Will it pay to add an additional housing unit? |

Accessory dwelling units are known by many names: in-law suites, guest houses, backyard cabins, or basement or garage conversions, among others. Common to all ADUs is that they are a separate living space typically added to a single-family residential lot, and they have a moment.

Constructing an ADU can increase your property value while providing rental income or additional living space for a family member. Then again, adding an ADU can be an expensive hassle you live to regret.

If you’re thinking about an ADU, here’s what to consider before you commit.

Why ADUs are becoming more and more popular

In recent years, several cities and some states—including California, Oregon, and New Hampshire—have passed laws making it easier for homeowners to create ADUs, in part to address housing shortages and rising costs that have led to an economic affordability crisis in many communities. ADUs are seen as a relatively inexpensive way to increase the supply of lower-cost housing without drastically changing the character of residential neighborhoods.

Demand is also being driven by the aging of the U.S. population, said Rodney Harrell, vice president of family, home and community affairs for AARP, which publishes a guide called “The ABCs of ADUs.” People are considering adding space for elderly family members or caretakers. The pandemic may have accelerated this trend as people looked for alternatives to nursing homes, where at least 175,000 Americans have died from COVID-19, Harrell says. ADUs can also provide independent housing for young adult members of families who may not be able to afford their own apartments.

“It’s a housing solution that doesn’t solve every problem, but it helps solve several problems at once,” says Harrell.

Costs – and acceptance – vary widely

Converting existing space, such as a garage, attic or basement, to an ADU can cost about $50,000, while a new detached ADU often exceeds $150,000, Harrell says. And depending on where you live, getting permits to set up your ADU can be a breeze, an uphill battle, or downright impossible.

In California, homeowners have a legal right to build ADUs, and local governments are not supposed to create barriers to obtaining permits. Some cities have streamlined the permitting process, and a few, including Los Angeles and San Jose, have pre-approved construction plans that can further reduce delays.

However, some California cities are bucking the trend by delaying or denying permits. Most American cities either don’t allow ADUs or have strict regulations that inhibit their development, says Kol Peterson, an ADU consultant and author of “Backdoor Revolution: The Definitive Guide to ADU Development.” Even where ADUs are legal, cities can require zoning exceptions called variances, require expensive upgrades or impose fees that can significantly increase costs, Peterson says.

Tempted to skip the permissions? It’s probably not smart. Unpermitted construction can make your home difficult to sell or refinance and leave you vulnerable to enforcement action from your area’s zoning department, says real estate appraiser Jody Bishop, president of the Appraisal Institute, a trade group. All it takes is one disgruntled neighbor to turn you in.

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How ADUs are like swimming pools

If you’re building an ADU primarily for the extra income, recognize that any rent you collect may be at least partially offset by increased costs, such as higher property taxes, higher homeowner’s insurance premiums, and payments on loans used to build the unit , Among other things. other expenses.

As with any home improvement project, there’s no guarantee you’ll get your money back from an ADU when you’re ready to sell the home, Bishop says.

ADUs have a lot in common with swimming pools, he adds. In-ground pools are an accepted and even expected feature in some neighborhoods, so you can recoup at least some of the cost of building one when you sell your home. In other areas, pools are uncommon and can detract from a home’s value if buyers are concerned about maintenance hassles or drowning risks, Bishop says.

Similarly, ADUs may not add much value in areas where they are unusual, he points out. Some people might appreciate the opportunity to rent out the ADU for extra income, while others don’t want to be landlords. And remodeling an existing attic, basement or garage can deter buyers who would rather have these spaces untouched.

Perhaps the best indication that an ADU will add value is if your neighbors build them, Bishop says. And if so, a properly permitted and thoughtfully designed ADU may be worth the investment.

“If it’s well done, it’s well thought out and it’s functional, then you probably have something that the market would accept and not mind paying for,” says Bishop.

This article was written by NerdWallet and was originally published by The Associated Press.

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