Using an ADU to Create an Investment Property Home for Your Loved One

You know you would do anything to support your loved one, and in these difficult times, family is the best support you can find. You also know that it takes a village–but first, the village needs somewhere to live.

Most of the time, an investment property is all about return on investment. We’re here to argue that ADUs make a fantastic investment property, but with a different type of investment. You’re not investing in future income–you’re investing in the bright future of your family, which is the best investment you could make. But, income and property value are perks too.

Here’s why ADUs make a fantastic, long term investment property, and more importantly, why they’re the perfect investment to help your family grow together.

What is an ADU?

An accessory dwelling unit, or ADU, is a self-contained residential unit located on the same lot as a primary residential home. You may have heard of them before, though they go by several different names, including:

• Accessory apartment
• Accessory dwelling
• Ancillary unit
• Backyard cottage
• Basement apartment
• Carriage house
• Garden cottage
• Garden suite
• Granny flat
• In-law suite
• Junior accessory dwelling unit (used for small, internal ADUs)
• Laneway house
• Mother-in-law flat or mother-in-law suite
• Multigenerational homes
• Secondary dwelling
• Secondary unit
• Sidekick
• Tiny house
• Two-family house

But no matter whether you have a basement apartment, a tiny house, a garden cottage, a sidekick, or anything in between, ADUs all have a few features in common. They’re kind of like small-houses, or an apartment on the same lot as your house.

ADUs are not to be confused with a spare bedroom. These are fully functional secondary living spaces with all of the appropriate accoutrements of a living space (i.e. a kitchen, bedroom, bathroom, living room, and dining area).

ADUs are also unique from other property types because they are built on a pre-existing lot with a primary residence. Their fortunes used to be tied to the ownership of the primary residence. However, thanks to Assembly Bill 587, ADUs can be sold separately from the main residence if the property was developed by a qualified nonprofit and the ADU meets certain affordable housing requirements for sale.

Types of ADUs

No matter what you call an ADU, all ADUs can be classed as one of four types:

1. Detached ADU
2. Attached ADU
3. Interior conversion
4. Garage conversion

Detached ADUs are the most independent of the four. These are freestanding units with their own foundations, no shared walls, and independent utility hookups. It’s functionally an entirely separate living space–someone could live in a detached ADU and live their life entirely apart from the main residence if they wanted to.

An attached ADU is slightly closer to home. Literally–attached ADUs share one wall with the primary residence, though there is no internal entrance to the ADU from the primary residence. Attached ADUs may have their own utilities or share utilities, but they must be fully functional living spaces.

Interior conversions are the closest to home. These are often attic or basement conversions, interior spaces re-designed as apartments within the primary residence. However, they are not to be confused with a spare room–the ADU must have a kitchen, bathroom, living space, and bedroom, so that someone could live in the space independently.

Garage conversions are in the middle. As the name implies, these are ADUs converted from a garage, which means they may be attached to the primary residence or detached. These are handy conversions because the space is already available, though you will have to investigate whether you need to replace the lost parking (you won’t under specific circumstances).

What is an Investment Property?

With that in mind, let’s talk about investment properties. Many homeowners think of investment properties as straight rentals or big commercial properties meant for large-scale investors, but that’s not always the case.

Typically, an investment property is a piece of real estate purchased with the intention of earning return on investment through rental income, the future sale of the appreciating property, or both. Investment properties may also be built for this purpose.

That said, what an investment property is largely depends on who you ask. Which is why we’d like to propose a different take on investment properties: not an investment property for a rental income, but an investment in your loved ones’ future.

How an ADU Can Be a Different Type of Investment Property

Sadly, families are facing a difficult housing reality in California. Or rather, decades of outdated zoning laws and tax provisions transitioned the land of golden dreams into America’s worst housing nightmare.

The median home price in California is now above $600,000, more than twice the national average. And in the Bay Area, cities like San Jose, home prices are likely over $1,000,000. The state has the dubious honor of housing four of the country’s most expensive housing markets (San Francisco, Silicon Valley, Orange County, and San Diego).

Adjusted for the cost of living, California’s poverty rate is the worst in the nation. And while California comprises only 12% of the U.S. population, it also comprises a quarter of the U.S. homeless population.

And that was before the COVID-19 pandemic hit. Renters and mortgage-holders, already in dire need of help, face a worsening crisis with the pandemic-induced recession, and California’s housing rush may slow as businesses operate at half speed and consumers shift to conservative spending.

Of course, as a family, you’re not thinking about the state of the whole country. Your concern is for a loved one who simply cannot afford the cost of living in California but, by the same token, doesn’t have the resources to leave California either. And even if they did, their entire life–and their entire family–is in California.

That’s why we want to offer ADUs as a different kind of investment property. It’s more than just an opportunity to earn income, though you may earn income from your ADU as the demand for affordable housing continues to spike.

ADUs are an opportunity for you to invest in the home your family needs, a space that allows the family to come together and weather difficult times. All while appreciating and gaining value long term, in what has always been a hot real estate market.

Room to Age in Place

Let’s say that, like many families, you have an elderly loved one. And like many families, you’re heartbroken to see your loved one struggling to find housing that works for them.

Maybe they don’t need supported living but can’t find housing within their budget. Maybe they do need home health support but supported living or a home health aide are out of your budget. Or maybe your loved one just can’t find housing within their budget that will age gracefully alongside them, leaving them to scramble for housing again in a few years.

ADUs are the perfect solution, no matter the unique case of your elderly loved one, which is why they’re rapidly becoming the newest trend in senior care.

Let’s say your loved one is relatively independent but has a limited income and needs a home that will age with them. An ADU is the perfect opportunity to build a living space that will suit them for years to come. Plus, it helps your loved one retain their independence while still helping them fight many common concerns for seniors, such as loneliness.

If your loved one does need home health support, an ADU is still the perfect solution. Unfortunately, busy families may not have enough time in the day to go out of their way. An ADU removes the need to do so. Instead of driving to your loved one’s home, you can simply step into your backyard. That way, you’ll always be within reach–and your loved one has support.

Plus, even if your loved one doesn’t need support now, ADUs allow you to create an infrastructure of support for the future if your loved one does need support as they age. That way, you’ll never need to worry about finding the care your loved one needs, and your loved one will always have the support they need to thrive.

Growing Room for Your Boomerang Kids

At the other end of the spectrum are boomerang kids, an increasingly common phenomenon in these tough economic times as college kids graduate with more debt than ever before. Basically, boomerang kids are adult children who have usually just finished college or started careers but had to move back home for any number of reasons.

The California housing market is especially difficult and dispiriting for boomerang kids. Between high college debt and entry-level jobs that don’t pay enough to live (nevermind live while paying off debt), the housing market is a functionally impossible proposition. But by the same token, moving back to their childhood bedroom can feel equally dispiriting.

As a parent, you want to offer support, but you also want your kids to feel like they have their own lives. And your boomerang kids want to feel like they’re making progress toward independent adulthood, even though they recognize the need for family support.

ADUs offer the best of both worlds.

Instead of moving back to their old bedroom, ADUs allow boomerang kids to have their own living space. They can start taking on some of the responsibility of caring for their own living space while saving up to start their lives on the right foot. And in the meantime, parents can offer support and guidance while still giving their kids the independence they crave.

Independent Living for a Special Needs Loved One

As an independent living space, ADUs are quite flexible. And that’s fantastic news for families with special needs loved ones.

As a family, you’re all too familiar with the struggle facing your special needs loved one. Individuals with limited mobility may need a space designed for them, such as wider walkways and lower storage spaces for those in wheelchairs.

Then there are loved ones who are physically able but cannot live independently for any number of reasons, such as difficulty holding down a job or difficulty managing their own care independently.

For those with physical disabilities, the California housing market is even more restricted. Properties that might work for others may be completely inaccessible for them, and some properties that might be workable may be inaccessible due to a landlord unwilling to make renovations.

For those with mental disabilities, the housing market is disheartening and difficult to navigate. Even fewer properties are affordable for them, and even if a property is affordable, it may put them too far away from their loved ones to offer enough support for independent living.

ADUs are the ideal solution for families that need a specialized living space. Instead of hunting for the perfect space for a physically disabled loved one, you can build exactly the space they need. And for loved ones who want to be independent but need family support, ADUs offer the chance to live an independent life while still getting the vital family support necessary to thrive.

Space to Bring the Family Closer

For some families, though, the housing difficulty is about more than just money. It’s about wanting to stay closer together, to support each other through difficult times and to celebrate each other through the good times.

Once again, ADUs are the perfect investment.

Maybe you want a space for your parents or in-laws to live so that they can spend more time with their grandkids and you can get a bit more support for your kids. ADUs offer the perfect solution to bring families together.

After all, one of the biggest difficulties in bringing multiple generations together is that different branches of the family have independent lives, often accustomed to living based on different rhythms. An ADU allows you to keep your rhythms without driving each other up the walls, keeping the family close together while allowing you some breathing room.

Plus, there’s something to be said for a housing solution that allows families to support each other. Your kids will love having the grandparents there all the time, your parents or in-laws will love spending more time with the grandkids, and you’ll love having extra support to keep the family in motion while supporting your loved ones at the same time.

And in the meantime, all the same benefits of ADUs apply in this case. You can build a home that your loved ones can age in, anticipating their needs in future years.

In short, an ADU is an investment in a home for your family to grow together.

How to Build an Investment ADU for Your Loved One

If an ADU sounds like the perfect fit for your family, then it’s time to look into building one. After all, when your family needs you, there’s no time to be wasted.

That said, building an ADU is smoother if you know what you’re getting into. This is especially true if you’re building an ADU for a loved one who may have unique needs (or at the very least their own tastes and preferences).

So, here are a few things to keep in mind before you start the building process.

Know Your Goals

The first step sounds simple enough: knowing your goals. Except that this is the part where many families falter.

Start by having a conversation with your loved one about the ADU you want to build and why you want to build it. Common goals include:

• Building accessible housing for a special needs loved one
• Building a home for your senior loved one to age in place
• Building a home that makes it easy to care for your senior loved one
• Building a space for your boomerang kid to start life on the right foot
• Building a secondary home for another generation
• Building a home to bring your parents or in-laws closer

You’ll notice that each of the ADUs described above has a slightly different focus. An accessible home for a special needs loved one has immediate accessibility concerns, whereas a home for your senior loved one to age in place may not have such pressing accessibility concerns.

Similarly, the question of proximity and access is reflected in each of these goals.

If mobility is a concern for your loved one, then an interior conversion in the attic or basement is likely the wrong choice. Conversely, if you need ready access to your loved one, then an interior conversion further reduces the space. However, if you have a boomerang kid itching for independence, a detached ADU would probably be idea.

Then there’s the question of price and practicality. Most of the time, interior or garage conversions are cheaper projects than a brand-new build, simply because you only have to modify the space rather than creating a brand new one. And if your loved one doesn’t need certain features right away, it may be cheaper to hold off on getting them.

Know Your Options with Your Available Space

However, you also need to know what your options are, and that is not entirely subject to your own wants.

There are legal restrictions governing ADU construction. In practical terms for families, that means that you may or may not be able to build the exact type of ADU you want based on building restrictions. If your home does not qualify for a detached ADU, you may not be able to build one.

There’s also the basic reality of your lot. You only have a fixed amount of space, which means you are somewhat limited in what you can do based on lot size and building restrictions. That said, the right contractor knows how to find the happy medium between what you want and what you’re allowed to create an ADU you’ll love for years to come.

Know Your Loved One’s Needs and Priorities

Above all, one rule always applies: talk to your loved one!

After all, building an investment property like this isn’t just about making renovations on your house. It’s about providing a home for your loved one. And that means that your loved one’s wants and needs are equally important. Besides, you’re building an ADU for them–it should be an ADU that they love as much as you, an expression of your love and care for them.

In addition, a senior loved one or a loved one with special needs knows what they need from a space. They know themselves and can speak to what will genuinely benefit them. They may well tell you something they need that would never have occurred to you otherwise.

So when you approach this process, the best possible approach is to empower your loved one. Get them involved in the process as early and often as possible, listen to what they have to say, and incorporate their wants and needs into the design.

This shows through in the big and small details. It could be something as significant as the type of ADU, or something as seemingly small as the design of the ADU itself. It’s their home too, so give them an opportunity to make it their own.

That way, you’ll create a home that truly does feel like it belongs to them–the best way to bring your family together.

Let’s Build a Different Kind of Investment Property

We know that an ADU can be a whole different kind of investment property, the kind that brings your family closer. Because we know that the wellbeing of your family is the best investment you can make.

That’s why we’ve helped families just like yours build ADUs for over 30 years. You know your family, and we know ADUs. So, let’s talk about how we can help build a home your family can thrive in. Click here to talk to an ADU specialist.