An Accessory Dwelling Unit (ADU) is a secondary apartment or house that shares with the main house. Sometimes, it can be attached to the main property or may be entirely separate. Owning a rental property can be a rewarding real estate investment, as McCaw Property Management states.
Types of ADUs
ADUs can occur in numerous forms, such as:
- Converting an interior space into ADU – For example, converting a sunroom or porch into a living area.
- Garage conversion – Turning your garage into an ADU. If there is an attic above the garage, it can also become an extra living space.
- Freestanding ADUs – These ADUs have no connection with the main building.
- Attached ADUs – These are ADUs that have a connection to the interior of the home. Sometimes, they may have a separate entrance.
Why are people considering ADUs?
Presently, there is enormous pressure on the rental market. Houses are no longer affordable. Because of this, some states and local governments are easing zoning laws to make homeowners have ADUs.
In some states, the government even offers incentives for ADU construction. If you are a homeowner, you may be considering it too.
Should you add an ADU for rental?
If you are wondering whether you should add an ADU to your home for rental purposes, it would be best to look at the pros and cons.
Pros of Adding an ADU
1. An ADU will provide an additional source of income
Most places are experiencing a housing shortage. For instance, there is a high demand for rental properties in California. As First & Main Management advises, you can make more money from your home if you add an ADU for rent. The ADU will serve as a source of passive income.
On average, the rent for an ADU is about $1500. The rent is even higher in some regions. You can add an ADU to your property and start having tenants.
Although adding an ADU may cost money, you will recover your investment in a few years and keep generating rental income for a long time. An ADU is a valuable investment, whether for short-term or long-term rental.
2. An ADU will add more value to your home
In addition to generating passive income, an ADU will add more value to your property. If you decide to sell your home in the future, it will not stay long in the market. You will also sell it at a higher price. That is because buyers love properties that have ADUs.
They like the idea that they will generate rental income or have extra space for various purposes. Surveys show that if there are many properties for sale in a location, the ones with ADUs will sell for more and faster.
3. Ease of financing
Adding an ADU to your home is an investment that requires money. However, it is easier to finance it. Presently, interest rates are low. That means this is a good time to invest in an ADU. You may decide to finance your existing home loans. In the end, you can use some money to construct an ADU.
Since the interest rates are low, the rental income from the ADU will easily cover the mortgage. In states like California, there are legislations to help homeowners secure loans for ADUs.
Before now, homeowners needed to reside on the property before they may rent out the ADU. However, that is no longer the case. Property owners can now rent out the main building and the ADU.
4. Perfect for adult children
Most young adults all struggling to pay their rent or save money for their future homes. You may decide to have an ADU for adult children just out of college. Doing so will provide them with privacy and affordable housing. It will also help them to save money for their future plans. The subsidized rents they pay will help you cover the cost of the ADU.
Cons of adding an ADU
1. Landlord Duties
Becoming a landlord comes with several responsibilities. You need to manage the property. That entails finding good renters, retaining tenants, property repairs and maintenance, collecting rents, evictions, etc. It may be more challenging to perform all these when the tenants reside close to you.
2. Privacy issues
Privacy becomes an issue if you are converting an area within your primary residence or a room into an ADU. That means some parties may not feel comfortable: your tenant, members of your household, or you.
The bottom line: Should you add an ADU to rent?
Adding an ADU to your property for rental purposes have more benefits than downsides. As you can see, the pros outweigh the cons. If you are planning to add an ADU, we recommend that you always use qualified contractors who have enough experience for the job.
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