Today, baby boomers are nearing retirement, teenagers are staying home longer and many adult children want to keep their aging parents close (rather than renting out space at a retirement community or assisted living center). Housing costs continue to rise, leaving many families searching for additional income and options for more space. An accessory dwelling unit (ADU) may be the answer in all of these situations.
Since January 1, 2020, ADUs have become an increasingly popular option for homeowners in California. Many are interested in generating passive income right from their home while helping to increase housing options within their community. In San Diego County where housing is scarce, building an ADU can help a community on multiple fronts. Accessory dwelling units directly reduce housing shortages, provide homeowners with additional income when rented, and can increase the overall resale property value of homes.
Read on for 8 benefits of adding a backyard home in San Diego:
1. Additional Income for your Family.
These dwelling units are a great source of rental income and you get to do so from the comfort of your home. A two-bedroom ADU can bring in upwards of $3,000 of income per month in San Diego, and there is potential for lower maintenance costs as the rental property is easy to watch over and care for. The cash on cash return is typically 15%+ in San Diego markets, or much more if the ADU is financed. The return on investment of an ADU is impressive and compelling for those with a larger property who may be interested in sharing their space with a new neighbor.
2. Increased Property Value.
A newly-built granny flat adds instant appeal and resale value to your home when you decide to sell, as it will increase the value of your property and (depending on the use of your ADU) may even be written off of your taxes. Rental income is attractive to buyers who may not otherwise be able to afford a property, or who have an extended family living with them, however all cases can enjoy the additional value accessory dwelling units add onto a home. Homes with ADUs appraise higher than those that do not, due to the cost of improvements and many other features.
3. Affordable Housing for Family Members or Caregivers.
Home prices and rent rates have soared in recent months, encouraging many young adults to remain at home with their parents rather than venturing off on their own. An ADU affords both the parents and the child more privacy, while allowing both parties to stay close and save money. Conversely, an aging parent may choose to move into an accessory dwelling unit on the property of their adult children to be close to their family, while still maintain their day-to-day independence. In fact, intergenerational living is one of the biggest reasons homeowners choose to invest in an ADU on their property, as if gives all members peace of mind and more time together. Live-in nannies and tutors are also great tenants for ADUs. Read more about considering ADUs as an alternative to nursing homes.
4. Room for a Home Office.
As many of us know by now, mixing “home life” with “business life” can be tough. If you work from home, an ADU could be a great place for one or several family members to set up an office environment to focus and avoid distractions. Setting up an at-home office experience provides a professional, quiet space for those that miss an in-office feel. A setting like this may also be valuable to a small business owner looking for a flexible space to work out of, while still maintaining the ability to change the space down the line. Additionally, you may be able to write off the office space on your taxes as a business expense.
5. Downsize Within Your Same Property.
If you’ve always wanted to travel but don’t want to sell your family home, consider renting it out. Building an ADU to live in on your trips home, freeing up some money and retaining the option to move back into the larger home later will not only decrease your own cost of living, but will also provide you with a massive source of extra income for years to come. This money can even be used for more travel expenses… and the cycle continues! Downsizing is also a great option for an aging couple looking to move to a smaller, lower-maintenance space without compromising their beloved home. Being an on-site landlord will allow you to supervise your tenants while they enjoy your old home without needing to stay on top of its regular upkeep. Read our top tips on downsizing into an ADU.
6. Space for Hosting Guests.
Giving guests access to their own private unit could make everyone feel more comfortable and make your home feel less crowded. Particularly with extended stays, a separate ADU for guests can change the entire vibe of visits. Putting guests in their own private residence will give them more comfort and space, while providing them the benefit of not needing to pay for a hotel or short-term rental. This will also allow the homeowner to go on with their day-to-day life without being too disrupted by at-home guests.
7. Tax Benefits.
Homeowners can accumulate tax depreciation deductions on ADUs, even accelerating the depreciation to take advantage of tax benefits sooner. This is especially beneficial in the case of rentals or small business offices, as you will likely be able to deduce the costs of construction and maintenance. Talk to your accountant to see what tax benefits you may be eligible for in your situation.
8. Sustainable Development.
Accessory dwelling units use fewer resources and less land than single-family housing options, making ADUs a sustainable choice for environmentally-conscious families. Compact units also require less energy to heat and cool, which keeps utility costs down and reduces emissions. The overall benefits of an ADU make these units a great option for all lifestyles.
Redfin asked ADU experts to share their best tips and tricks that will help you successfully build an ADU. Check out SnapADU’s tip on 14 Expert Tips to Consider Before You Build an ADU.