Is an Accessory Dwelling Unit Right for You?

Is an Accessory Dwelling Unit Right for You?

In luxury homes, secondary spaces have always served a variety of functions. Carriage houses, pool houses, and guest quarters frequently add value and convenience to even the grandest homes. Now, however, this type of bonus space, called an Accessory Dwelling Unit or ADU, has become a big trend for homeowners of all budgets and needs, serving a variety of purposes and adding value without fundamentally changing the footprint of the primary space.

Is an ADU the right choice for you? How can it function to enhance the way you live? How much does this type of space cost? Here are the answers and a host of great ideas for putting an Accessory Dwelling Unite to work for your home.

More Than a She-Shed

You may think of an ADU as a frivolous bonus space like a man-cave or she-shed, tucked away in the backyard. However, ADU’s can serve serious purposes, making your home more functional and adding tremendous value in the process.

In-law Suite

If you’ve been considering having an elderly family member live with you, a separate space can make all the difference in how they feel about the transition. Instead of an in-law suite inside the home, an ADU can allow your elderly relative to maintain their independence while feeling more secure and comfortable through closer proximity to you and your family.

Child’s Suite

When COVID-19-related shutdowns began, many adult children chose to move home and shelter with their families rather than stay alone in small apartments in the city. If you have an adult child who’s finishing college or moving home to save for a down payment on a place of their own, they’ll love the independence an ADU can offer. It provides the opportunity for independent living and adds a level of privacy you’ll both enjoy.

woman folding pile of sheets

Guest Suite

If you frequently host out of town guests or visitors, or if your house is always the place where the family gathers for holidays, a guest suite may be a great use of your exterior space. It allows visitors to come and go as they please and even take care of some of their own meals, meaning you don’t have to spend all of your time playing host.

Au Pair Suite

If you have a nanny or au pair to help with your childcare needs, using your ADU to provide living quarters is a winning option. It offers your employee the close proximity you want while allowing them the dignity and privacy of their own small space.

wooden desk with white chair and laptop

Home Office

If you are one of the many people who are currently working from home—and especially if your company has put in place permanent work from home policies—a home office located in an ADU offers the peace and quiet you need to get more done each day. If you and your spouse are both working from home, you can configure your space to accommodate your individual needs.

Talk to your financial advisor or tax attorney about the possibility of writing off some of your ADU expenses on your income tax return. Keep careful records, and remember that in order to qualify, you’ll need to be able to show that your home office is a dedicated space used only for business purposes.

Rental Space

One of the things that many people learned from the COVID-19 shutdown was just how fragile their financial life could be. If you’re looking for the opportunity to pay down the principal on your home and increase your monthly cash flow, an ADU used as a rental space can offer you a host of options.

If you live near a military base or in a college town, you’ll have a steady flow of long-term renters to draw on in the years ahead. If you live in a resort area, you may want to be a short-term rental host through one of the popular commercial platforms.

Just as with the home office, there are a variety of legal and tax implications to owning an investment property. Talk to your attorney or CPA and determine how to make your rental space work for your specific financial needs. Find out what special features you’ll need to put in place in order to qualify your ADU as a rental property. In addition, check with your HOA to determine whether there are restrictions on the way that you can use your property.

calculator and pen on table with spreadsheet

Cost Considerations

ADUs can cost anywhere from a few thousand to hundreds of thousands of dollars. Much depends on the customization options you choose as well as the size of the unit and the materials. In addition, costs can vary depending on your local market, both because of the cost of construction and because of the cost to plan and permit your ADU.

For example, if you are using an ADU as a home office, you may choose a small unit with a half bath. If you are using an ADU as a mini-apartment, you will no doubt want a full kitchen as well as a full bath. In addition, if you want renters to be able to come and go as they please, you may want to create a separate entrance into your yard, including a walkway or driveway.

If you are using the ADU as a rental property, you may also want to include the cost of property management and maintenance. Again, it is important to talk with your financial advisor or with someone who has experience as a landlord before taking on this responsibility.

In addition, talk to your real estate agent for the real-world advice you need, including rental requirements and the process of finding and keeping good tenants in your area. In addition, have them crunch the numbers and tell you how much your ADU could add to your home’s value and to your resale potential.

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