As Accessory Dwelling Units (ADUs) become more popular, you may decide to search for a home with an ADU on it or you may have found a great property that just happens to have an ADU on it. Either way, here’s what you need to know about buying a home with an ADU on the property.
Check the Permits
Not all ADUs are created equal and there are many types of structures that can be considered an ADU. According to the California Department of Housing and Community Development, “An ADU is a secondary dwelling unit with complete independent living facilities for one or more persons and generally takes three forms: Detached: The unit is separated from the primary residential structure. Attached: The unit is attached to the primary residential structure. Repurposed Existing Space: Space (e.g., master bedroom or garage) within the primary residence is converted into an independent living unit.”
First of all, when buying a home with an ADU on the property make sure the structure has the proper permits. If it doesn’t, then it could cost you a ton of money and hassle to renovate the space or tear it down (in which you lose valuable square footage and value). Secondly, if it is permitted, find out when it was built. An old unit may need new wiring, plumbing, and other updates to make it livable. Talk with your real estate agent to ensure that your ADU is permitted and that it won’t cost you more than you’re willing to spend to bring it up to code (especially if you’re planning on renting it out.)
Furthermore, let’s talk about modern ADUs. As I watch HGTV, I’ve seen several homes that have what the hosts call an ADU in the backyard. It might be a converted shed that was turned into a studio apartment or maybe the garage was flipped into a hangout space. These aren’t necessarily what we call an ADU today. In the 1950s to 2000s, we saw granny flats, casitas, and in law units hit the market. Many times these were units attached to the house but had a separate entrance. In today’s terms, a unit that is connected to the main house is called an Junior Accessory Dwelling Unit (JADU). In the 2000s we saw the rise of the ADU as California faced a housing shortage plus affordable housing options. Modern ADUs tend to be prefab homes that are made in a factory and assembled on site. Prefab homes tend to keep costs down and timelines succinct. These are not the converted sheds of yesteryear but are what are now commonly known as ADUs. They are fully permitted and completely modernized with solar energy, modern countertops and flooring, and sleek design to maximize space.
Renting an ADU
Buying a home with an ADU on the property could mean that the property price is higher, but consider how you would like to use your ADU. If you choose to rent it out, it could mean that you’ll have additional income to put towards your mortgage. Discuss with your real estate agent what the going rate is for a rental property that is comparable to your ADU to get an estimated rental cost. Additionally, your agent could advise you on how to find a property manager and insurance broker to determine how to create a legal contract for your renter and what additional insurance you’ll need as a landlord.
And here’s another idea that more people are considering: what if you moved into the ADU and you rented out the main house? You would receive more money in rental income and create increased opportunities for your financial future.
Multi-Family Housing
Housing in California is expensive. Renting an apartment and saving for a down payment for a home is near impossible. Buying a home with an ADU on the property could be a great option for grown kids who want to save for a home of their own. Or they can pay YOU rent and the investment stays in the family.
Many ADU owners are also using their unit to house aging parents. Your parents may be tight on finances or may need a watchful eye nearby and this could be a feasible solution for your family. Senior housing is incredibly expensive and this could be a way to care for your parents if their medical needs are minimal.
Should You Buy a Home with an ADU or Build One?
There are pros and cons to both buying a home with an ADU already on it and building one. If the home has an ADU on it, then you can avoid the construction process. No noise, no mess, no weeks of building. You can see what the finished product looks like and there will be no surprises. On the other hand, with a new ADU you can design it how you want it. The existing property may have a studio ADU but you may find a one bedroom unit would suit your needs better. Designing your own would allow you to pick the size, finishes, and backyard placement to your liking.
I’m sure you have a lot more questions to ask about buying a home with an ADU on the property. Our experts at ADU Warehouse would be happy to address everyone of them with you! We work with a team of specialists in different fields to help you every step of the way. Our real estate professionals can help you to find a home with an ADU, help you sell your current home and purchase a new home, and even help determine rental income. Our mortgage lenders will partner with you to find the right financing options for you and how you can make the most of your new investment. Our insurance specialist will guide you on the right homeowner’s policy for you and what additional coverage you would need as a landlord. Our construction team will share with you what it would entail to build an ADU on a property that doesn’t have one or how to remodel and update an existing ADU. Finally, our preferred landscapers can put the final touches on your property to make it the home of your dreams.
Call us today to learn more at (888) 540-0238! We’re here to serve you!
