5 min read Jan 31, 2024

What Is an ADU (Accessory Dwelling Unit) in Real Estate?

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Edited By

Carol Coutinho

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Editor
Edited By

Carol Coutinho

Editor, Houzeo
About

Carol C. is a versatile editor, expertly refining real estate content with precision and creativity. When not exploring market trends, she is immersed in the enthralling world of the theatre.

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An Accessory Dwelling Unit (ADU) is a secondary house or an apartment that shares its structure with a primary residence. An ADU can be attached or detached to a primary residence and belongs to the owner of the single-family home. You cannot buy or sell it separately, but you can rent it out.

An ADU can increase your home’s value by 35%! So, if your home is priced at $500,000, you could gain $175,000 more.

Key points of an ADU 🏘️

  • An Additional Dwelling Unit can be a source of passive income for you. You can either rent it out or create spaces like an office or storage.
  • An ADU can be attached to or detached from the primary structure. It can also be converted from a garage, attic, or a basement.
  • Building an Additional Dwelling Unit costs about $60,000 to $225,000 in 2024.

What Is an ADU in Real Estate?

An ADU is a house separated from a primary residence. It is also called a granny flat, garage apartment, or in-law suite. It serves various purposes like housing a family member, getting rental income, or creating a home office. Adding an ADU to your residence can increase your property’s value.

An Additional Dwelling Unit is subject to local zoning laws. Hence, it is necessary to check these regulations before you build one.

Types of ADUs

Here are some Additional Dwelling Unit examples:

  • Attached: This type of dwelling is connected to the main house. It has its entrance, kitchen, beds, and baths. However, it may share a wall, floor, and ceiling with the primary residence.
  • Detached: Detached Additional Dwelling Units stand independent of the primary structure. However, it is situated on the same plot of land.
  • Garage: These are ADUs converted from garages to living spaces. They have a separate area equipped with an entrance and a kitchen.
  • Basement or Attic: Here, an attic or a basement is converted into a separate living space. They are a cost-effective way to convert existing spaces into additional dwelling units without new construction.
  • Internal: These are any space other than an attic or a basement converted to an Accessory Dwelling Unit.

How Much Does an Accessory Dwelling Unit Cost?

On average, building an Additional Dwelling Unit can cost you anywhere between $60,000 to $225,000 in 2024. It typically varies according to the type of ADU you’re building. For instance, a new construction built above a garage costs about $150 per square foot, but a fully detached one can cost twice that amount.

Here are some costs you incur when building an ADU house:

  • Building Materials: Includes costs of lumber, doors, windows, roofing, etc. It is usually 45% to 50% of the total expenses.
  • Permits: Local permits for building an ADU cost about $1,350.
  • Design Costs: Creating a design for your ADU can come up to 10% to 15% of the total project expense.
  • Site Prep: This can include land leveling and grading. It is about $1,000 to $5,800 on average.
  • Foundation: ADUs constructed above the garage or detached from the primary residence require a new foundation. Typically, it costs about $2,400 to $30,000. Basement Additional Dwelling Units need not incur this expense.
  • Framing: These prices depend on the framing you install in the ADU home, averaging $25,000. Metal frames are more expensive than lumber.
  • Finishing: This involves costs incurred for flooring, walls, insulation, stairs, etc., and is about $10 to $50 per sq. ft.
  • HVAC and Plumbing Systems: You need to pay an additional $3,400 to $10,400 for installing heating, cooling, air conditioning, and plumbing systems.
  • Labor fees: Includes fees of the architect, structural engineer, contractor, and other technicians, making up about 40% of the total expense.
  • Waste Disposal and Clean-up: New constructions can create a truckload of waste. Its cleaning and disposal may cost anywhere between $60 and $600.

ADU Pros and Cons

Here are some advantages and disadvantages of building an Additional Dwelling Unit on your plot:

✅ Pros

  • Additional Income: You can rent out ADU homes to get a steady source of income. An ADU home’s rent can range from $1,300 to $2,900.
  • Affordability: ADU homes are cheaper to build and maintain than full-sized homes. They use less energy and resources.
  • Flexible Use: ADU houses have multiple uses – they can house families, guests, students, or caregivers. You can also use them as a home office, studio, or storage space.

❌ Cons

  • Permits and Zoning Laws: Getting the permits to build an ADU can be challenging, time-consuming, costly, and uncertain. Likewise, you must be aware of and adhere to local zoning laws before building an ADU.
  • Reduced Area: ADU dwellings take up a lot of space, especially the ones built outside the primary residence.
  • Potential Conflicts and Liabilities: ADU homes may create conflicts related to privacy, security, or noise between the owner and tenants.

Bottom Line: How Much Value Does an ADU Add to Your Home?

A whopping 35%! One study found that homes with an ADU were priced 35% more than those without one. In 21 US cities, listings with ADUs were priced double than regular listings.

However, this largely depends on the size and location of the Additional Dwelling Unit. Urban areas with less space for new construction are lucrative opportunities for building an ADU.

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FAQs

What does ADU stand for in real estate?

An ADU stands for an 'Accessory Dwelling Unit' in real estate. It is a secondary house or an apartment that shares its structure with a primary residence.

Does an ADU add value to your home?

Yes. One study found that homes that had an Additional Dwelling Unit were priced 35% higher than homes that didn't.

How to finance an ADU?

You can finance an ADU construction by taking a cash-out refinance or get a home equity loan.

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