2023 Trends in the ADU Market

Dec 27, 2022 | 0 comments

Looking to build an accessory dwelling unit (ADU) in 2023? The economic and regulatory environment has been shifting, and we’ve narrowed it down to several important trends in the ADU space. Financing options like fixed rate second position loans offer a solution, allowing homeowners to keep their existing favorable financing in place on their main home. Bigger, multi-functional units and two-story options are becoming more popular. And for easy maintenance, consider using materials like quartz and vinyl plank flooring.

Financing with Fixed Rate Second Position Loans

With interest rates remaining relatively high going into 2023, many homeowners may be hesitant to refinance their existing mortgage in order to finance an ADU. In response to this, we may see an increase in the use of fixed rate second position loans for ADUs.

A fixed rate second position loan is a type of loan that is taken out in addition to the primary mortgage on a property. These loans are called “second position” loans because they are taken out after the primary mortgage and are “secondary” to it in terms of priority for repayment.

Fixed rate second position loans differ from traditional mortgages in a few key ways. One of the main differences is that they do not require a refinance of the primary mortgage. Unlike construction loans, fixed rate second position loans do not require a refinance of the entire property at the end of the ADU construction process. This means that homeowners can keep their existing mortgage rates, even if they were locked in at a particularly low rate a few years ago.

Another key difference is that fixed rate second position loans have an interest rate that remains the same throughout the life of the loan. This can be a major advantage for homeowners who are concerned about rising interest rates, as it allows them to lock in a low rate for the life of the loan.

Fixed rate second position loans can also have longer terms than other options like HELOCs, with some loans offering terms of up to 20 years. This can make it easier to manage the monthly payments on your loan and fit the cost of your ADU into your budget.

What are some watch-outs with fixed position second loans?

It’s important to note that fixed rate second position loans may not be available in all areas, and they may come with certain restrictions or requirements. For example, some lenders may require that you have a certain amount of equity in your home before you are eligible for a second position loan, or that you meet certain credit or income requirements. It’s a good idea to shop around and compare ADU financing options from different lenders to find the one that best meets your needs and budget. Reach out to SnapADU for suggestions on which lenders offer a second position product.

Building Larger Units

One of the main motivations for building an ADU is to create an additional source of rental income. By adding more square footage to the ADU, you can increase the potential earnings from the unit. This can be especially attractive for homeowners who are looking to generate a significant amount of rental income from their ADU.

The cost of adding additional square footage to an ADU is often relatively low compared to the overall cost of building an ADU. Once you have already paid for plans and sitework – plus expensive rooms like the kitchen and bath – the additional cost of adding living space is relatively cheap. This means it often makes more financial sense to build a larger ADU, as the cost per square foot is often lower for larger units.

Building a larger ADU can also provide more flexibility and versatility in terms of the unit’s use. A larger ADU can be divided into multiple rooms, providing space for multiple renters or a larger family. Additionally, a large ADU can provide more space for amenities and features that make the unit more appealing to renters (or a family member), such as a laundry room, a home office, or a small outdoor space.

Building Two Story ADUs

Two story ADUs are also becoming more common, as more and more cities and towns are allowing for the construction of these units.  Two story ADUs – which can also include carriage homes (ADU over a garage) and stacked ADUs – are a smart solution for homeowners who want to add additional living space to their property but don’t have the room for a traditional single-story ADU. By building upwards rather than outwards, a two story ADU can provide all the amenities of a traditional ADU in a more compact and efficient space.

There are several benefits to building a two story ADU. By building upwards, you can add additional living room without taking up valuable outdoor space that could be used for landscaping, gardening, or outdoor recreation. An advantage of building an ADU on top of a garage is that you can preserve valuable parking space on your property.

Two story ADUs can also be a more aesthetically pleasing option for some homeowners. Because they are built vertically rather than horizontally, they can blend in more seamlessly with the surrounding architecture and landscape. This can be especially important for homeowners who are concerned about preserving the look and feel of their neighborhood.

What to keep in mind when building a two story ADU

There are a few considerations to keep in mind when building a two story ADU. One is that they may require more structural support and a sturdier foundation than a traditional ADU, which can increase the cost of construction. Additionally, two story ADUs may be subject to different building codes and zoning regulations than traditional ADUs, so it’s important to check with your local building department to see what ADU & building requirements apply to your area. You can also check out two story ADU plans.

Overall, two story ADUs can be a smart and cost-effective solution for homeowners who want to add additional living space to their property. With the increasing popularity of ADUs in general, it’s likely that we will see more and more two story ADUs being built in the coming years.

Designing for Multi-Functional Space

Another trend we may see in 2023 is the use of multi-functional space in ADUs. Designing for multi-functional space in an ADU can be a smart way to maximize the versatility and adaptability of the unit. By creating spaces that can serve multiple purposes, you can ensure that the ADU can be used in a variety of different ways, depending on your needs and preferences.

One way to design for multi-functional space is to include two large rooms in the ADU that can be easily converted for different uses. For example, you might have one room that serves as a home office during the day and a guest bedroom at night. Another room might serve as a living room during the day and a dining room at night. By using furniture and other design elements that can be easily moved or reconfigured, you can create a space that is flexible and adaptable to changing needs.

Another way to design for multi-functional space is to use multifunctional furniture. For example, you might use a daybed or a pull-out couch as seating during the day and as a bed at night. Or, you might use a dining table that can be easily folded down or tucked away when not in use, to create more space in the ADU. Eat-in kitchen islands are also a popular way to reduce the need for a dining set altogether.

Designing for multi-functional space can be especially useful in an ADU, where space is often at a premium. By using the space efficiently and creatively, you can make the most of the available square footage and ensure that the ADU design is a comfortable and functional space for a variety of different purposes. By including large, multi-purpose rooms and using multifunctional furniture, you can create a space that is versatile and adaptable to changing needs without major renovations.

Using Low-Maintenance Materials

Finally, easy maintenance materials such as quartz, one-piece inserts, and vinyl plank flooring are likely to be popular choices for ADU finishes in 2023. These materials are durable, easy to clean, and require minimal maintenance, making them a practical choice for homeowners who want to minimize the time and effort they need to spend on maintaining their ADU.

In conclusion, the trend towards bigger and more multi-functional ADUs, along with the increasing popularity of two-story units and the use of fixed rate second position loans, are all likely to be key trends in the ADU market in 2023. Easy maintenance materials will also be a popular choice for homeowners looking to minimize the time and effort required to maintain their ADU.

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