What is an ADU?
An ADU (accessory dwelling unit) is a secondary housing unit on a single-family residential lot. ADUs go by many names: granny flat, in-law suite, casita, backyard cottage, or garage apartment. They include a separate living space with a kitchen, bathroom, and sleeping area, and can be attached to the main house, detached (a separate structure), or converted from existing space (garage, basement, attic).
Types of ADUs
Detached ADU (DADU): A separate structure in the backyard. Most expensive to build ($100,000-$300,000+) but provides the most privacy and often the highest rental income.
Attached ADU: An addition to the existing home with a separate entrance. Costs $50,000-$150,000+.
Garage conversion: Converting an existing garage into living space. Typically $30,000-$80,000 since the structure already exists.
Basement/attic conversion: Converting existing below-grade or above-grade space. Cost varies widely based on existing conditions.
ADU regulations
ADU regulations have relaxed significantly in many states and cities as a response to the housing shortage. California, Oregon, Washington, and many other jurisdictions have reduced or eliminated barriers like owner-occupancy requirements, minimum lot sizes, and parking mandates. However, regulations still vary widely by jurisdiction — always check local zoning before planning an ADU.
Investment value
ADUs can add significant rental income ($800-$2,500/month depending on market) and property value. They are central to the house hacking strategy and can dramatically improve a property's cash-on-cash return. For flippers, adding an ADU or ADU potential to a property can increase the ARV significantly.
For wholesalers
Properties with existing ADUs or ADU potential are especially valuable to rental investors and house hackers. Highlighting ADU potential in your marketing package differentiates your deal and attracts a specific buyer segment.