A beautiful guest house in a calm and idyllic area with cherry trees in the surrounding.

Depending on where you live and how you plan like to utilize your property, an in-law suite or tiny home could be a good investment. (Getty Images)

English basements. In-law suites. Garage apartments. Whichever type of additional living space may be popular where you live, they all fall under the umbrella of “accessory dwelling unit.” And while these living options have been around in one form or another for many years, they’re gaining popularity for a few reasons.

As defined by the U.S. Department of Housing and Urban Development, an accessory dwelling unit is additional living quarters on a lot with a single-family home that has a separate entrance, bathroom and kitchen. It doesn’t matter if the ADU is attached to the home or a separate structure, which makes basement apartments, carriage houses and tiny homes located on the land all potential ADUs.

Having an ADU on your property can serve a number of functions, from bringing in additional income to living close to family members while maintaining an added level of privacy, explains Martin John Brown, co-editor of AccessoryDwellings.org, an informational website about ADUs.

“It would be nice to have someone close living next to me, but not quite in my same space,” Brown says.

Of course, adding an ADU to your property is a major investment at the start. The cost of building an addition onto a home is, on average, just under $42,000, according to HomeAdvisor. A fully functioning tiny house would likely cost you more – a 266-square-foot tiny home from builder Escape Traveler goes for $66,600.

More recently, cities including Seattle, San Francisco, Atlanta, the District of Columbia and Portland, Oregon, have relaxed zoning laws to allow for the creation of an ADU on residential property without requiring rezoning to a multifamily property.

[Read: 9 Secrets of Successful House Flippers.]

Depending on where you live, how you’d like to utilize your property and your financial situation, the addition of an in-law suite or basement apartment could be a good investment. But first, you’ll want to dive a bit deeper to understand how you can benefit from an ADU.

What Good Can Accessory Dwelling Units Do?

Whether it’s providing a loved one with a home or helping to bring in additional income for you with a renter, ADUs not only offer benefits to the individual who adds it to his or her property, but also to the community and local housing market.

Brown says ADUs rented to the public are more likely to offer greater variation in pricing than the construction of large apartment and condo buildings.

“Because it’s homeowners who create these things and it’s homeowners who decide exactly how they’re used, it’s not always operated with the idea of maximum profit,” Brown says. “Oftentimes they are rented out for less than market rates, so it’s providing housing for the community, and sometimes it’s quite affordable.”

Built as one-off additions to homes, for the most part, accessory dwelling units can benefit any type of community – whether it’s a major city, suburb or even a rural town, Brown says. “However, the places where there’s going to be maybe the strongest movement to make these rules reasonable and allow them is in a place that’s growing and needs extra housing, or perhaps in a place where homeowners need some financial stability,” he adds.

How Can You Add an ADU to Your Home?

The number of cities looking to relax zoning laws to make it easier for homeowners to add a second unit to their property is growing. For example, in 2017 California enacted a requirement that local municipalities amend their zoning laws to make it easier to develop ADUs.

The first thing to do before even entertaining the idea of adding an ADU to your home is to look up the details of your local laws, which you can often find on your city's or county's government website, or inquire with city hall where you can find the information. Some cities, such as Chicago and Detroit, don’t allow the construction of new ADUs, while others require a maximum amount of square footage, mandate at least one parking space or restrict the amount of days you can use the unit as a short-term rental on sites such as Airbnb or VRBO.

Rather than building on an existing property, you could buy a new house made for multigenerational housing. Luxury home builder Toll Brothers has always been able to incorporate an in-law suite or other accessory dwelling unit per the client’s request, but the company is now offering more options that include living spaces complete with their own kitchen, bathroom and separate entrance.

[Read: Home Improvements That Hurt the Value of a House.]

“That was something we turned our attention to,” says Kira Sterling, chief marketing officer at Toll Brothers. Whether it’s for the growing diversity of cultures in the U.S. where multigenerational homes are the norm or providing an alternative income option, a new build with an ADU should comply with local zoning requirements and building codes with less red tape on your end.

Renovating or building an addition onto your house to make room for an ADU is still possible – it’s simply a matter of ensuring the right zoning requirements and building codes are followed, then financing the project. Brown says most who construct an ADU either use extra cash they have in the bank or borrow against the equity of their home.

[See: U.S. News Loans Best Home Equity Loans.]

What Stands in Your Way?

Of course, anything that breaks the norm when it comes to how you use your home is going to have at least a few obstacles. Be sure to carefully weigh the cons before you jump into adding an accessory dwelling unit.

Local laws might make building difficult. While more cities are changing their laws to help make ADUs possible, plenty of others make it hard to get approval. You may have to apply for rezoning to add an ADU to your home.

“Usually there are zoning issues relating to that in terms of multifamily zoning for a rental,” Sterling says. The multifamily zoning, which is typically reserved for apartment buildings and condo properties, would likely make it more difficult to sell your house to another individual owner down the line.

The red tape also extends to the construction of any addition to your property. Any major construction will almost certainly require permits and inspection by the city or county. Failing to follow protocol could lead to you having to tear down the fresh construction and do it over again.



They’re still uncommon. While you’ve likely heard of in-law suites and probably know one or two people who rent out a basement or garage apartment to a tenant, ADUs aren’t necessarily the norm yet. As a result, appraisers often struggle to accurately measure the value of a home that has an ADU when it’s appraised for sale.

That’s not to mention, of course, the fact that as an individual homeowner taking on this project, you likely lack the experience of a seasoned real estate developer. “Things that would not stop an experienced developer can easily stop this idealistic homeowner,” Brown says. “They might not know how to argue with the city planning department, for example, whereas a developer would.”

[Read: Protecting Your Property: Scams That Put Homebuyers and Homeowners in Danger.]

Lack of funding. The biggest problem for most homeowners looking to make some additional income with a basement apartment is funding it. Few people have between $40,000 and $60,000 on hand to build an addition or commission a tiny house for the backyard.

Additionally, some cities don’t allow tiny houses on wheels to count as an ADU, and they must instead follow RV and camper laws. In some places, that means you can't use a tiny house as an ADU unless your property is zoned as a mobile home or RV park.

“It’s going to cost a lot of money, and [homeowners] might not have that money to spend, and borrowing it might be difficult,” Brown says.

The good news is as more cities take a closer look at the benefits of creating additional housing opportunities in less traditional ways, it will likely become easier for homeowners to get the approval, support and funding needed to offer a second living space on their property.


8 Ways to Transform Unused Space in Your Home

Get in every nook and cranny.

Modern living room

(Getty Images)

Unless you’re already embracing the tiny house lifestyle and are down to 300 square feet, there’s a good chance you’re not utilizing your home to its full potential. Even in a small, one-bedroom apartment, dead space is common and finding the right design can be a head-scratcher. Whether it’s a forgotten-about spot under your stairs or a back bedroom you never furnished, there are ways to transform a space for a purpose you both need and want. Here’s what experts recommend to embrace unused space and get more out of your home.

Utilize underused rooms.

Utilize underused rooms.

Shot of a designer's home studio

(Getty Images)

You may have set it up as a guest bedroom, but when you only have guests every three months, that extra room could be used for much more. Think first about which hobbies or activities you’d like to dedicate more space to in your home, and don’t be afraid to have more fun with a spare room, as it doesn’t have to match the other living spaces. “I try to create a separate identity for the secondary rooms,” says Julia Chi, an interior designer with Interior Space by Steven G. and designer for Privé at Island Estates in South Florida.

Double up with a dual-purpose guest bedroom.

Double up with a dual-purpose guest bedroom.

Woman drinking coffee and reading paperwork at desk in sunny home office

(Getty Images)

The beauty of an extra room is the ability to give it multiple functions and design it to best suit your needs. “Hidden components really help solve a lot of those clutter issues that we deal with every day,” Chi says. She notes under-bed storage and wall-mounted fold-down desks make it easy to offer a bedroom for overnight guests, but then transform it into an office or hobby room whenever friends and family aren't visiting.

The backyard is her domain with a she shed.

The backyard is her domain with a she shed.

She Shed

(Olaf von Sperl)

That space for your home office and weekend hobby can easily be taken outside as well. Consider a she shed, an increasingly popular backyard answer to the man cave. Converted from an old storage shed that held the lawn mower and tools or custom built to serve as a backyard retreat, she sheds are hailed as a great way to maintain privacy while doing work or unwinding in the evenings. “It’s the idea of it being detached from the house,” says Erika Kotite, author of “She Sheds: A Room of Your Own.” Many she sheds are used as home offices, gardening sheds and art studios.

Making open spaces cohesive.

Making open spaces cohesive.

500 Waverly

(Millarc)

Back inside the home, you may find it trickier to bring underused corners and parts of an open floor plan into everyday use. The first step to tying everything together in an open space is to make it cohesive. Chi recommends making a smooth transition in an open floor plan with floors, cabinets and wall coverings that complement each other. “Those three elements flow very nicely together if they’re well thought out and they’re selected in the same color family,” Chi says.

Opening up more.

Opening up more.

A person is using a hammer to pull out nails from an old wattle and daub wall

(Getty Images)

In homes with a small footprint, determine which spaces are the least used, and consider knocking down some walls to transform the space for greater balance. Highlyann Krasnow, founder of The Design High based in New York City, says she comes across condos that have been “over-bathroomed,” especially for their relatively small size. “For entertaining it’s wonderful, but we find that sometimes those half-baths eat up space that could be used for living space,” Krasnow says. Closing off the plumbing and removing the walls for a half-bath could create valuable space in the living area, as would removing poorly placed closets or walls that make rooms too small when separated.

Relocating furniture.

Relocating furniture.

Dining table and chairs near staircase

(Getty Images)

Some underused parts of your home may seem like the wrong spot for that reading nook or sketching desk – or practically anything. Krasnow points to the area near the foyer of a home that often serves as dead space. Rather than trying to transform the whole foyer and nearby living area through renovation, she recommends moving the dining furniture there. It makes sense as a spot for entertaining guests and also frees up another part of your home for other needs, such as an expanded living room or workspace.

Making room for additional storage.

Making room for additional storage.

Profile view of wood stiarway in new home

(Getty Images)

Most people desire additional storage space in their home, but it can be challenging to utilize underused wall space in an attractive way. Krasnow recommends, when you can, creating built-in shelving or cabinets to help store smaller items such as extra toiletries, canned goods and spices that tend to clutter bathrooms and kitchens. “Even set back a small, shallow pantry on a Sheetrock wall in between studs. You can do that pretty easily, and it’s extra pantry storage – it’s shallow, but it’s good for kitchen stuff,” Krasnow says.

Pinpointing what's missing.

Pinpointing what's missing.

170 South

(Base3d)

The best way to transform any underused space is to identify what you’ve been missing until now. Maybe you tend to work from home at the kitchen counter, read on the couch but get distracted by the TV or have a comfortable chair from your grandmother you haven’t yet found a spot for in your home. By designing the space to serve as a solution to those issues, it’s far more likely to be used often. “I can’t tell you how many times I got those ‘I finally got to’ personal stories,” Kotite says of speaking with she shed owners while researching her book.

Read More

Tags: real estate, housing market, housing, renting, investing, home improvements, new home sales, loans


Devon Thorsby is the Real Estate editor at U.S. News & World Report, where she writes consumer-focused articles about the homebuying and selling process, home improvement, tenant rights and the state of the housing market.

She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.

Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at dthorsby@usnews.com.

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