Tips for Evaluating and Financing an ADU

Accessory dwelling units, known as ADUs, are secondary units or small homes built on the same property as a primary residence. While there is no exact configuration requirement, ADUs typically consist of one to two bedrooms, a kitchen, and a bathroom. They are used for a wide variety of purposes, ranging from a home office space, an at-home gym, or a guest house for visiting family. 

In recent years, Southern California has seen a surge in demand for affordable housing, and with the evolution of work-from-home due to Covid-19, there is even more need for more living space. Read below to see if this could be a great fit for you and your family!

1. Accommodation for Family & Guests 

ADU’s provide a great accommodation option for your family and friends who may be visiting. The unit offers more than a standard hotel room would, while being safer, and tailored exactly how you (or your guests) would like. Additionally, it is an excellent solution to housing options for elderly family members. The unit offers privacy and independence while allowing you to be close to your loved ones at all times. It can also be used as housing for a live-in caretaker or nanny at a low-cost.

2. Converted Home Office: Perfect for Work from Home

Covid-19 marked the evolution of work as we know it. More than ever, people are working from home, and this trend will continue as hybrid models become commonplace. An ADU provides a separate work space, establishing a healthy work-life balance. 

The space can also be used as an at-home workout space! Having your own space means you can tailor it to your wants and needs, while sparing you a gym membership and the stress of fluctuating openings and closings as mandates change. It can be treated as a “retreat” away from the hustle and bustle of your normal house duties. 

3. Passive Income: Airbnb-it!

Since ADU’s typically have their own entrance, kitchen, bedroom, and bathroom, you can rent them out as their own living spaces to earn extra cash. Popular platforms such as Airbnb and Vrbo offer the opportunity to rent out your space, earn extra cash, and offers more financial flexibility. 

4. Increased Property Value

According to a study by the National Association of Realtors Report, building an ADU will almost certainly increase the resale value of your property.

5. ADUs are Eco-Friendly

ADUs require fewer resources to build and maintain than full-sized homes. Further, they consume significantly less energy for heating and cooling.

6. ADUs are the Ultimate Flex Space

The beauty of an ADU is that it can be whatever you want it to be. It has potential to be the optimal flex space, whether it’s used as a home-gym, yoga studio, art-space, or toddler play room.

7. Adult Children and College Graduates

According to TD Ameritrade, “Young Millenials” are moving back home in large numbers after graduating college, especially throughout the Covid-19 pandemic. According to research, 50% of people under 30 plan to move back in with their parents after college. With a high average amount of student debt across the U.S and housing prices rising, ADUS could offer a great solution! Parents can help their adult children get on their feet while still charging a minimal rent if desired. 

With all of these considerations in mind, how would someone finance an ADU? 

• Uninvested Cash
• Pledged Asset Line from an Investment Portfolio  
• A formal loan from parents 
• Home Equity Loans &/or HELOCs
• New Home Construction or Renovation Loans
• Local Government Grant & Loan Programs 

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