Is it worth adding an accessory dwelling unit?

Many names are used to describe accessory dwelling units: guest houses, in-law suites and backyard cottages. Basement or garage conversions are also known. ADUs are a living space that is added to a single-family residential property.

ADU construction can increase the property’s value and provide rental income, or additional living space for family members. However, an ADU can be a costly hassle that you regret.

Before you decide to buy an ADU, consider these things.

Many cities and states, including California, Oregon, and New Hampshire, have recently passed laws that make it easier for homeowners and businesses to build ADUs. This is partly to combat housing shortages and rising prices, which have created an affordability crisis in many communities. ADUs can be used to increase housing supply without radically changing the character of residential areas.

Rodney Harrell is vice president of family and home for AARP. He says that the aging population in the United States is fueling demand. People are looking at adding space to accommodate older relatives or caretakers. According to Harrell, the pandemic may have increased this trend as more people sought out alternatives to nursing homes in which at least 175,000 Americans had died from COVID-19. ADUs can also provide independent living spaces to young adults in families who may not be able or unable to afford apartments.

Harrell states that although it doesn’t solve all problems, it can help address a number of them.

Harrell states that converting existing space such as a garage or attic into an ADU costs about $50,000. A new detached ADU, however, can run up to $150,000. It can be difficult, or even impossible, to get permits for your ADU depending on where you live.

California homeowners have the legal right to build ADUs. Local governments can’t prevent them from getting permits. Some cities have simplified the permitting process. A few, such as San Jose and Los Angeles, have preapproved plans that can reduce delays.

However, some cities in California are resisting the trend by refusing permits or delaying them. Kol Peterson, an ADU consultant, and author of “Backdoor Revolution” (The Definitive Guide To ADU Development), says that most U.S. cities don’t allow ADUs or have strict regulations that hinder their development.

Are you tempted to skip permits? It’s not wise. Jody Bishop, president and CEO of the Appraisal Institute trade group, said that unpermitted construction can make it difficult to sell your home or refinance your loan. It takes only one neighbor to report you.

You should consider that if you are building an ADU solely for extra income, any rent you charge may be offset by higher costs such as increased property taxes, homeowners insurance premiums, and repayments on the loans used to build the unit.

Like any home improvement project there is no guarantee that you will get your money back.

He says that ADUs share a lot with swimming pools. In-ground swimming pools are a common feature in many neighborhoods. You may be able to recoup some of the costs of building one when your home is sold. Bishop states that pools in other areas are not common and can detract from the home’s worth if buyers are worried about maintenance or drowning.

He also points out that ADUs might not be of much use in areas where they aren’t common. ADUs can be rented out to generate extra income for some people, but not all. Converting an attic, basement, or garage could deter potential buyers who prefer to keep those spaces as they are.

Bishop states that the best indicator of whether an ADU will increase value is if it’s being built by your neighbors. If that is the case, an ADU properly designed and permitted could be worth the investment.

Bishop states that if it’s well-done, well thought out, and functional, it will be embraced by the market and paid for.