, seismic zones, and so on. But the biggest construction pain point is construction quality. Not all ADU builders provide the same quality work. That’s why it’s highly crucial to find quality builders who effectively manage building projects without wasting your resources and time. That’s why we take so much pride in our team at ADU.Works— they’re committed to managing construction projects across California. To work with us, feel free to contact us today.
Frequently Asked Questions (FAQs)
What’s the difference between an ADU and a “Tiny House”?
Tiny houses have gained popularity in recent years, and while they may be closely related to ADUs, there may be differences. Tiny homes can be just as expensive as ADUs, so the value isn’t always a differentiating factor. The main differences are mobility and allowed square footage.
You can move a tiny house around sometimes, whereas ADUs are always fixed structures. Most tiny homes have wheels and can be transported from one place to another.
Secondly, tiny homes often have a smaller allowed square footage, normally capped at 400 square feet. An ADU, however, can be as big as 1,200 square feet depending on local codes, making them a better option for larger families or those who want bigger spaces at a lesser cost.
Why do people build ADUs?
People build ADUs for various reasons depending on their needs, zonal regulations, and resources. One reason among homeowners is the need for additional space. At the same time, another could be their desire to live with other relatives, such as elderly parents or adult children and their families.
On the other hand, this housing option can also serve as an additional stream of additional income as it can serve as a rental property. Having an ADU increases property value while ensuring housing affordability both for the homeowners and the renter at the same time.
As demand for affordable housing increases, building ADUs may provide affordable housing solutions making it a win for both homeowners and renters.
Can I build an ADU on my property?
Some restrictions in the State of California determine who can build an ADU. Fortunately, zoning laws and local government regulations in the state are less restrictive than in other states. The owner of the property must live on the property. In California, you’re allowed to build a maximum of two ADUs.
How big can I make my ADU?
The size of ADUs may vary from state to state as zoning regulations indicate how big one can build their ADUs. Other factors you need to consider are things like the easements, set backs and available space.
It’s best to work with an ADU builder to do a feasibility study before deciding on how big you want it to be. A good contractor will also help you get a good cost estimate, so you know if a certain size fits your budget.
Does an ADU require a kitchen?
That mostly depends on where you live. Some cities require it while others do not. You can consult a local housing or community development administration representative. Many regional entities permit ADUs that do not require a kitchen.
In places where ADU ordinances require a kitchen, it must have cabinets, a countertop, a sink with running water, and a stove or stove hookup.
Final Thoughts
With limited housing options in recent years, an ADU may be the perfect solution as it provides more affordable options for homeowners and renters alike. Building an ADU on your property has its pros and cons, which is why talking to experts is still recommended.
If you are considering building an ADU, study your jurisdiction, zoning regulations, resources, and intentions to ensure that making one can give you value for your money. Or you can choose to talk to expert ADU builders who provide an end-to-end process for aspiring owners.
Overall, ADUs are a great housing solution for communities in California and other cities across America. They provide quality homes at a fraction of the price of traditional single-family units.
If you’re planning to own an accessory dwelling unit, reach out to us and see how you can get started. We’d love to help you build and own your very own cost-effective and beautiful ADU!