As the need for affordable housing increases, ADUs have grown in popularity. Freddie Mac reports that this is especially true “in areas hardest hit by the housing supply shortage.”

A second dwelling like this may come in two different types:

• Attached: Built within or connected to the primary residence. Examples: converted garage, second-story or other addition, mother-in-law suite, basement/attic apartment.
• Detached: Built separately on a home’s property. Examples: detached garage, backyard cottage, tiny house, granny flat.

Each type of Accessory Dwelling Unit will still function as a standalone residence—with its own entrance, bathroom, kitchen, and living area.

Which states allow ADUs?

• Most ADU legislation happens at the local level; for the most accurate information, check with your local municipality for zoning guidelines.
• States like Oregon and California have legislated to legalize ADUs statewide, while in other states, restrictions vary by city.
• Many cities experiencing significant growth and affordability challenges are supporting the zoning of ADUs.

Zoning can be one of the biggest hurdles to face when constructing an Accessory Dwelling Unit. But once you have a handle on state and local regulations, you’re free to design your dwelling any way you’d like. You could take on a (relatively) simple basement conversion for an adult child or aging parent or construct a luxury backyard cabin to use as a short-term rental.

Is an ADU in your budget? Get in touch to find out.

Prices can vary based on design and type:

• An Accessory Dwelling Unit will generally cost more per square foot than a single-family house due to relatively fixed permitting, design, and labor prices. The bigger the ADU, the less it may cost per square foot.
• Prices can range from $60,000 to $360,000* and may be impacted by local housing prices. The cost of a unit can depend on the project. A basement or garage conversion may cost less than a detached cottage or tiny house.*
• Some added costs may apply; ADUs in California are required to be built with solar panels.* An Accessory Dwelling Unit can also increase property taxes indirectly. Any upgrade that adds value to your home can cause property taxes to rise.

According to a 2021 UC Berkley survey of more than 800 homeowners, published in 2022, most homeowners financed their construction using cash/liquid assets or a mortgage (in the form of a Home Equity Loan, cash-out refinance, or Renovation Loan). A homebuyer interested in purchasing a property with a second dwelling might use an ADU Loan to potentially qualify for a larger loan amount, factoring in ADU rental income.

Grants are also available in some areas. California’s Accessory Dwelling Unit grant offers up to $40,000 toward pre-development construction costs for homeowners who qualify. Chicago’s grant program may cover some design and construction costs for income-qualifying homeowners.

If you want to conserve costs, prefabricated units are worth considering. A prefab dwelling may cost anywhere from 10 to 20 percent less than new construction of the same size. However, it’s important to request a detailed price quote before ordering. The cost of transport may not be included in the advertised price.

All in all, is an ADU worth the cost? For most homeowners, the answer is likely to be yes. “When a homeowner adds an Accessory Dwelling Unit to their property, they not only gain financial and lifestyle benefits, but they also help close the housing shortage in the United States with homes that typically rent at prices below the median,” the UC Berkley report finds.

As with all types of real estate, an ADU is typically considered a good long-term investment. A second dwelling may add to your home’s value, while also providing the opportunity to generate passive rental income.