Backyard Bungalows to Captivating Cottages

Backyard Bungalows to Captivating Cottages

September 01, 2022
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Maybe you’ve vacationed in an adorable backyard cottage, or shared a beachfront rental for a week with family and friends. Or maybe you just have fond memories of Fonzie’s above- garage apartment on Happy Days. Either way, you’ve probably come across an accessory dwelling unit (ADU) before. In fact, you’ve most likely seen a few in your community without realizing it. Between 2009 and 2019, the number of first-time listings of ADUs grew an average of 8.6 percent year-over-year.1

These dwelling spaces are projected to continue growing in popularity, making them the perfect solution for those who want to house loved ones nearby, or are looking to maximize their property’s income potential. Before you start laying footers and pouring a foundation, here are some factors to keep in mind.

Growing in popularity

A number of factors have helped make ADUs a hit. For starters, ADUs can be a solution for those who want to downsize while holding on to their family home. For example, you can design an ADU to meet your needs, then rent out your primary residence. ADUs also increase housing diversity in already-developed residential areas, often providing much-needed affordable housing solutions.

Another reason for ADUs popularity may be a increased interest in multi- generational living. Younger families can build an ADU as a potential home for their aging relatives, either as a permanent dwelling or a comfortable place to accommodate extended visits.2

Know your zone

Remember that ADUs have some rules around who can build them, and where. Before anything else, it’s important that you check your local building and zoning codes to determine if an ADU can be built. Although many communities have broadened their regulations to allow ADUs, some areas still require zoning approval prior to moving forward with permit applications. Other jurisdictions limit the type of ADU that can be used.

These codes can ultimately shape the design of the ADU, influencing everything from the height of the ceilings to the height of the structure itself, not to mention details like required parking, the location of the front door, or how the sewer and water connect to the municipal system.

Even those with larger lots to work with may be surprised by their local regulations. Although larger lots can generally accommodate larger attached and detached units, there is usually a cap on the dimensions and square footage, which varies by location. In some instances, a minimum ADU size is also stipulated.

Finally, be sure to research occupancy rules. These can dictate whether you’re required to live on the property, often referred to as “owner-occupancy,” as well as how many people can live in your ADU. Regulations may also specify requirements around renting, such as maximum rental rates or prohibiting short-term rentals of ADUs.

So, what is an ADU?

An ADU is a residential unit located on the same lot as a single-family home. These independent homes have their own entrance, living space, a full kitchen, bath, and sleeping space. In short, they’re a full home but on a smaller scale than your main residence. There are three types of ADUs: 

  • Detached ADU: A stand-alone unit separate from the main house. Imagine a unit above or attached to the garage or a smaller structure in the backyard. 
  • Attached ADU: An addition connected to the main house. These units have a separate entrance on the side or back of the house. 
  • Interior ADU: A separate unit located inside the main house, typically an attic or basement suite (sometimes called a garden suite). Although converting an existing space to meet requirements is most common, some interior ADU projects go the extra mile, lifting a house or digging further beneath it in order to accommodate higher ceilings and more natural light. 
  • Junior accessory dwelling unit (JADU): A smaller version of an ADU, coming in at 500 square feet or less. Unlike ADUs, JADUs must be attached to or inside an existing structure, and they do not require a separate bathroom if one is accessible in the main dwelling. Some jurisdictions allow both an ADU and a JADU on one property.3

Location, location, location

If you’re planning on renting your ADU out, location makes all the difference. As housing and rental markets continue to heat up, you could hypothetically fetch $1,500- $3,500 a month for 1- or 2-bedroom unit. As for the cost of construction, consider this an investment on a future return. You can use the money you make from your new rental property to pay down your mortgage more quickly, increase your retirement savings, or explore other investment options.

As long as ADUs remain a hot item, owning one can bolster your property value, as many vacationers or longer-term renters may prefer  an ADU over a larger home or apartment. Plus, companies like Airbnb and VRBO have helped to make managing a short-term rental simpler than ever.4

The companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities.

Building a dream

Finding the right ADU for you is an important step, and a team of supporters can help you get the job done. Before anything else, check your local zoning and building regulations. Getting estimates from a building contractor (or several) is also a smart move. Make sure you’re clear on how you’ll use the property, too. Will you rent it out, live in it yourself, or reserve it for family visits? With some careful planning, you can maximize your property and maybe even build toward other dreams at the same time.

  1. com, August 23, 2021
  2. com, March 10, 2021
  3. com, March 10, 2021
  4. com, December 2021

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Photo by Erik Mclean: