Could Your Next Home be an ADU?
An accessory dwelling unit (ADU) is a secondary housing unit on a single-family residential lot. An ADU can be a detached one- or two-story new construction cottage, a converted garage, an apartment above a garage, an addition to the main house or a converted basement.
If you’re thinking of selling your house and downsizing to a smaller property, building an ADU may be the solution. In 2019, I did just that. I built a detached ADU in my backyard, moved in and rented the main house. There are several benefits to building an ADU as your main residence, but I’ll also share some of the challenges.
First, the benefits:
You won’t have to leave your neighborhood and community.
It can be heartbreaking to move away from your neighborhood, especially to a completely different city or state. Moving also involves a large investment of time and research to find the right community, and then to find a smaller home that fits your budget and needs.
By building a second home on your current property, you’ll be giving up a bit of land, but you’ll remain a part of your established community of friends and neighbors. You’ll be able to keep your same doctors, dry cleaner and other service providers, and still be close to your favorite restaurants and stores.
You’ll create greater income and savings.
Building an ADU or any structure these days is not without considerable cost. However, when you move to your ADU and rent out your main residence, you’ll have steady rental income to offset the cost of construction. Additionally, by living in a smaller home, your utilities will be less. You’ll also save time and money with possibly no lawn to mow and less gardens to maintain.
You can custom design your own home.
Whether you want to convert an existing garage, turn your basement into an apartment or build a separate cottage, you can design and build a home that works best for your property and your requirements. You’ll need to follow local regulations on size and permits, but that still gives you plenty of leeway for creating a custom home that fits your taste, lifestyle and needs.
You may want a one-story home to age in place, a streamlined modern abode or a vintage style cottage. The choice is yours. Building a home is not easy, and there will be a zillion decisions to make during the planning and building of your ADU. But, when it’s finished, you’ll have the small home of your dreams.
Now for the challenges:
In Portland, Oregon the maximum square footage of an ADU is 800 square feet and in parts of California it’s up to 1,200 square feet. However, the actual maximum would be determined by the size of your lot, the size of your main structure and the building codes for your area. Whatever the maximum for your property, it’s going to be considerably smaller than your current house. Just be sure you can fit your life into that space, and plan for adequate storage.
The cost of wood and other construction materials is on the rise. Building a detached ADU is more expensive than a basement apartment, an extension to your main house or a garage conversion. Research the average price of ADUs in your area and set a realistic budget. Since you are the one living there, you may want higher-end features than the average ADU, which can increase the cost.
Ongoing maintenance and expenses
You’ll still have the cost of maintaining your main residence, including future big-ticket items like painting, a new roof and replacing appliances. You’ll still have to pay property tax, and after your ADU is built, your property taxes will go up. Although you should require your tenants to have renters’ insurance, you’ll need to continue insurance on your main home and perhaps add an umbrella policy for additional liability insurance.
The good news is that all these costs are expenses that can be deducted from your rental income on your tax return. And generally, rents increase over time.
Being a landlord
Having had past experience as a landlord, this wasn't a big challenge for me. I definitely recommend familiarizing yourself with local rental laws and talking to your city's rental department if you have questions. Most importantly, find the best people to rent your main house. My renters have become good friends and there is nothing better than having good friends close by.
For me, the benefits have far outweighed the challenges. My 700 square foot, one-bedroom cottage continues to suit my needs. When I look around at all the personal touches in my home, from the fireplace mantel to the moldings, to the chandeliers, it brings me joy knowing I created a home that reflects my taste and style. If you want to downsize and you love your current neighborhood, definitely think about making an ADU your future home.