Accessory dwelling units are a growing housing trend across the United States, primarily because of the increasing demand for affordable housing options. According to WiseGuy Reports, the ADU market is expected to grow by 140% ($153.6 billion) by 2032 compared to $64.3 billion in 2024.

If you are a homeowner with suitable yard space, an ADU can offer rental income and extra living space. This can increase your property’s value over time. Let’s explore what an ADU is, the different types, their costs, and the regulations you need to know before building one.

What is an ADU?

An ADU is a small, independent home on the same property as a main home. ADUs are usually the size of a studio apartment (500-600 square feet) and typically include a kitchen, bathroom, and sleeping area. ADUs can be built from scratch or be manufactured off-site before moving them onto the property.

ADUs are often called “granny pods” because they are often built so older adults can live close to their caregivers.

Advantages of ADUs

  • More room: ADUs add much-needed affordable housing for extended family, occasional guests and tenants.
  • Perfect for families with aging members: They give your aging parents or even adult kids a space of their own while keeping them close.
  • Added Value: Homes with ADUs tend to sell for more.
  • Smart use of space: ADUs allow you to make productive use of available property space.

Disadvantages of ADUs

  • Take up space: An ADU may reduce available storage, garage space, or yard area.
  • Need maintenance: Renting out an ADU will require you to handle ongoing upkeep and repairs.
  • Costs add up: Apart from upfront building costs and higher utility bills, a homeowner must also consider the higher property tax implications.

Types of ADUs

ADUs come in various types, each offering unique advantages.

Attached ADUs

An attached ADU functions as an extension of the main home, sharing at least one wall. These units usually share sewer, water and power connections with the main house but have independent entrances. While they benefit from more straightforward construction and lower costs compared to detached units, higher utility bills are associated with the additional living space.

Detached ADUs

Think of these as tiny homes in your backyard. Also called backyard cottages or guest houses, they offer the most privacy and flexibility. The downside? They’re the priciest to build since they need separate utility connections.

Garage conversions

Got a garage you rarely use? Turn it into an ADU. This option is budget-friendly since you’re working with an existing structure. Just remember that you may need major renovations to meet building codes.

Basement ADUs

Also known as in-law suites or secondary suites, you can transform an underused basement into a fully independent living space. But you’ll need to upgrade ventilation and emergency exits.

Above garage ADUs

What if you are using the garage space but also want an ADU? You can choose to build one right above the garage, often called carriage houses or garage apartments. They offer great privacy while making smart use of vertical space—just be ready for the added cost of structural reinforcements if needed.

Tips on building an ADU

  • When you are building a granny pod, you should carefully consider the inventory needed to make life more comfortable for an elderly family member.
  • You should add ramps as the first order of business, followed by wider doorways for easier wheelchair access, grab bars for easy movement and cushioned floors for extra safety.
  • Good lighting is a must.
  • A small garden provides a change in scenery for your loved ones and helps break the monotony of a small dwelling.
  • You can install webcams and two-way communication systems to keep the caregiver and the loved one in touch.
  • You would want the pod to be as cozy as the main house, and installing a gas fireplace and a craft or puzzle table, complete with some cherished family photos, can go a long way.
  • A small front porch with room for a comfy chair and a view of the surroundings can further expand the living space during pleasant weather.

ADU Building Costs

The cost of an ADU depends on size, type, and location. Here’s a rough breakdown:

  • Prefab ADU: $50,000 – $100,000
  • Attached ADU: $75,000 – $135,000
  • Detached ADU: $90,000 – $150,000
  • Garage conversion: $20,000 – $140,000
  • Basement ADU: $30,000 – $60,000
  • Above garage ADU: $125,000 – $300,000

Additional costs may include:

  • Permits and zoning fees: $2,000 – $10,000
  • Utility hookups: $5,000 – $20,000
  • Construction labor: 40% – 60% of total costs

ADU Zoning Requirements

While cost and availability of space determine the type of ADU you can build, zoning laws relevant to your areas precede these factors in dictating the kind of structure you are allowed to build. Here are some key regulations to keep in mind:

  • Size Restrictions: Local regulations often limit ADUs to 50% of the main home’s floor area.
    Setback Rules: You should be aware of restrictions on how close an ADU can be to property lines or other buildings.
  • Owner-Occupancy Rules: Some cities mandate that homeowners must occupy either the main home or the ADU. Check this if you’re planning to generate rental income from your ADU.
  • Parking Rules: Another important consideration to factor in is that some places require off-street parking for ADU residents.
  • Short-Term Rental Restrictions: If rental income is the main purpose, you should check restrictions on such usage, as many areas do not allow ADUs to be listed on platforms like Airbnb or other short-term rental sites.

What to Know Before Investing in ADUs

As good as ADUs are for making the most of unused spaces, building these units is a cost-intensive project that requires careful consideration. Consider these factors before you embark on the journey:

  • Upfront costs and financing: The upfront cost for an ADU—ranging from $50,000 to over $300,000—could be a deterrent for many, but you can access financing in the form of home equity loans or construction loans to clear the initial hurdle.
  • Local regulations: Zoning laws, rental restrictions, and permitting processes vary widely. It’s best if you conduct research before starting construction.
  • Ongoing maintenance: Renting out an ADU might sound simple, but it requires property management and maintenance, which you should factor into your investment plan and cash-flow calculations.
  • Market demand: Look into local rental trends to determine your potential return on investment. High-demand locations generally bring in better returns.

FAQs

How do ADUs impact property taxes?

Since an ADU increases property value, your property taxes may go up. However, the exact amount depends on local tax assessments.

What is the difference between an add-on and an ADU?

A home addition or add-on expands your existing house for more space, whereas an ADU is a complete living unit that can either be attached to or detached from your home.

What’s the most expensive element of building an ADU?

According to Snap ADU, sitework and structure usually comprise 94% of the total cost when building an ADU, while plans and permits account for only 6%.

Primary Sources
Investopedia: Accessory Dwelling Unit (ADU): Definition, Cost, and Value Add
Buildinganadu: What is an ADU: Accessory Dwelling Units explained
HavenDesignBuild: What is an Accessory Dwelling Unit (ADU)
American Planning Association: Accessory Dwelling Unit
Bankrate: What is an ADU, and can building one increase your home value?
Landis: Accessory dwelling units explained: what is an ADU and should you consider one?
Mass: Accessory Dwelling Units
WiseGuyReports: Global Accessory Dwelling Unit Market Research Report

Author
Ryan Van Bibber
A career journalist with almost two decades in the business, Ryan has a natural curiousity to learn how things work and how to make them work better. That spirit has guided his career and helped guide him through his own DIY journey as a homeowner.
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Ryan Van Bibber