More and more homeowners are adding accessory dwelling units (ADUs) onto their properties. With the average cost of an ADU hovering around $150,000, a lofty sum for a small space, there must be some value in the investment. Regardless, any construction has challenges, so weighing the pros and cons can help you decide if it’s the right investment for you.
Whether you’re looking for a return, passive income, or need a dedicated space, building an ADU is an option to consider, and Apex ADU Builders is here to help you weigh your options. Keep reading to discover some of the ins and outs of ADUs and the pros and cons of having one on your property.
What is an Accessory Dwelling Unit (ADU)?
Housing has always had challenges with supply and demand. Housing needs grow, and with it, the price to rent or buy. Most homeowners end up purchasing what they can afford, which means sacrifices of desire may have to be made. For some, that could be space, like the number of rooms or square footage. For others, it may be minor cosmetic updates to achieve a certain aesthetic. For those lacking space, there is a solution, building an ADU.
An accessory dwelling unit (ADU) is a scaled-down living quarter, smaller than a single-family residence. It still has all the same amenities of a single-family home, like sleeping quarters, bathroom, living area, and kitchen, but less than 1,200 sq feet.
It can be attached to the primary residence or detached and situated somewhere on the property lot, typically in the backyard. It can serve as a workspace or private quarters for guests or tenants.
The costs for ADUs vary depending on the type of ADU chosen, location, and developer, but typically they can range anywhere from $80,000 to $400,000. Most of that cost will go toward the design and the construction, including labor and materials.
Types of Accessory Dwelling Units
There is not one single type of ADU, but the most common is the detached, newly constructed ADU. It’s a separate unit found somewhere on the property of the single-family home, typically in the backyard, but depending on the property’s acreage, it could be set adjacent to the home.
Other types of ADUs include the following:
- Garage Conversion to ADU
- Home Addition ADU
- Basement Conversion ADU
- Above Garage or Workshop ADU
- Internal Home ADU
Each type has its unique characteristics regarding construction, permits needed, cost, etc. The type of ADU a homeowner would choose is primarily based on the unit’s purpose, the project’s budget, and your state’s regulations on ADUs.
Pros of Having an ADU on Your Property
Property Value Increases
One of the primary reasons homeowners decide to build an ADU on their property is because the investment will increase their overall property value. They may not be looking to sell the property at that moment, but in the meantime, they have the added space to enjoy or rent out, knowing when they do sell, they’ll have a bonus for potential buyers.
Another primary reason to build an ADU on your property is the potential to make passive income. With the housing demand and the short supply of affordable housing, more and more tenants are looking to rent out ADUs. They provide all the same creature comforts of a large-scale home or apartment at a fraction of the cost.
Renting out an ADU on your property will provide you with monthly income beyond your primary occupation. That income can go towards the added property tax, maintenance of the unit, and your own expenses. The unit essentially pays for itself.
Whether you’re using your garage, basement or creating a newly built ADU separate from the primary dwelling, you will have an extra space on the property to do with whatever you like. The unit can be a space for guests visiting from out of town or a workspace for a hobby.
More Environmentally Friendly
Since ADUs are a fraction of the size of a single-family home, it has a smaller carbon footprint. In addition, it uses fewer materials to make, and the materials used can be sustainably sourced. If more ADUs were utilized for housing, it could curb the need for constant development, which tears down needed spaces like parks, natural areas, and animal habitats.
Not only can you make a passive income from having an ADU on your property and see a return on your investment once the property is sold, but ADUs also contribute to the community economy. ADUs are on an existing property using existing infrastructure for utilities and don’t require changing the face of the neighborhood. They are a sound alternative to costly construction and more economical for renters than full apartments or single-family homes.
Having an ADU on the property, you rent out to a tenant allows you to choose your closest neighbor. This unit could provide you with a tenant who becomes a good friend or, at the very least, someone to share in the responsibility of maintaining the property. Yard work like weeding, mowing, and raking could be divided.
Cons of Having an ADU on Your Property
Added Property Tax
No matter what type of ADU you choose, any significant construction to your home or property could potentially and likely raise your property tax. The increase may not be significant, and if you end up renting out the unit, you could make the amount of the added property tax and more in just a few short months. However, if you don’t plan on renting it out, it will be an expense added to the overall cost of the ADU.
While you gain a dedicated space for working or entertaining guests, you also lose space. If you convert your garage, you lose a place to house your vehicles year-round. If you convert your basement, you’re losing storage space. Even a detached ADU would take away yard space. With this, you’d have to weigh what you’re losing against what you’re gaining to know if it’s worth moving forward with building the ADU.
If you rent out your ADU to make a passive income, you’ll be responsible as a landlord. Unlike a leasing company, you aren’t afforded the luxury of anonymity with an ADU. Your tenant can quite literally come knocking on your door. Depending on how demanding your tenant is or how often maintenance issues arise, it could be stressful. However, this could be handled with the proper rental agreement with clear-cut boundaries in place.
Lack of Privacy
Again, this issue arises if you decide to rent out your ADU. Since the unit is on your property, you will share some of your space with your tenant. Having a tenant in the backyard may require some adjustments to maintain privacy, like keeping curtains closed or being selective about when to use the backyard. Some friction can be avoided with a private entrance onto the property and setting expectations for shared spaces.
Lengthy Permit Process
Every state and city are different regarding its zoning and building laws. Your local jurisdiction will have all the information for fees and applications. The process has been known to be lengthy and complex at times. On average, it takes 2-6 weeks to obtain a permit. However, that timetable can be extended depending on the number of applications that need to be processed.
ADU Rules to Consider
State and local rules and regulations on ADUs can be vastly different depending on your location and can change from one day to the next. In order to avoid any unwanted surprises, it’s important to stay up to date with zoning requirements, taxes, and dwelling laws. Just recently, in Washington, D.C., new rules were enacted that regulate and restrict short-term rentals. These changes could dictate what you can and cannot do with your ADU.
How to Apply for an ADU Permit
If you’re looking to move forward with building an ADU on your property but the permit process seems daunting, here are the steps to take to obtain the correct permits for construction.
- Acquire the necessary documents, blueprints, and plans from your developer
- Apply for the permits and pay the associated fees
- Undergo the permit review process
- Obtain the final design
- Begin construction
Types of ADU Permits
You might need a few permits to build your ADU, and the amount and type depend on your location. Here is a list of some of the permits you might need to build your ADU.
- Building permit
- Electrical permit
- Location or zoning permit
- Site-specific permits
- Address assignment request
Be sure to review each type of permit and ask your local jurisdiction for insight on the ones you may need for your property.
If you’re weighing the pros and cons of an ADU on your property, contact us today. Accessory dwelling units can be a worthwhile investment, and our knowledgeable team can guide you through the pros and cons of having one on your property. Having a clear idea of the unit’s function and an ample project budget can relieve some of the stress that comes with construction and aids your decision.