Accessory Dwelling Units Can Be a Great Investment – Here’s What You Need to Know

February 10, 2021

For many property owners, adding an accessory dwelling unit (ADU) can be a great way to increase the value of your property and even potentially earn additional income. Before jumping into such a big undertaking, it’s important to understand what it will take to make the project a success. Today we’ll take a look at everything you need to know to make investing in an accessory dwelling unit a success.

Why Build an ADU?

There are many reasons why a property owner would opt to build an ADU on their property. Commonly known as an in-law unit, an ADU is often added to a property to increase its overall value, gain additional income through short or long term rentals, serve as a guest house for visitors, or as the common name suggests, to provide housing for family members. With more and more people opting to work from home, the choice to build an ADU can also be a great option for those seeking a dedicated home office space. Whatever the reason you choose to build an accessory dwelling unit on your property, we suggest a two phase approach to the project.

Phase 1 – Conduct a Feasibility Study

Before setting off on building an ADU, we recommend conducting a feasibility study first. While new state laws make it possible to build ADUs statewide from a zoning standpoint, there are still many other factors at play that may make or break your plans: Building code compliance, utility upgrades, permit history — and if renting out your ADU — becoming a landlord. Conducting a feasibility study before embarking on design and planning is critical to helping understand these factors and gain a better understanding of the full scope of your project.

A feasibility study is particularly important when you are considering creating an ADU by converting existing space or legalizing an existing, unpermitted unit. While some property owners may have opted in the past to add a unit to their property without gaining the necessary permits, an illegal unit is a major liability. One of the common reasons for illegal units is that property owners want to fit a unit into a space that doesn’t quite meet the building code. This is not an approach we recommend. Building codes exist for a reason, and trying to circumvent the rules never plays out well in the long-run.

A professionally conducted feasibility study will also help you discover exactly what type of ADU is right for your property, including determining possible locations for the unit. In the city of Oakland for example, accessory dwelling units fall into 2 categories. An Oakland category 1 ADU (also known as a conversion ADU) converts an existing structure on the property such as a garage into an accessory dwelling unit. An Oakland category 2 ADU consists of a completely new structure, whether freestanding or attached to the currently existing property. Furthermore, these categories have slight variations depending on whether you have a single-family or multifamily property. For single-family homes, even without a large backyard or an existing structure to convert, a smaller “junior ADU” can potentially be built from space within the existing house. For multifamily properties, the opportunity to create ADUs from existing, non-habitable space is one of the best ways to increase property value. Multifamily ADUs are a relatively new concept, and not all companies in the ADU space are equipped to take on these projects.

With all of these options, a good feasibility study should feature an onsite inspection that will assess the current state of the property, check systems like plumbing and electrical, and discuss your full set of options for adding or legalizing an accessory dwelling unit. The goal of the feasibility study should be to provide you with a more complete picture of the scope of your potential project before beginning design and planning. The best feasibility studies will include a financial analysis of the project to help you approximate costs and understand the potential return on investment.

Phase 2 – Design and Planning

Now that you have a better understanding of what sort of accessory dwelling unit will be the best option for your property, it’s time to move onto the design and planning stage. In this second phase, we recommend working with a licensed architect to create a detailed set of plans that will be submitted to your local jurisdiction along with an application. Working with a single vendor for both your architectural services as well as your feasibility study can help ensure that the design is executed in concert with the full set of considerations uncovered in the study. Once the concept design is complete or the final design has been approved by your local jurisdiction, you can begin to seek bids from contractors and work on securing financing for your project, if required. Even with cash on hand, financing can be a great option, as it will allow you to take advantage of low interest rates with little out of pocket expenditure. If the purpose of the project is for rental income, financing rather than paying cash can potentially increase return on investment and reserve your savings.

Conclusion

There is a large amount of preparation required before construction can commence a new accessory dwelling unit. By working with a team of experienced professionals throughout these preparation phases, you can assure yourself that your investment will be worth the effort. At Edrington and Associates, we have assembled a unique team of specialists to provide this assurance to those interested in adding or legalizing an ADU to their property. We have a deep understanding of building codes and navigating local jurisdictions like Oakland and San Francisco. We also have years of experience as landlords and property managers and are able to provide a unique perspective that not all ADU vendors can match. If you’re planning on adding an accessory dwelling unit to your property, Edrington and Associates will be there for you every step of the way.

Illegal unit
Unpermitted unit
In-law unit
Multifamily ADU
Conversion ADU
Oakland Category 1 ADU
Oakland Category 2 ADU
Junior ADU