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5 min read Apr 20, 2023

What Is An ADU and Why Is It Gaining Popularity in Real Estate?

The term ADU has been creating buzz in the real estate industry in recent years. But what is an ADU? An ADU or accessory dwelling unit is a secondary housing unit built on a single-family residential lot.

It is an additional living space that provides extra room for a family member or can be rented out as an income-generating property. In this blog, we will discuss the definition, benefits, financing options, and other important aspects of ADUs.

What Is An ADU and How Does It Work?

An ADU is a self-contained living space that is attached or detached from the primary residence on a single-family lot. It has a separate entrance, bathroom, kitchen, and sleeping area. ADUs can range in size from a studio apartment to a two-story house.

They are also called granny flats, in-law units, or backyard cottages. ADUs have gained popularity in recent years due to their affordability, flexibility, and potential to generate rental income.

» Check out: Different Types of Houses!

Benefits of ADU Housing

ADUs offer several benefits to homeowners and tenants. Some of the most significant benefits of ADUs are:

  1. Affordable Housing: ADUs provide an affordable housing option for tenants who want to live in a desirable neighborhood but cannot afford to rent a whole house. For homeowners, ADUs can be a source of passive income that can help pay off their mortgage.
  2. Flexibility: Homeowners can use ADUs for various purposes, such as an office, art studio, guest house, or rental unit. They can also design ADUs to meet specific needs, such as accessibility or privacy, for themselves or their tenants. ADUs offer flexibility in their usage.
  3. Increased Property Value: ADUs can increase the value of the property by providing additional living space. They are also attractive to potential buyers who are looking for a property with a rental unit.
  4. Sustainable Living: ADUs promote sustainable living by utilizing existing infrastructure and reducing the carbon footprint. ADUs are also a great way to address the housing shortage while minimizing the environmental impact of new construction.

Financing Options for ADUs

Building an ADU can be a significant investment, but there are several financing options available for homeowners. Some of the most popular financing options for ADUs are:

  1. Cash: Cash is the easiest and most straightforward way to finance an ADU. If you have enough savings, you can pay for the construction costs outright.
  2. Home Equity Loan: A home equity loan is a loan that allows you to borrow against the equity in your home. It is a popular financing option for ADUs because it allows homeowners to access cash quickly and at a lower interest rate.
  3. Construction Loan: It is a popular financing option for homeowners who want to build an ADU from scratch. Homeowners can use a construction loan to finance the construction of a new building.
  4. FHA 203(k) Loan: An FHA 203(k) loan is a loan that is used to finance the purchase and renovation of a home. It is a popular financing option for homeowners who want to buy a property with an existing ADU or build a new one.

Important Considerations When Building An ADU

Before building an ADU, there are several important considerations that homeowners should keep in mind:

  1. Local Zoning Laws: Homeowners should check local zoning laws to ensure that ADUs are allowed on their property. Some cities have specific regulations regarding the size, design, and use of ADUs.
  2. Building Permits: Homeowners should obtain the necessary building permits before starting construction. Building permits ensure that the ADU meets safety and building code requirements.
  3. Cost: Building an ADU can be expensive, and homeowners should have a clear understanding of the costs involved before starting construction. The cost of building an ADU can vary depending on the size, location, and design of the unit. Homeowners should also factor in the cost of financing, permits, and utilities.
  4. Property Management: Homeowners should consider the logistics of managing an ADU. Renting out an ADU requires homeowners to handle tenant relations, maintenance, and other property management responsibilities.
  5. Accessibility: Homeowners should consider the accessibility of the ADU for tenants with disabilities or mobility impairments. Homeowners should design the unit with accessibility features such as ramps, wider doorways, and grab bars.

ADUs: A Solution to the Housing Crisis

The housing crisis has become a significant issue in many cities across the United States. The demand for affordable housing continues to rise, and many families struggle to find a home in desirable neighborhoods.

ADUs offer a solution to the housing crisis by providing an affordable housing option and increasing the supply of rental units.

ADUs also have the potential to address other housing-related issues, such as homelessness and gentrification. They provide a stable and affordable living space for homeless individuals or families.

Additionally, homeowners can design ADUs to blend in with the existing neighborhood, preserving the community’s character and reducing the risk of displacement due to gentrification.


In summary, an ADU is a secondary housing unit built on a single-family residential lot. ADUs provide an affordable housing option, flexibility, and increased property value.

Homeowners have several financing options available for building an ADU, including cash, home equity loans, construction loans, and FHA 203(k) loans.

When building an ADU, homeowners should consider local zoning laws, building permits, cost, property management, and accessibility.

ADUs have the potential to address the housing crisis and other housing-related issues, making them a valuable addition to the real estate industry.

Frequently Asked Questions

Are ADU legal in USA?

Yes, ADUs are legal in the USA, but regulations vary by state and local jurisdiction.

What's one drawback of an ADU?

One drawback of an ADU is that homeowners may have to deal with tenant management responsibilities if they decide to rent it out.

How much does an ADU cost?

The cost of building an ADU can vary widely depending on factors such as location, size, materials, and labor. However, on average, homeowners can expect to spend anywhere from $80,000 to $300,000 or more to build an ADU.


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