Accessory Dwelling Units (ADUs): What Are They?

An accessory dwelling unit, or an ADU, can be a great way to add additional living space or dip your toes into real estate investment without having to buy a whole new property. A secondary housing unit, like ADUs, can give homeowners dedicated space to house overnight guests, practice a hobby or rent to visitors for some extra income. 

ADUs can also help provide more affordable housing or offset higher living expenses. Let’s explore these versatile home additions further and see how you might use one to your full advantage. 

What Is An Accessory Dwelling Unit? 

An ADU is an individual apartment or living space that shares property with a primary home or residential unit. While still an independent unit, an ADU cannot be sold or purchased separately from the main home. 

ADUs go by several different names, including granny flats, in-law suites, accessory houses, carriage houses or, in Hawaii, Ohana units. 

Uses For ADUs

ADUs provide homeowners with extra square footage that can be used in many different ways – even to generate some income. Some popular uses for ADUs include: 

• Office or work-from-home space
• Guesthouse
• Long-term rental, like an apartment
• Short-term rental, like an Airbnb or other vacation rental
• Smaller, single-family home for property owner, while renting out the primary home
• Kids playroom
• Living quarters for in-laws or other family members
• Living space for in-home caregivers
• Yoga studio or meditation space
• Home gym 
• Workshop 
• Study or library 
• Place for a loved one to quarantine comfortably 
• Affordable housing for college students 

Before deciding how you will use your ADU, just remember that local zoning ordinances might come with some restrictions.

Building Codes And Zoning Ordinances For ADUs

The regulations around ADU construction and usage vary not just by state, but usually at the local level. Every neighborhood is different when it comes to ADUs – some may implement rules around height, square footage or what the space will be used for. You could also run into inconveniences like parking restrictions, maintaining certain design criteria or getting your hands on the right building permits. 

Be sure to do your research to pin down what kinds of restrictions and fees may be associated with managing an ADU in your area. Check local ordinances and building codes. If you’re part of a homeowners association (HOA), you’ll also want to check their requirements as well. 

It’s also important to note that even in places where ADUs are common or allowed, some local governments or residents may push back. So be sure to understand and follow your area’s rules and regulations diligently. 

Types Of Accessory Dwelling Units

Not all ADUs look the same. The best ADU for your home depends on what you want from the space, your current property and, of course, your budget. Not to mention, those local zoning laws we already touched on. 

If you’re still brainstorming what kind of ADU would be right for your home, here are the common ADU structures to consider: 

Detached ADU

Also sometimes called a backyard cottage or an accessory apartment, detached ADUs live in a homeowner’s backyard, physically separated from the primary home. They are stand-alone units on the property, similar to guest homes. 

Attached ADU 

As its name would suggest, this kind of ADU is attached to the primary home, whether that means building onto the existing structure, like with an addition, or converting a part of the primary house into this new space. 

Above Garage ADU 

An above garage ADU is created by adding a second story on top of a one-story garage. If the garage is connected to the home, this would be a type of attached ADU. 

Garage Conversion ADU 

A garage ADU is created by converting existing garage space. This can be done by using extra car space, constructing a second-story or lofted area into the ceiling space, or utilizing the entire garage. 

Interior Conversion ADU

Interior conversion ADUs make the most of existing spaces within a home. This is usually done with a converted basement. Interior ADUs must have their own plumbing, a full bath, a kitchen with proper ventilation and their own exterior entrance.

What Does An Accessory Dwelling Unit Cost? 

There are too many factors that impact the cost of building an accessory dwelling unit to give an exact amount. You’ll need to factor in things like your location, the size and type of the accessory home, whether you’re using an existing space or building one from scratch and the type of finishes you choose, including flooring, countertops, cabinetry and appliances.

To give you a general idea, here are the average costs for various ADUs, according to HomeAdvisor’s most recent data, as of October 13, 2022: 

• $40,000 – $130,000 for an attached, in-law suite addition
• $45,000 – $100,000 for a detached guest house
• $110 – $250 per square foot for an apartment above the garage

Can You Finance An ADU? 

If you’re looking to finance an ADU on your property, you’re faced with a few different options. Here’s a breakdown of a few:

• Construction loan. It may seem intuitive to get a construction loan, especially if you’re building a detached ADU, but it’s often not recommended. For starters, many lenders do not offer construction loans for ADUs. Construction loans also have characteristically short terms, usually one year, and high interest rates. Since they were created with the intention of financing an entire house’s build from the ground up, construction loans may not be the best option for ADU financing. 
• Cash-out refinance. Cash-out refinances are a great option for homeowners who already want to refinance and who have built up substantial home equity – usually those who have been in the same home for years. As the name would indicate, a cash-out refinance requires you to refinance your current mortgage and tap into your equity for financing that can be used toward ADU renovations. 
• Home equity line of credit (HELOC). Similar to a cash-out refinance, a HELOC also taps into your home equity. Instead of a new home loan, however, HELOCs provide a line of credit that can be used to finance new home renovations or projects. 

ADU Pros And Cons

Still on the fence about whether an ADU is worth it? We’ve broken down some of the pros and cons to help you decide if this additional space fits into your home and lifestyle:

Pros 

• Potential for additional income through Airbnb, vacation rentals or temporary housing
• Extra square footage for hobby, work or guest space
• Potential increase in property value

Cons

• Upfront construction or renovation costs
• Maintenance costs and upkeep
• Required research on zoning, regulations and fees
• Requires substantial yard, garage or house space

The Bottom Line On Accessory Dwelling Units 

An accessory dwelling unit is a form of secondary housing on a primary property. ADUs can be attached or separate from the main residence, providing additional living space or generating additional income for homeowners by lodging guests. There are rules and regulations on building an ADU and they vary by location, so be sure to do your research and understand your local laws and zoning ordinances.

Interested in using a cash-out refinance to bring your ADU to life? Start your application online today with our friends at Rocket Mortgage^®.