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An accessory dwelling unit, or “ADU,” is a fancy phrase for a smaller stand-alone space on your property. They’re oftentimes referred to as guest houses, granny flats, or even pool houses. These modest spaces are functional, livable, and super convenient if you need more room but don’t feel like packing up and moving into a new home entirely.
The reasons to build an accessory dwelling unit are almost as diverse as the units themselves. Maybe your home feels cramped now that you’re trying to work from home while your kids are homeschooling. Maybe you have parents or in-laws who are at that stage where they need a little help but aren’t ready (or you’re not ready) for an assisted facility. The same can be true of college students or adult children who need to save money or perhaps have encountered some career or financial obstacles.
Those are a few selfless reasons to build an accessory dwelling unit, but there can be solid financial incentives behind this approach as well. Namely, the opportunity to increase your home’s value or secure supplemental income if you rent out the dwelling.
Whatever your situation, there are many reasons to build an accessory dwelling unit. Here are the top four, in no particular order.
Increase Your Home’s Value
A separate structure that can be used as an office, small apartment, artist studio, pool house, home gym, or spare bedroom can provide tons of value to prospective buyers. The trends of multi-generational living, entrepreneurship, and side hustles were gaining steam before the pandemic. Since the pandemic? These activities are through the roof!
You’d be hard-pressed to find a buyer who doesn’t appreciate this separate space. Their use for it may vary, but most people are likely to see the value in a stand-alone space—and many will be willing to pay more for that value!
Plus, accessory dwelling units have become so popular that it’s easier than ever nowadays to order, build and install these structures. Some prefabricated models can be ordered right off the internet for as little as a few thousand dollars. Though some handiwork may be required for, say, plumbing or electrical, these accessory dwelling units are a low-cost investment that can yield big results for your home value.
Provide Additional Accommodations
Needing more room for extra family members or wanting some income to help with your mortgage are both fabulous reasons to build an accessory dwelling unit. Guests can live totally independently from the main house when these units are fully equipped with sleeping quarters, kitchenettes, and bathrooms. You’d simply need to provide an access route from the front of your property to the back and—voila—your new “tenant” is all set!
Depending on your city’s ordinances and laws, you may be able to rent this space by the year, month, week, or even night. This opens up a variety of income stream options for you based on your location and preferences. Prefer a stable, predictable income? A long-term renter may be right for you. Live near the beach or a major tourist attraction? You may be able to make more extra income by renting out your space on a nightly basis.
The possibilities are all yours, and they are all great reasons to build an accessory dwelling unit.
Offer Independent, Affordable Living Opportunities
Some people don’t mind sharing a room, or a dwelling, with others. And sometimes that demographic doesn’t have a choice if it’s our children! Barring that situation, however, many people—both relatives and strangers—would prefer to have their own independent living quarters.
This sort of living situation can also be expensive, however. That’s especially true if you’re just starting out, live in a big city, or work in a pricey part of town. Micro-apartments as small as 200 square feet have become popular in the densest and priciest downtown areas, including San Francisco, New York, Seattle, and Los Angeles.
An ADU is suburbia’s answer to this problem. With modestly-sized units, your potential renter base won’t consist of children, pets, and a whole storage unit worth of stuff. Instead, they are likely to be occupied by individuals or couples who are either going to school or trying to advance their careers. Older individuals, including retirees and empty nesters, also appreciate the low maintenance and low prices of a stand-alone unit.
Whoever occupies your unit is up to you, so make sure their schedule and lifestyle fit in well with your own. When you do this and are able to achieve some rental income, the cost of an ADU practically pays for itself.
Tackle a Few Social Issues
Didn’t see that one coming, did you? While these may not be your primary reasons to build an accessory dwelling unit, the fact is ADUs can help address the housing shortage and reduce the carbon footprint associated with building a new home.
It’s no secret that America is in a housing crisis, particularly when it comes to affordable housing. There simply aren’t enough units to address the problem relative to the number of people who need lower-priced housing. This is a complicated issue with no clear-cut solutions, but you can do your part by offering a livable space at a reasonable price.
You can also do your part for the environment when you build an accessory dwelling unit. That’s because ADUs use 40 percent less energy and use 60 percent fewer carbon emissions over their lifetime when compared to a medium-sized single-family home.
There are many reasons to build an accessory dwelling unit—and only you know whether your reasons warrant moving forward. In the meantime, you’ll want to check with your city or local municipality on any laws regarding ADUs and renters, particularly short-term renters. It’s also a good idea to chat with your tax professional to see if there are any tax implications associated with building or renting a unit.
Once you’re ready to bring your vision to life, APM is happy to help you devise a financial strategy that works for you. You can even leverage your home’s equity to create the accessory dwelling unit of your dreams! Just go here to connect with an APM Loan Advisor near you today.
