Building an entry-level residential unit (adu)? Read this first

digitalplatform.g@gmail.com October 15, 2025Last Updated: October 15, 2025

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Building an entry-level residential unit (adu)? Read this first

Are you tired of looking at your empty basement, unused garden or garage space and wondering how you can make better use of it? You are not alone.

The most recent and comprehensive look at the American Accerming Unit (ADU) Boom – Federal Resource Study of San Francisco – Estimate There are 1.6 million of these additional spaces in the US, from 2020 million.

With limited housing inventory – especially in areas where there isn’t much land left to build on – that too is expected to continue to rise. States like California, Washington and Maine have already passed laws to make it easier for homeowners to add ADUS, and at least eight states have introduced similar bills starting in 2024.

The appeal is clear. In the housing market this is strong, adus offers home owners who have left their space a tangible way to expand without the cost and inconvenience of travel. They are also flexible spaces that, in many cases, can be converted from a Nanny’s room to a home office rental unit without much hassle.

However, diving into an ADU project is not something you should rush into. You’ll need to weigh the upsides against the costs (which can add up quickly) and, depending on where you live, tricky permit laws can limit what you can build.

Here are a few important questions to think about before getting started.

1

Let’s start with a simple question – which, unfortunately, is stronger than it seems.

Many people think that anything that adds extra space to your home – like a finished basement, a converted attic or a garage turned into a hangout – but in reality, it should serve as a contained home. According to Freddie Mac, that means it needs a separate department, kitchen and plumbing.

The adu can be attached or detached from the main home. Attached units include spaces such as an attic or basement that have been converted to “granny’s” or “groom’s.” Adus, on the other hand, can be apartments that can be built over a garage, or standalone buildings such as a house you have published or a pool that has been turned into an airbnb. Either type of adu can serve as a short or long term rental unit.

2. Is it legal to build an ADU where I live?

The legal requirements for ADUS vary widely. Depending on your local zoning regulations, you may need a building permit and separate approvals for electrical, plumbing and heating and ventilation systems.

Some areas require smaller sizes or setbacks (the distance the building must be from the property line). Some have owner-occupancy rules, which means you must live in a nearby ADU rental property.

Check with your local Planning or Development Agency for a full list of required permits. Fees and approval times vary, but expect the process to take anywhere from a few weeks to a few months.

3. How much will it cost to build an ADU?

According to the Market Repair site, the average ADU in the US costs about $175,000 – a far cry from the roughly $512,800 price tags of the average American home.

That said, the actual cost of accessory living units can vary greatly depending on size, design and location. Large, sophisticated designs with multiple bedrooms, a full kitchen and additional living space can cost upwards of $300,000.

In addition to construction costs, you also need to look at other costs such as construction costs, permit fees and utility connection costs. You can hire a builder and contractor to build and build your ADU, but most people just work with a company that specializes in commercial real estate and takes care of everything from the final construction.

Some of these companies offer prefabricated or dynamic designs – pre-designed homes that are designed only for on-site assembly – to choose from.

You can find design options online, but it’s often best to work with a local ADU contractor to see the designs in person and get cost estimates that fit your space.

4. Can I finance the cost of adu?

You won’t be able to take out a “standard” mortgage to build an entry-level residential unit, but you have several other financing options. According to Whitney Hill, the founder and CEO of Accestery Generalized Unit Design Firm Snapadu, one way to finance is to build an equity loan or line of credit (heloc), if you can pay the additional payments.

You can also take a close look at the cash flow, or take out a construction loan or FHA renovation loan, which can be used to add more space to an existing property. If you’re 62 or older, a mortgage can be a great option: you can tap into your home equity to fund renovations or new construction without adding a monthly payment to your budget.

No matter which option you lean on, it’s a good idea to run it with a financial advisor to make sure it fits your long-term goals. You should review your budget with your lender to make sure you’re not going too far.

“It’s important to make sure your financial plan aligns with the overall cost of building an ADU,” said Intaba. “Doing so ensures your project stays on budget.”

5. Will the ADU increase our value?

In major cities, residential properties command a 35% premium on average, according to a 2021 study by porch.com. Outside of the big metropolitan areas, the price increases tend to be very modest – if at all.

In certain parts of the US that attract strong streams of tourists or where temporary college housing is in high demand, an ADU can really increase resale value. The same goes for low-income or rural areas where the multitasking lifestyle is common, or where long-term rentals are rare.

As a general rule, a two- or three-bedroom apartment that can accommodate a family is likely to generate the highest value because it “provides rental income, increases living space,” according to Paul Dashevsky, Co-Ceo at Maxiablespace.com.

6. What are the risks of building an adu?

Adding an ADU can pay off, but it can’t end without a headache.

High maintenance, tax charges and tax charges are often part of the deal, and hidden costs like site fees and design fees can pop up unexpectedly and squeeze you out of the blue and squeeze you out of the budget.

Local laws on construction and permitting also vary, even in homes and states with friendly regulations. For some homeowners, this leads to expected delays, red tape and design fragmentation.

If your goal is to rent out your ADU, keep in mind that poor living conditions can make it difficult to find tenants, especially if there are vacation options nearby. And while many buyers see ADUS as a plus, others may shy away from the prospect of sharing space with tenants or taking on the hassles of owning land.

Remember, resale value depends on your local market; In some areas, extra living space may have less appeal.

7. What are my alternatives?

If an ADU isn’t in your budget, you have options to add more space without going overboard.

Refurbishing or repurposing what you already have is often the most expensive option. A small project – like turning your upstairs into a liff space or adding a preak “She-Shed” – can make your home feel much bigger at a fraction of the cost.

If you’d like to add a unique living space to your property, consider a tiny home. These compact units they can be as small as 100 square meters and can start in the low $10,000-s. Many are mobile, too, so you can move them when your needs (or address) arise.

No matter which method you choose, do a little homework first. Check your local laws, explore your options and choose one that works for your lifestyle – and your budget.