{"id":120436,"date":"2019-12-23T14:30:24","date_gmt":"2019-12-23T21:30:24","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=120436"},"modified":"2021-03-16T14:57:32","modified_gmt":"2021-03-16T20:57:32","slug":"accessory-dwelling-units-explained","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/accessory-dwelling-units-explained","title":{"rendered":"What Exactly Is an Accessory Dwelling Unit?"},"content":{"rendered":"

Interest by real estate investors in accessory dwelling units<\/a> (ADUs) has risen recently to combat the nation\u2019s affordable housing crisis. But what, exactly, is an accessory dwelling unit? Accessory dwelling units have been around for years and have gone by a variety of names: casitas, pool homes, in-law suites, granny flats, guesthouses, and secondary dwelling units, among others.<\/p>\n

Defining ADUs<\/h2>\n

They are fully independent living units that include a bathroom, kitchen, sleeping, and living area. ADUs are generally located on the same lot as a detached single-family home, but, depending on zoning laws, could be situated on the property of a duplex<\/a>, a triplex, or farmhouse. They might also be considered smaller \u201cinternal\u201d units or JADUs (junior accessory dwelling units) incorporated within the existing structure such as a converted garage or attic apartment.<\/p>\n

Technically, a detached ADU could be considered a tiny house, but the tiny home movement is a completely different animal. Tiny homes are often built on wheels or built to be the primary home on a lot, not a secondary unit. These units are also considered personal property and typically regulated under the same rules as RVs.<\/p>\n

However, ADUs can be stick-built, manufactured homes, tiny homes, and even 3D printed homes if it aligns with your state\u2019s building code and you follow the rules of your municipality.<\/p>\n

ADUs, under most circumstances, cannot be sold separately from the primary property. So, building a detached 1,200-square foot ADU behind an existing 1,600-square foot primary residence is not a duplex. It\u2019s a primary residence with an ADU. You won\u2019t be able to sell the unit separately.<\/p>\n

Related<\/strong><\/em>: Is Building an Accessory Dwelling Unit a Worthwhile Investment?<\/a><\/em><\/p>\n

Where to Start with ADUs?<\/h2>\n

\"researching-ADU\"<\/p>\n

Real estate investors interested in ADUs should start their research at the municipality where they want to build or invest. You\u2019ll want to know how a city defines an ADU, whether they are allowed, where, and what restrictions govern them. Utilities, school districts, and fire and safety departments may all have a say with impact fees to match.<\/p>\n

ADUs are not a \u201cpay-and-pray\u201d strategy.\u00a0 It\u2019s extremely local and can even change within the same city due to health and safety concerns, utility availability, and environmental issues. Do your homework before<\/em> you buy!<\/p>\n

Berkeley\u2019s Terner Center produced a report, \u201cResidential Impact Fees in California,\u201d and found some cities in California charged upward of $50,000 in impact fees!<\/p>\n

The American Planning Association notes that ADUs have the potential to increase housing affordability<\/a> while expanding housing options, such as allowing seniors to stay near family as they age. As a result, cities, counties, and states have been signaling support of ADUs and adopting new regulations<\/a> to allow them.<\/p>\n

Some municipalities, the APA notes, have an existing supply of illegally created ADUs and are considering amnesty\u2014a waiver of inspection and development fees\u2014in exchange for residents registering their units. If they can pass health and safety inspections, you might finally be able to have a pathway to include that hideous glop-on addition you inherited as appraisable square footage.<\/p>\n

Free Money for ADUs?<\/h2>\n

Investors should pay close attention to national, state, and local incentives around affordable housing. You may find \u201cfree\u201d money for housing seniors, veterans, and the homeless. Yes, it\u2019s not free. You\u2019ll likely encounter covenants and restrictions around ADU usage by accepting the funds, but it may be worth it.<\/p>\n

You may find even more funds with your local utility willing to rebate you for including energy efficiency into your new ADU, including rebates for energy-efficient windows, appliances, ceiling fans, and controls. You won\u2019t know until you get local and do your homework. If you\u2019re lucky, you may find a few sources of funding and rebates.<\/p>\n

The Risks Involved<\/h2>\n
    \n
  1. Appraisers will likely have an issue finding like-kind comparable sales.<\/li>\n
  2. Throw together an awkward design that impacts the livability, and you may run the risk of screwing up property value.<\/li>\n
  3. If you\u2019re in a tight labor market and ADUs get popular, expect labor to get more expensive.<\/li>\n
  4. Start talking to local lenders ASAP. You\u2019ll need a creative ally in the lending world, especially if you plan to mix a stick-built primary with a manufactured ADU.<\/li>\n<\/ol>\n

    You\u2019ve been warned! And, for the record, the investor community needs everyone to do them well and correctly. This may be one of the coolest gifts handed to our community.<\/p>\n

    Related<\/strong><\/em>: Where to Find Private Lenders to Fund Your Investments<\/a><\/em><\/p>\n

    ADU Strategy Session<\/h2>\n

    \"home-renovation-adu\"<\/p>\n

    Investors looking into ADU strategies must research what\u2019s possible at the local level but may include:<\/p>\n

      \n
    1. Purchase a flip<\/a> property, renovate the primary, add an ADU.<\/li>\n
    2. A landlord with a large lot could convert the garage into a JADU and rent it out separately.<\/li>\n
    3. A landlord could build a detached ADU and furnish it to use as a 30+ day rental<\/a> for professionals (professors, nurses, etc.).<\/li>\n
    4. A developer could buy a residence on a large lot. Fix the primary to use as a vacation rental while splitting the lot. Add an ADU to the existing lot while you construct a new home on lot split.<\/li>\n
    5. Co-living investors could build an ADU to house medical experts for co-living special needs, with seniors or recovery tenants in the primary residence.<\/li>\n
    6. An apartment owner could reconfigure existing units into smaller units to add doors.<\/li>\n<\/ol>\n

      ADUs are likely here to stay and the investor community has the know-how, skills, and access to private capital that will make them possible if states and municipalities play ball. Let\u2019s get to work!<\/p>\n

      \"\"<\/p>\n

      Have you invested in ADUs, and what has your experience been like? If you haven’t, do you think you would?<\/em><\/p>\n

      Share with a comment below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

      It goes by many names: guesthouse, granny flat, in-law suite, and the list goes on. But what actually is an ADU (accessory dwelling unit)? In this article, I’ll define an ADU, what it means to invest in one, and the risks you could possibly face.<\/p>\n","protected":false},"author":42450,"featured_media":120763,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5183],"tags":[],"class_list":["post-120436","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/120436","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/42450"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=120436"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/120436\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/120763"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=120436"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=120436"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=120436"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}