ADU (Accessory Dwelling Unit)

What Is ADU (Accessory Dwelling Unit)?

An ADU is a secondary dwelling on a single-family lot—a granny flat, basement apartment, or converted garage. It has its own kitchen, bathroom, and sleeping area. ADUs let you add rental-income without buying another property, and many cities have relaxed zoning to encourage them. They're popular for house-hacking: live in the main house, rent the ADU to offset the mortgage.

An ADU (accessory dwelling unit) is a secondary, self-contained dwelling on the same lot as a primary residence—such as a detached garage apartment, converted basement, or backyard cottage.

At a Glance

What it is: Secondary dwelling on same lot as primary home (detached, attached, or converted)
Why it matters: Adds rental income and property value without a second purchase
Common types: Detached cottage, converted garage, basement unit, above-garage
Zoning: Many cities have streamlined ADU rules; check local codes
Typical size: 400–1,200 sq ft

How It Works

Three main forms. Detached ADUs sit in the backyard (garage apartment, cottage). Attached ADUs connect to the main house (e.g., a side addition). Converted ADUs repurpose existing space—basement-apartment, garage-conversion, or in-law-suite. Each has different zoning, construction, and cost implications.

Zoning and permits. Cities have historically restricted ADUs, but many (California, Portland, Denver, Austin) now allow them by-right or with minimal permitting. You'll need a building-permit and often a certificate-of-occupancy before renting. Some areas require owner-occupancy of the primary residence.

Construction costs. A new detached ADU in Phoenix might run $180–350 per sq ft—$72,000–$140,000 for 400 sq ft. A garage-conversion can be $40,000–$80,000 depending on condition. A finished basement conversion might be $15,000–$40,000 if the shell is already there.

Rental value. Rent depends on market and unit quality. A 500 sq ft ADU in Nashville might fetch $1,200–$1,500/month. A 600 sq ft unit in Denver could go for $1,400–$1,800. Run the numbers against construction costs and operating-expenses to see if it pencils.

Real-World Example

Priya in Tampa. Priya bought a 1,800 sq ft house with an unfinished 400 sq ft garage for $285,000. She converted the garage into an ADU for $52,000—new bathroom, kitchenette, separate entrance, mini-split HVAC. She got a certificate-of-occupancy and rented it for $1,350/month. Her mortgage was $1,850. The ADU rent covered 73% of her payment. After 18 months she refinanced; the appraiser valued the property at $365,000, in part because of the income-producing ADU.

Pros & Cons

Advantages

Adds rental income without buying another property
Increases property value
Flexible use—rent, family, short-term (if allowed)
Many cities now encourage ADUs with streamlined permits

Drawbacks

Construction costs can be high
Permitting and zoning vary by city
Some areas require owner-occupancy
Shared lot means shared utilities and parking considerations

Watch Out

Permit risk: Building without permits can invalidate insurance and trigger fines
Over-improvement risk: Don't overbuild for the neighborhood
STR restrictions: Some cities restrict ADUs to long-term rental only

Ask an Investor

The Takeaway

ADUs are a powerful way to add income and value to a single-family property. They work best where zoning allows them, construction costs are reasonable, and rental demand supports the rent. Check local rules and run the numbers before committing.