Can an Accessory Dwelling Unit Increase Your Property Value

Build an accessory dwelling unit for family or investment income

Whether built for providing additional living space to allow elderly family members to age in place, or as an investment property, an accessory dwelling unit can add more value to a property than it costs to construct it. Photo by Sharon Willen

What is an Accessory Dwelling Unit?

An Accessory Dwelling Unit (ADU) is a smaller, independent residential structure located on the same property as a detached single family home, typically built around 500-600 hundred square feet. ADU’s originated in Vancouver, Canada and are now gaining popularity in the U.S. as a way to help ease the shortages in the housing market. An ADU is not a tiny home on wheels, but it is a fully code compliant home, despite its size.

Also known as a “granny flat” or a “mother-in-law suite”, an ADU is a stand-alone home with a full kitchen, bath and bedroom.  Homeowners could also build a junior ADU (or JADU), which is an attachment to an existing single-family house that can simply include a kitchenette, bathroom and sleeping space.

ADU's are Gaining in Popularity

A recent report from Freddie Mac showed there are now over 1.4 million single-family homes with ADUs nationwide. ADU’s are becoming the most popular in California, where permits issued increased from around 9,000 in 2018 to 12,392 in 2020.

California has also passed new recent regulations, making it easier to build an ADU and offer it to renters to help alleviate the need for affordable housing. The city of Del Mar even offers sample 3D models and floor plans available on its website.

If you are considering building an ADU to provide independent living space to help elderly family members age in place or strictly for an investment opportunity, an ADU can also add value to a property and increase the resale value of a home. Depending on the where the property is located and the home’s features, an ADU can increase the value of a property by substantially more than the cost to build it.

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Homes with ADU's Sell

And homes with ADU’s are selling. In fact, just 1.6% of active homes for-sale listings in 2000 had an ADU on the property, but by 2019 the share of active for-sale home listings with an ADU grew to 6.8%, with nearly 70 thousand homes sold on the MLS.

If you are interested in building either a DIY accessory dwelling unit or hiring a professional contractor, check the local building codes & regulations in your town. Many residential communities restrict short term ADU rentals, so check with your municipality about owner occupancy and short-term rental rules.

To prepare to build an ADU on your lot, have all the architectural drawings, floor plans and other necessary documents ready, and apply for the permits (building, electrical and other site-specific permits). After the permit review and receiving the final design you can start building your new ADU. But keep in mind, if you are planning on budding an ADU as an investment property, you will be liable for paying tax on that rental income. It will also increase your property’s assessed value, so you will also have to pay local property tax on the added structure on your property.

 

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