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5 Key Insights to Unlocking the Potential of Accessory Dwelling Units

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For over 30 years, Brian Buffini has been one of the most respected and trusted leaders in the real estate industry. Join his latest Bold Predictions broadcast to learn about the real state of the market and how agents can use that data to increase their listings and win market share. You’ll also hear from Dr. Lawrence Yun, the Chief Economist at the National Association of REALTORS®, for his insight, advice and predictions on what’s ahead.

As the real estate market shifts, the price of single-family homes rise, and inventory stays frustratingly low, more people are considering different housing options. One concept that is becoming more popular is an accessory dwelling unit (ADU).

1. What is an ADU?

An ADU is a small unit either attached to a primary home or a freestanding unit on the primary home’s property. Commonly known as a granny flat, in-law apartment, casita, carriage house or tiny home, they may be a freestanding unit or a converted garage or attic space. They are generally 600 to 1,000 square feet and have one or two bedrooms, a kitchen and a living room. The ADU must have its own private entrance, amenities and HVAC system.

The typical cost to build an ADU is about $100,000. Homeowners may also apply for a home improvement loan to convert a space or add a new structure. Freddie Mac CHOICERenovation® is also a potential financing option.

ADUs cannot be bought or sold independently. The primary home and the ADU is considered one property for tax and appraisal purposes.

2.   Who Can Benefit From an ADU? 

Senior Citizens — Granny flats, as they are commonly known, are for those older folks who need or want to live close to family but still cherish their independence.

Young Families/Empty Nesters — An ADU lets a young family have their own space but without the inherent costs such as maintenance, taxes, etc. In some cases, the parents will move into the ADU, and their children and their family will move into the main house.

College Students and Millennials — An ADU is a great option for these young people who cannot yet afford a standard home.

Employees — Many workers have still not returned full time to the workplace, due to the pandemic. An ADU can be a private, quiet place to work from home.

Onsite Caregivers – An ADU can be perfect for a nanny or senior care aide. 

Athletes and Hobbyists — A small, comfortable space allows one to work out or pursue a hobby away from the activity of the main house.

3. What are Some Potential Financial Benefits?

Rental Income — This can be an option to help pay the mortgage on the main home or a way to get some extra cash.  

Reduced Expenses — An ADU is considered part of the main home; it cannot be bought or sold like a condo. There is no cost for the land, major infrastructure or structured parking.

Increased Property Value for the Primary Home — The ADU’s kitchen, bathroom, and bedrooms are viewed as additions to the primary home. In some cases, the value can rise by 35%.

4. How are ADUs Growing in Popularity?  

ADUs were very popular in the early 20th century but saw a sharp decline in construction after WWII as many families moved to the suburbs to pursue their dream of homeownership.

As municipalities struggle to provide affordable housing options, many are starting to loosen zoning requirements, reducing red tape and barriers.

There are now over 1.4 million ADUs in the United States, with more than half in California, Florida, Texas and Georgia. Some analysts believe there may actually be many more due to homeowners not applying for permits.

5. Where Can More Information Be Found?

First, check with local authorities to see what guidelines/mandates are in place. Other resources include: FreddieMac, American Planning Association and AARP.

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