Additional Dwelling Units (ADUs) are all the rage right now. These little homes in the back of homes can pop up in the backyard, on top of the garage, exist as a garage conversion, along with many other variations. ADUs are especially in high demand in places like the west coast with its massive housing shortage and need for rental properties. It’s a genius idea: build on the land you already own, tap into your home’s already existing utilities—and voilà—you have a truly valuable and versatile space that can host house guests, make you extra money hosting renters, allow you to care for in-laws or adult children, or even serve as a stellar office. The versatility of the space is a huge draw, and the beauty of this type of building is it can change as your needs change over time.

Probably the two main things to consider if you’re interested in building an ADU are finances and time. Of course you’ll first want to check with your city’s or county’s rules and regulations around ADUs and the permitting process and costs. You or your contractor will need to roll up your sleeves and do some research, making sure that zoning laws, parking regulations, or any other hindrances don’t stand in your way. Once that is cleared, you’ll need to consider the upfront costs. In California, the price tag of an ADU generally ranges from $100-300,000 depending on the type of construction, the quality of appliances, and the extent of the furnishings. It’s a significant investment, though, due to the popularity of the ADU, there are now more ways than ever to finance an ADU. And, once the ADU is done, the good news is it can instantly add $200-500,000 in value to your home AND will eventually pay for itself in rental income as well. If you can swing the initial upfront cost, the value once an ADU is built is remarkable. 

Time is the next aspect to consider. The average timeline to build an ADU is 12-18 months. You’ll go through three phases: design, permitting, and construction—and each of these can vary widely. You do have some control over how long the design phase will take, but the permitting and construction phases can be an exercise in patience, as these are entirely out of your control and can bring up unexpected roadblocks. The popularity of ADU building and shortages of supplies have also drawn out this timeline in the last few years. Make sure you are going into the project with eyes wide open.

But again, if you do have a little patience, and a nest egg or other way to finance an ADU, it’s an exceptionally wise investment move. And the finished product is a joy to own. For investors, building an ADU on an existing rental property and doubling your passive income is much more affordable than buying another house, especially in California. The ADU just gives you so many options.

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