ADU vs DADU: Choosing the Right Investment for Your Property

ADUs are secondary units that can be attached or separate, while DADUs are standalone buildings with their own living space, kitchen, bedroom, and bathroom. Before deciding between an ADU or a DADU, you need to evaluate various aspects when finding a means to leverage your property’s full potential. You must consider your property’s layout, how you plan to use the additional space and your financial resources. 

Common reasons for considering additional dwelling units include enhancing your property’s market worth, creating a new income source, or providing your family with a cozy living area. An in-depth understanding of the implications of the two dwelling units on your property can help you choose a path that provides value to your investment. 

Understanding ADUs and DADUs

Accessory Dwelling Units (ADUs) and Detached Secondary Dwelling Units (DADUs) are becoming popular due to their adaptable housing capabilities. Although their roles are pretty similar, they have different structures and architectural designs. 

ADUs can be connected to the primary dwelling while still offering independence. They are a favorable option for families who want to stay close to their loved ones without sacrificing privacy. 

DADUs, on the other hand, are separate buildings on the same land as the primary residence. They are commonly referred to as backyard cottages or granny flats. Their enhanced privacy and autonomy make them a favorable guest accommodation or rental space. 

What Counts as an ADU?

An ADU is a secondary unit on a property, operating as a separate living space. It can take three forms: detached, attached, and repurposed existing space. 

A detached unit is separated from the primary residence, the attached one is linked to the primary home, and the repurposed unit involves converting a space in the primary residence into an individual living unit. 

A structure must contain the basic living amenities to be considered an ADU. This includes a kitchen and bathroom, and standard utilities like heating, water, and electricity. It can be a guest house, basement apartment, or backyard cottage, provided you include the basic elements. 

The government code section 65583.1(a) allows for ADU identification sites in a city based on the number of units developed during the planning period. This applies whether or not the community needs the units, has the right to be built, or has resources needed for their development. The city is responsible for determining the sites for residential development. 

Exploring Types of DADUs

DADUs are standalone little houses featuring a living space, kitchen, bedroom, and bathroom. Most of them are built close to single-family homes. They have a private entrance and are a result of brand-new constructions. 

A DADU provides the comfort derived from a home, with privacy and a lawn view. The average size of a DADU ranges from 750 to 1000 square feet, depending on the local zoning laws and property lot size. 

Various types of DADUs are adaptable to varying property layouts and diverse needs. These include garage conversions, new constructions, and prefabricated units. Garage conversions [link to ADU Conversion Made Simple] are popular among individuals seeking to repurpose their unused garages. 

New constructions are customized from scratch, allowing you to personalize the design and features. Prefabricated units [link to Prefab ADU Los Angeles] are a more budget-friendly option, built off-site and later installed on your property. 

Do ADUs Provide Affordable Housing?

Affordable housing is becoming much needed in America, with places like Portland, San Francisco, and Long Island becoming too pricey to live in. Homeowners behind ADUs operate differently compared to professional real estate investors. They charge lower rent than the marketplace, providing low-cost units for families to settle in. The affordable housing created by ADUs is voluntary and unguaranteed. 

Backyard constructions lead to land savings, reducing the overall cost of an additional dwelling unit. Homeowners who rent out their cottages [link to Cottage ADU] do so at affordable rates, and they benefit from development fee waivers, architectural designs, and, sometimes, partial construction funding. 

Their properties increase in value from the rental income, and low-income households access affordable housing in neighborhoods with good schools and public amenities. If you’re a homeowner looking to construct an ADU, RenoFi is the smartest way to finance your ADU project. 

For example, A standard 90% LTV HELOC may appear to be a solid option for funding a home renovation, but it often lacks enough equity to fulfill your entire renovation plans. To overcome this limitation, consider the After Renovation Value of your home to increase the equity available – and this is exactly what RenoFi loans are designed to do.

RenoFi is the smartest way to finance your ADU project. ADUs not only increase your home’s value after renovation but can also generate rental income. However, ADUs are costly. If you don’t have enough equity in your current home, funding ADU construction with a home equity loan is impossible.

For example, let’s say your current home value is $500,000, and your outstanding mortgage balance is $400,000. You are planning on adding an ADU and expect the value of your home to increase to $640,000. Your current loan-to-value ratio (LTV) is already at 80%, which means that most home equity loans are out of reach because that’s the maximum LTV they allow. So, your borrowing power using your current equity is $0.

RenoFi, on the other hand, would allow you to go as high as 150% LTV of your current value or 90% of your after renovation value, whichever is lower. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 by using the after renovation value of your home!

Get started with your RenoFi loan here

What Sets DADUs Apart From Traditional ADUs?

DADUs, unlike traditional ADUs, are completely separate from your main house. An ADU is like a small house on your property, built away from the main structure. The structure can be a luxurious guest house, a converted backyard shed, or a purpose-built mini-home. 

Here are some reasons why you would consider a DADU over an ADU:

• Privacy is the main advantage of a DADU. It offers seclusion as a separate unit, making it ideal for renters and family members needing their own space. 
• Building a DADU begins from scratch, allowing you the freedom of creativity to incorporate modern or rustic designs. 
• It allows you to re-design your property layout, whereby you can assess your landscaping and how the unit blends into your outdoor space. 
• DADUs command higher rental rates than attached ADUs since they offer high independence and privacy. Young professionals and families value these kinds of dwelling units. 

Navigating Legal and Zoning Regulations

Before you begin building a DADU or ADU, you must prepare adequately. Legal requirements and zoning regulations structure these projects to fit within the community’s planning goals. 

Cities have varied approaches to their ADUs and DADUs, some encouraging them to build more housing options and others creating restrictions to protect the neighborhood character. 

The local planning department determines what can and cannot be built. Before investing in design plans, you need to contact the planning department and understand the allowable square footage, parking requirements, and height limitations. 

Your DADU can be constructed on a size limit of 1,200 square feet. Your DADU should be built within 5 feet of an alley. If your unit has no alley access, it should not be less than 5 feet from the rear property line. 

Residents are permitted to build two detached or attached accessory dwelling units. If you plan to build two attached ADUs, the planning and building department offers additional building code assistance. 

Advantages of ADUs for Homeowners and Communities

ADUs provide affordable housing for individuals and family members. They generate rental income for homeowners to use to make ends meet or cover mortgage payments. Rental income is especially beneficial to older people with fixed incomes. Moreover, the land on which the structure is built belongs to the homeowner, reducing overall construction costs. 

New-construction ADUs can accommodate universal design features like zero-step entrances and doorways. Garage conversions are a suitable ADU solution for aging in place since they preexist without step entries. 

Most ADUs measure 600 to 1000 square feet and work well for one—and two-bedroom homes. These units suit smaller, childless households and also young people in need of entry-level housing options. Empty nesters can move into a smaller space while renting their primary residence to another family. 

Building and maintaining ADUs requires fewer resources than full-size homes. Furthermore, your property increases in value when you add an ADU. These units are attractive to potential buyers and can secure good offers if you sell your property. 

A creative and functional design can make your property competitive in the real estate market. Taking a loan from RenoFi allows you to tap the full potential of your property’s value by utilizing the total equity value after construction. 

Benefits Offered by DADUs

Some cities have passed legislation to make building detachable accessory dwelling units easier. Consequently, many homeowners consider DADUs a viable option for addressing housing shortages. Building a DADU offers various benefits to homeowners.

When you build a DADU, you can fully rent it out or use it as an Airbnb to generate income. You can use this additional cash source to contribute to your savings, offset mortgage payments, or fund renovations. 

The versatile living space that the unit provides is suitable for adults, guests, or aging parents. If you decide to live in the ADU, it offers flexibility and privacy that can enhance your quality of life. 

In the current world, remote work necessitates a dedicated workspace in your home. A DADU offers a suitable space that can accommodate a professional office. Using this office for your professional work eliminates the need for a daily commute to your workplace. 

For hobbyists or creative professionals, a DADU can create an ideal studio for working. Woodworkers, artists, and musicians can design home office spaces according to their needs.

Some modifications include custom storage solutions, specialized ventilation, and soundproofing. You can design the DADU as a multi-use space. For example, a Murphy bed can transform a studio into guest living quarters. 

Costs and Challenges of Building an ADU or DADU

The cost of building a detached ADU in the United States of America ranges from $175,000 to $400,000 or more. The building cost depends on the unit size, construction type, and location. Building an ADU in New York or San Francisco is more expensive than building it in the Midwest or Texas. 

Building a DADU is generally more expensive than an attached ADU. Furthermore, a custom-designed ADU is more expensive than a modular or fabricated unit. Other factors like utilities, site preparation, and permits can add to the cost of a project. The labor costs vary depending on the location and project complexity. Additionally, building larger units requires more materials and labor, increasing the construction cost. 

Building a DADU allows you to expand your living space through a separate additional unit. On the other hand, building an attached ADU allows you to extend your existing living space. This is an ideal option if you are looking to increase your home’s size without disrupting the overall layout and aesthetic. 

Extending your home is also better if you have specific architectural preferences that you’d like on your additional space. Building a house extension costs $20,000 to $75,000 or more. 

Challenges

One significant challenge of building a DADU is navigating building codes and zoning laws. Obtaining the necessary permits is complex and time-consuming. The upfront costs for building a DADU are significant, comprising potential impact fees, construction expenses, and permits. 

Moreover, a DADU requires ongoing maintenance, especially when rented out to other individuals. You may have to deal with unexpected repairs and routine upkeep, which adds to your expenses. RenoFi provides loans for renovating your unit and keeping it in good shape.

Due to the physical connection of an attached ADU to your primary residence, your privacy may sometimes be compromised. When transforming your main house’s external wall into an attached ADU’s internal wall, you’ll need to sacrifice the windows. This lowers the ventilation and the amount of natural light entering your house. Consequently, your home becomes less comfortable and less aesthetically pleasing. Is Building a DADU a Smart Investment Idea?

An ADU or DADU brings change to your property and how your family lives on it. When considering the right investment, it’s best to choose the one that benefits everyone involved. There are various ADU and DADU options, and they all suit different reasons. 

Your design-build partner [link to Expert ADU Builders] can help you select an option based on your needs. Detached ADUs are more significant for creating an independent living space. They are also suitable if you have a large property. 

An attached ADU is a great investment if you would like to house your adult children or seniors. You can also opt for it if you’d like to rent and supervise the unit. 

Conclusion

The final decision between building an ADU or a DADU depends on your needs and property suitability. Overall, a DADU provides a greater return on your investment through higher rental income. If you need your project to be financed, RenoFi offers loans to support you. 

RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.

For more information, visit RenoFi.