An accessory dwelling unit (ADU) is a secondary living space on your property that can be used for rental income, a home office (COVID!), or as a place for aging parents. The cost and benefits of ADUs are many – ADUs can be built in a number of ways, from converting an existing garage or basement into living quarters, to constructing a new detached unit in your backyard.

There are numerous benefits to adding an ADU to your property. In addition to generating rental income, an ADU can also:

• Increase the value of your home: An ADU can add 10-20% to the value of your property, according to a study by the Appraisal Institute.

• Provide a place for aging parents or other relatives: An ADU can provide a place for aging parents or other relatives to live that is close to you, but still allows for independence and privacy.

• Serve as a home office: With more people working from home these days (thanks, COVID!), an ADU can serve as a dedicated home office space, away from the hustle and bustle of the main house.

ADUs come in many forms, such as converted garages, in-law units, or even just a second living space within your home. They must meet all the same safety and building standards as your primary residence, which can add to the cost.

Cost of ADUs

• Converted garages can cost as little as $20,000
• Prefabricated ADUs can cost between $50,000 and $100,000
• Custom-built ADUs can cost between $125,000 and $350,000

Amenities in ADUs

There are many options you can get with your ADU, including:

• Full kitchen
• Washer and dryer hookups
• One or more bedrooms
• Bathrooms
• A living area

Obviously, the bigger and more options you pick, the higher the cost your ADU will be. In general, custom ADUs can cost between $100 and $500 per square foot – these costs will vary based on your options, your location, and your overall design. Some ADUs are made out of old storage containers – so there are many many ways you can go.

Rental Income

ADUs can generate significant rental income, depending on the location and amenities of the unit. A study by UCLA found that the average monthly rent for an ADU in Los Angeles County is $3.68 per square foot, or about $2,000. Just like normal apartments, rental costs will vary by location and what the average cost for rentals are in your local area. Regardless, earning some extra rental income can help offset the cost of your mortgage or even provide extra income to save for retirement.

Renting Out Your ADU

As with any rental property, there are a few things to keep in mind when renting out your ADU:

• You will be responsible for all repairs and maintenance on the unit
• You will need to obtain the proper permits and licenses from your city or county
• You will need to carry insurance on the unit
• You will be responsible for paying taxes on the rental income you earn

Bottom line: An ADU can provide numerous benefits, from generating rental income to providing a place for aging parents. They come in many forms and can be custom built to fit your needs. While they can be expensive to construct, they can also add significant value to your property. Don’t forget about the added responsibilities you’ll have as a landlord.

ADU vs. JADU

An accessory dwelling unit (ADU) is a secondary living space on your property. A junior accessory dwelling unit (JADU), sometimes called a in-law unit, is a smaller version of an ADU, usually between 300 and 600 square feet. JADUs are typically built within the main house, such as in a converted basement or garage.

ADUs can be either attached to the main house or detached, while JADUs are always attached. Both ADUs and JADUs must meet all the same safety and building standards as your primary residence, which can add to the cost.

Permits & Zoning

In most locations, ADUs require permits in order to be built. The cost of the permit will depend on your location, but typically range from $1,000 to $5,000.

Before you can even apply for a permit to build an ADU, you need to make sure that your property is zoned for one. Zoning laws vary by location, so it’s important to check with your local planning department to see if ADUs are allowed. If they are, there may be additional restrictions, such as minimum lot size or maximum unit size.

Hidden Costs

There are a few hidden costs to be aware of when building an ADU.

• Utilities: If your ADU is a standalone unit, you will need to pay for all the utilities, including electricity, gas, water, and sewer.
• Insurance: You will need to carry insurance on the unit.
• Property taxes: You will be responsible for paying property taxes on the value of your ADU.
• Homeowner’s association (HOA) fees: If you live in a community with an HOA, there may be additional fees or restrictions on building an ADU.
• You’ll need to screen tenants carefully and have a solid lease agreement in place.

Bottom Line

An ADU can provide numerous benefits, from generating rental income to providing a place for aging parents. They come in many forms and can be custom built to fit your needs. While they can be expensive to construct, they can also add significant value to your property. Don’t forget about the added responsibilities you’ll have as a landlord.

If you’re considering building an ADU, make sure to check with your local planning department to see if they’re allowed and what restrictions apply. You’ll also need to factor in the cost of permits, utilities, insurance, and property taxes. And don’t forget, you’ll be responsible for all repairs and maintenance on the unit. With all that in mind, an ADU can be a great way to add value to your property and provide extra income.

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