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What is an ADU and How it is impacting the Real Estate Market?

Fri Sep 17, 2021 by on Real Estate

What is an ADU and How it is impacting the Real Estate Market?

Do you have a decent size garage? Are you looking for extra rental income? Well, look no more! There is a growing trend to convert garages into an accessory dwelling unit (or “ADUs”) to rent.

What exactly is an ADU?

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An ADU is a smaller, independent residential dwelling unit located on the same lot as a detached single- family home. Also known as secondary suites, accessory apartments, and granny flats, ADUs may be converted portions of existing homes, additions to new or existing homes, or new or converted stand alone “accessory” structures.

ADUs offer an alternative to traditional residential housing in terms of rentals and options for seniors to stay near family as they age.

According to a national study released by Freddie Mac, ADUs are growing in popularity. Nearly 70,000 properties with ADUs were sold in 2019 (the latest year that such statistics are available) representing 4.9% of total homes sold via the MLS, compared with just 8,000 properties with ADUs or 1.1% in 2000. Demand for ADUs is highest in California, Georgia, and Florida.

Beware of Compliance and Insurance Requirements

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Before you start hiring a contractor to reconstruct your garage make sure that you:

  1. Comply with all local zoning requirements and obtain all necessary permits. Failure to do so not only will create zoning liabilities but also may create an illegal tenant rental.
  2. Check your homeowner or condo association rules to make sure that ADUs are permissible.
  3. Contact your insurance agent. Most likely you will have to pay more for your homeowner insurance. A typical homeowner insurance policy includes an additional 10% of the dwelling coverage limit for other structures on the property. However, if you rent the ADU or use it for a business, there likely be additional insurance required.
  4. Determine if your garage can accommodate an ADU. You may not have enough space to have a kitchen, for example, and, again, your zoning may not allow for this use of space.
  5. Consider the area in which you live and your own space. Even if zoning would permit the construction of an ADU, you may not necessarily want to have a new tenant in your garage, and the thought of building a fence for outdoor space for your new tenant in your yard, if applicable, may not be in line with your family’s desires.

Cost-Benefit Analysis

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Aside from building an ADU inside the garage, ADUs may also be in-law apartments that some homeowners build on top of their garage. Interestingly, despite the costs, the  potential  benefits of rental income and increased added value to the home for resale purposes are why there is increasing demand for ADUs.

Creative Expansion of Homeownership

As the effects of the pandemic continue, some homeowners are looking for ways to create more income. ADUs are an option that expand the notion of homeownership  while challenging older notions of property law.

The pandemic coupled with trends that existed pre-pandemic all shape how housing will continue to evolve in the time ahead.

Should you have a question about a potential real estate purchase or sale or another legal matter, our team at Oppenheim Law may be reached at 954-384-6114. Should you need assistance with a real estate purchase or sale, our title company, Weston Title & Escrow, Inc. can be reached at 954-384-6168.

Roy Oppenheim

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