An accessory dwelling unit (ADU) is a legal term used to describe a secondary apartment or house that shares the same building space as a bigger home that’s the primary building. Since it is a part of the primary unit, the ADU cannot be sold or purchased separately. An ADU can be let out as an individual unit to generate income for the owners, but it will also cost money to construct, maintain, and pay additional taxes.
What is an accessory dwelling unit (ADU)?
An ADU is a smaller space that’s more like an accessory to the main building. It goes by many names, including granny flat, in-law unit, carriage house and secondary dwelling unit. The ADU can be constructed as a stand-alone structure or even attached to a garage or a house. It has its own entrance, living space and kitchen, but will usually share the energy and water connections with the main unit.
Modern real estate laws allow houses to construct ADUs but also have certain stipulations regarding the style and size of the new addition. Also, the laws have other requirements such as that the owner of the main unit should live on the premise for the ADU to be built.
Advantages and disadvantages of ADUs
Most people who build an ADU have one of two reasons for doing so – either they want to let it out on rent or they want to house a family member. There are a number of costs involved in constructing an ADU such as local zoning ordinances, maintenance costs, upfront costs, rental and housing costs and tax implications.
Advantages of building an ADU:
- It can give you extra income if you rent it out.
- It can give you more space to work out of or relax in.
- It can add value to your property.
Disadvantages of building an ADU:
- It can take up the space you may have reserved for something else.
- It costs money to build and maintain.
- If you rent it out, you will have to spend on extra maintenance.
How to finance your ADU construction
The best way to finance your ADU construction depends on how much money you have in hand. If you can front the entire amount yourself, go for it. If not, look at taking a renovation loan or refinancing your home if possible.
If you’re looking at getting rental income out of your accessory dwelling unit, remember that your property tax could increase after the construction is done. This will eat into the rental income you get. So, before constructing your ADU, check out the local rental rates in your area. If you’re able to earn a profit after the increase in annual taxes, constructing the ADU might be worth your while.
An ADU can be a good source of extra income or you may be able to house a family member in it. But before you start construction, check with your local housing laws first. Make sure that you can legally build one on your property. If you build an unlawful ADU, you will most likely end up paying hefty fines. You will also face problems if you try to refinance your home in the future. so, before you start, consult with a lawyer and make sure everything is in clear.
