What is an Accessory Dwelling Unit?

An accessory dwelling unit (ADU) is an additional living space located on your property that is furnished with its own kitchen, living area, and separate entrance.  Unlike a stand alone home, ADUs do not have a separate address, and in the US you cannot sell it on its own. And unlike multi-family structures including fourplexes, you can build for a single occupant or family.

Accessory dwelling units are popular for homeowners that have elderly family members and do not want to put them in a nursing home, or who simply want to make some extra money.  And those aren’t the only reasons to add an accessory dwelling unit.

Reasons to add an ADU to your property include:

• Moving in a family member to keep an eye on them but still give them independence
• Earning additional income by renting it out
• Creating a multigenerational living solution
• A guesthouse for visitors
• Somewhere for boomerang kids or college students to live while they’re home
• A need for a studio/home office
• Temporary housing for friends or family that fell on hard times
• Building an additional income stream by renting the ADU out

There are three types of ADUs, interior, attached, and detached:  

• An interior ADU is within your home and is a conversion of existing space like an attic or basement.  These are sometimes called basement apartments, mother-in-law units, in-law units, secondary suites, English basements, and accessory apartments.
• Attached ADUs are added onto your home. This building can be located to the side or rear of your home but can also be constructed on top of your attached garage.
• Detached ADUs are separate from your home. They can be constructed over detached garages or built as separate units.  Other names they can go by are backyard cottages, granny flats, laneway houses, or DADUs.

The exact cost of an accessory dwelling unit depends on the project:

• Converting an existing internal space – $10,000–$30,000
• Creating an attached addition – $40,000 – $125,000
• Building a new structure – $100,000+
• Garage Conversion – $15,000-$30,000
• Basement Conversion – $10,000-$30,000
• Attic Conversion – $40,000-$100,000

Bonus-tip: According to Porch.com, in some big cities an accessory dwelling unit on a home can increase your home’s value up to 35%.

Don’t worry if you don’t have the money right now.  There are numerous ways you can pay for an ADU including:

• Cash-out refinancing
• Renovation loans
• Home equity loan or home equity line of credit (HELOC)
• Construction loans
• Grant programs
• Personal loans

Adding an accessory dwelling unit to your home is a big decision.  The long term benefits in many cases will outweigh the short term costs, if you have financial stability and can afford to build it.