Breaking it down: accessory dwelling units

Breaking it down: accessory dwelling units

With the rising costs of real estate, more home owners and prospective buyers are looking to make the most out of their property. Whether you call them by their proper name — accessory dwelling units — or you know them as something else, we’re breaking down what the term means, why these units are so popular, and, if you’re interested, how you can go about putting one of your own on your new property.

So, what is an accessory dwelling unit?

Accessory dwelling units refer to a catch-all category for any type of supplemental housing that can be added on to a main property. It covers things like guest houses, carriage houses, in-law suites, basement apartments, and tiny homes.

Though an accessory dwelling unit can refer to just about any type of additional housing, there is one key feature that sets it apart from other multi-unit housing situations.

With an ADU, the additional unit cannot be sold independently of the main property. In this case, the owner of the main housing structure must keep the additional unit in his or her name, either for personal use or rental income.

Why these units are popular

These day, accessory dwelling units are becoming steadily more popular than they have been in quite some time. Due to recent years of economic uncertainty, more and more people are falling back into a multi-generational housing model.

Whether adult children are moving back home after completing their education, or elderly parents are in need of some extra support, an ADU offers the benefit of communal living where everyone also is afforded some much-needed privacy.

For others, the benefit of an accessory dwelling unit is mainly financial.

If space is available, and you’re looking for ways to bring in some extra income each month, renting out the extra unit is a great way to do so. As an added bonus, since the ADU is typically a separate structure unto itself, this type of living situation often affords much more privacy than, say, simply renting out a room in your home.

How to get an ADU of your own

If you think adding an accessory dwelling unit might be a good move for you and you don’t already have one of these units on your property, putting one up can be a bit of a process.

Here’s what you’ll need to consider before starting construction:

Check local zoning laws
Since you’re looking to build an entirely new structure on your property, you’re definitely going to need to make sure that you’re following local zoning laws and permitting the project properly.

Often, regulations can vary widely depending on your location, and the penalty for not following the rules can be steep. You could be asked to pay a fine or to take the structure down entirely, so in this case, it’s much better to know exactly what’s expected of you before construction begins.

Here are the local guidelines for a few of our top markets:

  • Accessory dwelling unit in Los Angeles
  • Accessory dwelling units in San Francisco
  • Accessory dwelling units in Seattle
  • Accessory dwelling units in Austin
  • Accessory dwelling units in San Diego

For other markets, can be a good resource to find your local regulations.

Breaking it down: accessory dwelling units

Consider the financial cost
If you’ve cleared your project with the local zoning authority, the next step is to look into how you’ll be financing your project.

Since you’ll be adding an independent structure to your home, this project likely won’t come cheap. Your out-of-pocket costs will vary depending on the type of structure you choose, your location, and your builder.

The other piece to consider is how you plan to finance this project.

Typically, the answer would be through either a home equity line of credit – AKA a second mortgage – or a construction loan.

However, sometimes lenders will have a tricky time approving these loans because an ADU isn’t technically part of the home’s main structure.

You may want to visit a few different lenders to explore your options, but at the worst case scenario, be prepared to either use cash or a personal loan.

Adding an ADU can also impact your property taxes, as adding a new structure should increase the value of your property. Be sure to bake in those costs as well.

Think about the scope of construction
The next piece to consider when thinking about adding an accessory dwelling unit to your property is whether or not you’re ready to undertake a large-scale construction project. Home improvements like these involve interviewing a variety of contractors, selecting the right team, budgeting your resources, overseeing the entire project, and navigating unsuspecting road bumps along the way.

As with any home improvement project, you’ll want to start by coming up with a firm vision for your final product. Do some research online to get a sense of your options. Once you have a plan in mind, start collecting estimates.

Are you ready to be a landlord?
Finally, if you’re planning on using the ADU for added income, you need to ask yourself whether or not you’re ready to deal with the responsibilities of becoming a landlord.

Landlords have to take over maintenance on the unit, interview tenants, collect rent, and report that income on their taxes. It’s essentially a second job ~ be honest about whether or not, you’re interested in taking on those tasks.

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