Accessory dwelling unit, or ADU, defined and explained

An accessory dwelling unit, or ADU, is a separate living space in your home or on your property. An ADU is popular for homeowners with family members who want or need to live nearby without giving up the benefits of a private space. ADUs also can be short-term or long-term rentals that generate income and add value to your home. Learn more about what an ADU is and how to add one.

What is an ADU?

An ADU is a living space located on your property or attached to your home that’s separate from your primary living space. An ADU typically must include a bathroom, kitchen, and separate spaces for living and sleeping. It also must have an entrance of its own so residents don’t have to pass through the main home to reach it.

An ADU cannot be sold or legally separated from the primary residence.

Examples include:

• Guest houses
• Garages or sheds converted into tiny houses
• Basement apartments
• Apartments over garages, sometimes called granny flats or mother-in-law suites.

Types of ADUs

There are several different kinds of accessory dwelling units that can be added to an existing property, including a detached ADU, garage conversion, attached ADU, and interior conversion.

Detached ADU

A detached ADU is a stand-alone structure built on the same lot as a larger primary home. Examples include a carriage house or a converted outbuilding, such as a granny flat or bungalow.

Garage conversion

A garage conversion involves renovating a garage space into a living space. Before you convert a garage, make sure you don’t need it for vehicles, tools, or storage.

Attached ADU

An attached ADU is connected to the main home. It’s usually built onto the side or the rear of the home. These units may have a shared or separate entrance from the main home. An example could be an existing breezeway or patio you convert into a separate living space. If you have an existing area you don’t use, turning it into an attached ADU may make sense.

Interior conversion

An internal ADU means part of an existing home is partitioned off and renovated into a separate living space. Some people convert their basement, attic, or spare bedroom into an ADU.

Are ADUs legal?

Depending on where you live, zoning laws may prohibit you from converting a single-family home into a duplex or adding an external ADU. Check your local government for more information, particularly if you plan to build an ADU to use as an Airbnb-type rental.

You also can check on how an ADU may affect your property taxes, and what building permits and special permissions are required. You may need to meet requirements for owner-occupancy, parking, and public hearings. You may also need to meet mandatory lot size requirements.

Understanding ADU laws per state

Many states are ADU-friendly, including California, Oregon, Maine, Connecticut, Washington, Arizona, North Carolina, Florida, Texas, Massachusetts, Minnesota, and Hawaii. West Virginia allows ADUs that are less than 1,700 square feet in size. Wisconsin also limits ADU size, and each state sets its own requirements.

Should you add an accessory dwelling unit?

Homeowners may want to add an ADU to a single-family home for various reasons.

An ADU can offer privacy for a young family member seeking independence or an elderly family member who needs aid but still wants their own space. Rather than living in the main house, an ADU could offer more freedom and privacy so the person living there can have their own living room, kitchen, and bedroom.

How much does it cost to add an ADU?

The cost to add an ADU varies. Upfront costs depend on whether you need to build the structure and the cost of adding or separating utilities for the unit. The type of ADU you choose may allow you to add in a passive income stream, tax benefits, and increase your home’s value.

You may consider purchasing a turnkey shed or tiny home, which simply needs to be connected to utilities. You can find a tiny home kit, shipping container home, or other options online beginning at about $30,000.

Converting an existing space on your property can cost less than adding onto an existing structure or building a new one. Costs vary depending on the structure, materials used, and the quality of the contractor. You can expect to pay at least $58,000 for a garage or shed conversion.

Compare the total ADU cost with how much it’ll increase your home value and the income it may generate. If the ADU costs a lot to build, your home value may not increase. An experienced real estate agent can help you decide how an ADU might help your home’s value and marketability. A real estate agent also can help you understand zoning laws and the permits needed for an ADU.

How to finance an ADU house

If you’re set on building an ADU, you can finance it with a cash-out refinance, a home equity loan, a home equity line of credit, or a construction loan. You also can look for state grant programs that will help you finance an ADU.

Grant programs for ADUs

What exactly do grant programs offer? Here’s what that means: You can receive grant money to cover certain costs, such as pre-development and closing costs. The best thing about grants is that you don’t have to repay them, though you may owe taxes on the grant.

Here’s a brief example of how you can get a grant in California: First, you and your property must meet specific requirements, and then you can submit your application with the required documents. Finally, you’ll receive money to help you with ADU building expenses.

Accessory dwelling unit pros and cons

Let’s consider some pros and cons of adding an ADU.

Pros

• Additional income: You can earn rental income by renting out the ADU on your property. Even if someone chooses not to use their unit for family or friends, they can still earn passive income and homeowners tax benefits.
• Increase in value: ADUs can add value to the property. How much depends on the type of ADU and your location, but generally, it can increase your home’s value by about 30% to 35%.
• You can customize your space: ADU owners can create a space that fits their needs. For example, if you have parents or in-laws who require some help but want to remain independent, you can build a space that fits their needs.

Cons

• Requires maintenance: Having rental space means more upkeep, including regular cleaning and maintenance. Decide whether you have the bandwidth to DIY it or the cash to hire people to make repairs as necessary.
• Added monthly expenses: Owners must pay for the construction, maintenance, and monthly fees for the unit. You may have to pay these on an ongoing basis, particularly costs like utility fees.
• Takes up space: Depending on the type of unit you choose, it may take up space on your property, reducing your living space.
• It may take longer than you expect: Adding an ADU to your home involves more than construction. Permit approval takes time, especially if you plan to use your ADU for commercial purposes, like an Airbnb rental. Permit denial may force you to extend your timeline as well.

Accessory dwelling unit FAQs

Here are answers to common questions about ADUs.

Will adding an ADU increase my home’s value?

ADUs may increase your home value and add tax benefits. You can check with a real estate agent to help you gauge how much of an effect an ADU will have on the value of your property.

How does an ADU access utilities?

Most ADUs connect to the main home’s utilities. While an electric company might split the meter between the main house and the ADU, it may not always be an option. Additionally, internet and cable companies can create separate accounts for ADUs.

The bottom line: Accessory dwelling units can provide housing options

If you’re considering an ADU to provide housing options or additional income, check into zoning requirements, costs, and other affordable housing options to ensure an ADU makes sense for your property.

Set on adding an ADU? Consider getting approved for a home equity loan or a cash-out refinance with Rocket Mortgage today.