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What if we told you, that it’s possible to start with a major home improvement project and at the same time build equity, significantly boost your property’s value, and generate income? Consider the Accessory Dwelling Unit as a new way to earn money.

It’s common for most homeowners to think of doing a major home improvement project. However, the fear of decreasing the resale value of their property and the possibility of draining their savings keeps them from doing the project.

Accessory Dwelling Unit or ADU (also known as Additional Dwelling Units, or Accessory Apartments) is an additional living area that includes at least a kitchen, a bathroom, and sometimes a separate entrance. It is considered independent of the primary dwelling unit but remains legally retained by a single owner. This can’t be sold separately from the main property, however, it can be leased.

ADU is gaining popularity. Continue reading and perhaps calculate the long term benefits of accessory units. Even include the substantial rental income potential. 

Three Types of Accessory Dwelling Units

• Detached

ADUs can be detached structures that may be located in the main home’s back or side yard. They often come in forms of miniature carriage houses or what others would call tiny houses. Unlike mobile dwellings or wheeled tiny houses, these must rest on solid foundations.

Independence is an advantage for people who choose to rent or live in detached ADUs. Usually, the entrance is separated and physically removed from the main house, so the occupants can come and go as they please with little to no interaction with the main homeowner. Privacy is also an advantage here especially for dwellers who are unrelated to the main homeowner.

• Attached External Apartments

This is a separate unit, attached to one side of the main house, however, this still has a separate entrance and does not share any internal connections. It still poses the same advantages as detached units and still has separate utility hook-ups. The cost to connect them to the city services costs less and is manageable because of the small distance between the main house and the unit.

• Attached Internal Apartments

These are fully integrated into the main house. They are commonly found in the basement or the attics of the main house. In most cases, these internal apartments share utility services and mechanical appliances with the main unit. Since they require little in the way of raw construction materials and fewer big-ticket appliance purchases, they’re the cheapest of the three ADU options.

Why should I consider ADUs?

Aside from the fact that you can use these additional dwelling units for housing grandparents and older parents, or your teenager seeking independence, these types of units can be a source of long-term rental income on monthly or yearly leases. The income potential varies greatly by ADU size, amenities, location, and other factors, but this is a legitimate passive income opportunity for any homeowner who builds or buys into an accessory dwelling unit.

If you don’t fancy having a stranger rent for more than a month or a year, you can always consider short-term rental income. Whether you live in a big city or popular vacation town, you can market your ADU to travelers on Airbnb, Vrbo, HomeAway, and other vacation rental sites. Keep in mind that short-term rental laws vary by jurisdiction, so make sure you’re allowed to go this route before creating a listing – and pay all applicable lodging taxes once you’re up and running.

Either way, you can earn hundreds or even thousands of dollars per month this way, depending on prevailing rents in your area. That could be enough to offset, or at least deeply discount your monthly mortgage. Building an accessory dwelling unit is a new way to earn money.

When Should You Build Your ADU

The precise timing of your ADU’s construction will depend on your financial situation and family dynamics. For instance, if money is tight and you don’t want to serve as a landlord or Airbnb host to people you don’t know, you might wait to build your ADU until your kids are old enough to live in it.

Alternatively, if you’re buying a house instead of renting, to turn it into a passive income stream, you’ll want to get started as soon as possible.

Assuming you’re building your ADU from scratch, you can either build it simultaneously with or after your main house. For financing purposes, this is an important distinction.

Make sure to work with our realtors and contact us 

More on Additional Dwelling Units here