What Are the Biggest Problems You Might Face Building Accessory Dwelling Units?

Building and owning an accessory dwelling unit (ADU) as a homeowner undoubtedly has its advantages, such as providing additional income or accommodating multigenerational living arrangements. However, it is essential to be aware of the various challenges that may arise throughout the process. This article will explore the legal and regulatory hurdles, financial barriers, design and construction issues, community and social factors, as well as management and maintenance challenges that homeowners may face when building and owning an ADU. For more, read more about ADU ownership challenges. By understanding these potential obstacles, homeowners can navigate the ADU journey more effectively and make informed decisions to ensure a successful outcome.

Building accessory dwelling units (ADUs) as a homeowner can be a challenging process due to various legal and regulatory hurdles. It’s imperative to be aware of the following issues:

Zoning Restrictions: Zoning regulations govern land use and development, and each state, county and city can have their own requirements. These regulations may impose strict rules on ADU size and location, which can significantly limit the options for construction.

Permitting Hurdles: Acquiring the necessary permits for building an ADU requires local government approval. You’ll pay fees, submit detailed plans and encounter design requirements for your ADU. Your fees also don’t guarantee project approval. Mercatus Center at George Mason University states:

Applying for a conditional use permit may require a time-consuming and intimidating public hearing with a nonrefundable fee as well as site plan drawings that can be expensive to commission. Many homeowners are understandably reluctant to spend thousands of dollars for the chance of receiving a permit.

Meeting with zoning officials to ensure compliance is very likely.

Rental Regulations: Homeowners must comply with local rental laws when renting out their ADUs. These laws may include rent control measures or tenant rights that need to be adhered to. Failure to comply with these regulations can result in legal action.

Occupancy Rules: There are rules regarding who can live in the ADU, which may include restrictions such as owner-only occupancy. These occupancy rules could potentially affect the rental income potential of an ADU.

Legal Risks: Non-compliance with zoning codes, rental laws, or occupancy restrictions can lead to fines and penalties. Homeowners also face the risk of legal action from tenants or neighbors if there are violations. Additionally, there is reputational risk associated with not adhering to legal requirements.

Homeowner Association Rules: Some neighborhoods have homeowner association (HOA) restrictions that apply to ADUs. Homeowners may need additional approvals from their HOA before building an ADU, and these requirements could conflict with local zoning laws.

Historic Preservation: If a property is located in a historic district, there may be special regulations in place that require consultation with preservation specialists. These regulations could potentially limit the design or construction options for an ADU.

Building Codes: Building codes set minimum standards for construction, including aspects like fire safety and accessibility. However, they can be onerous. Per AccessoryDwellings.org:

Researchers like Antoninetti and Brinig & Garnett argue that even in places that technically “allow” or “encourage” ADUs, the Rules are sufficiently difficult to meet that the production of permitted ADUs is near zero.

It is crucial to ensure that the ADU complies with these codes to avoid delays and additional costs.

Navigating the legal and regulatory challenges associated with building ADUs requires careful research and adherence to the requirements specific to each location. Consulting with professionals who specialize in real estate and local regulations can help homeowners overcome these hurdles smoothly.

Financial Barriers

Building accessory dwelling units (ADUs) as a homeowner can also present financial barriers. Here are the key considerations:

High Costs: Constructing an ADU can involve significant expenses. Check out prefab ADU costs breakdown for more info.. Costs include design, site preparation, materials, and labor. Per Shelterforce:

Total cost estimates start around $100,000 for an attached conversion project and soar to as much as $400,000 (or far more) for a high-end detached new build. So for all but the wealthiest property owners, getting one built requires taking out a loan.

Homeowners should be prepared for these costs and carefully budget for the project.

Property Taxes: Adding an ADU to a property often increases its value, which can lead to higher property taxes. This increase may affect the long-term affordability of owning an ADU. Homeowners should consider these potential tax implications when planning their financials.

Financing Issues: Securing financing for accessory dwelling units construction can be challenging due to limited specialized loan products and risk-averse lenders. ADU-specific loans may come with higher interest rates compared to traditional home loans. Laurie Goodman, an institute fellow at the Urban Institute, explains:

“A lot of lenders won’t take on the risk on renovation loans because the bank has no recourse until the renovations are complete and the loans are sold [on the secondary market]…“So if the loan defaults because the owner doesn’t do the renovation properly and has to sell the home at a loss, the lender incurs that risk.”

Homeowners should explore their financing options and be prepared for potential hurdles in accessing affordable financing.

Resale Complications: While an ADU has the potential to increase the resale value of a property, it may not proportionally increase it as expected. Appraisers often lack comparable properties with ADUs to determine their value accurately. Per Mercatus Center at George Mason University:

Owner-occupancy requirements may lead appraisers to rely only on comparable sales that likely do not include ADUs, rather than viewing the ADU as a potential income-generating unit.

Additionally, some potential buyers may not see the added value in having an ADU on the property, which can limit market demand.

Insurance: Building an ADU requires additional insurance coverage, separate from the primary dwelling’s policy. This additional coverage may result in higher premiums. Additionally, insuring separate structures within one property can be more complex than insuring a single-family home.

Utility Bills: The presence of an ADU typically leads to increased water and electricity consumption on the property. Separate metering for utilities in the main house and the ADU can add complexity and potentially require upgraded infrastructure to support adequate utility service.

Considering these financial barriers is essential when planning to build an ADU as a homeowner. Conducting thorough cost analysis, consulting with professionals in the fields of finance and real estate, and researching potential grants or financial assistance programs can help mitigate these challenges.

Design and Construction Issues

Space Constraints: One of the main challenges in building accessory dwelling units (ADUs) is dealing with limited space. Over half of Sacramento homeowners surveyed in June 2022 said limited space was a top reason not to build an accessory dwelling unit. ADUs are typically built on existing properties, which means there may be limited room for construction and expansion. Learn how to assess your property’s tiny home potential.

Utility Connections: Connecting utilities such as water, electricity, and sewage to an ADU can be a complex and costly process. Existing infrastructure may not be designed to accommodate additional units, requiring upgrades or modifications. For instance, consider septic tanks (via SnapADU).

If your property is on a septic system, it is almost certain that the ADU will need a new separate system. Design + installation for a new septic system can be handled as part of the overall ADU build process. A septic system for an ADU will typically cost an additional $30-40K.

Design Limitations: Designing an ADU that meets local building codes and regulations can be challenging. There may be restrictions on the size, height, setback requirements, and architectural style of the unit, limiting design options.

Time Commitment: Building an ADU requires time and effort. From obtaining permits to overseeing construction, it can be a time-consuming process that requires careful planning and coordination. One Redditor took 2.5 years to complete an 800 square foot garage conversion in Sunnyvale. On top of that, it cost $320,000. Consider himself lucky as this was only about 7% over budget. The point is you may spend a lot of your life for the next 1-2 years dealing with building your ADU.

Aging Infrastructure: In some cases, the existing infrastructure on the property may not be suitable for supporting an additional dwelling unit. This could include outdated plumbing or electrical systems that need to be upgraded or replaced.

Seasonal Issues: Depending on the location, seasonal factors such as extreme weather conditions or natural disasters can pose challenges during construction. These issues may delay the project or require additional measures to ensure safety and durability. Delays and uncertainty cost money. While Acton ADU calls weather issues a myth (“lumber mills have developed processes to counteract the inevitable bad weather”), how many subcontractors do you see working on rainy days?

Accessibility: Ensuring accessibility for individuals with disabilities is an important consideration when building an ADU as an investment. Disability access is not required by law. However, the American Disabilities Act states landlords cannot refuse “to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford … person(s) [with disabilities] equal opportunity to use and enjoy a dwelling.” Meeting accessibility requirements can add complexity to the design and construction process.

Contractor Issues: Does this need any explanation? Finding reliable contractors who have experience in building ADUs can be a challenge. It’s important to hire professionals who understand local regulations and have a track record of delivering quality work within budget and timeline constraints.

Utility Meters: Installing separate utility meters for an ADU can be costly and require coordination with utility companies. This is necessary for accurately measuring utility usage and billing tenants separately from the main property. In one project, a homeowner had to pay $15,000 to get separate water, gas, and sewer lines hooked up to the ADU. Since it required breaking up the road to access the main lines, specialty contractors had to be hired who charge premium rates. Traffic control was also needed during the work, adding even more to the cost. Utility connections ended up being one of the biggest unexpected expenses in the ADU build.

Community and Social Factors

Neighborhood Opposition: Building an ADU can sometimes face opposition from neighbors or community members who may be concerned about increased density, parking issues, or changes to the character of the neighborhood. Ahmad Abu-Khalaf, a planner and senior research analyst on the policy development and research team at nonprofit Enterprise Community Partners, released a report in 2020 on barriers to ADU development. One of the strongest obstacles is NIMBYism, the acronym for “not in my backyard”:

Proposals to increase density in predominantly single-family zoned areas often face local opposition. These proposals are generally perceived as a green light for high-density residential development, often conceived of as towering apartment buildings, that would lead to a range of issues, including high traffic, increases in demand for parking, drops in home value and changes in neighborhood character, among other concerns.

It’s important to address these concerns and engage in open communication with neighbors to mitigate any potential conflicts.

Privacy Loss: Adding an ADU to a property can result in a loss of privacy for both the homeowner and neighboring properties. Careful consideration should be given to the placement and design of the unit to minimize privacy concerns. Since many jurisdictions require owner occupancy, you could potentially be living with a tenant in close proximity (if you choose to rent the ADU out of course). Terner Center for Housing Innovation at UC Berkeley reports:

…a common concern expressed by focus group participants was dealing with tenants. Some participants shared that they were uncomfortable with the prospect of being a landlord and were anxious about the security implications of living so close to a stranger…

Parking: The addition of an ADU can put additional strain on parking availability in the neighborhood. Local regulations may require providing off-street parking for the new unit, which can be challenging if space is limited. Per Mercatus Center at George Mason University:

Parking requirements can make ADUs infeasible to build at many existing houses. A yard may present space for a backyard cottage within setback limits or an additional parking spot, but not both.

Environmental Impact: Constructing an ADU can have environmental implications, such as increased energy consumption and waste generation. It’s important to consider sustainable building practices and energy-efficient design options to minimize the environmental impact.

Noise Pollution: Depending on the design and layout of the ADU, there may be potential for increased noise pollution for both the homeowner and neighboring properties. Soundproofing measures should be considered during construction to minimize noise disturbances.

Market Saturation: In some areas, there may already be a high number of ADUs or rental units available, leading to market saturation. This could impact rental income potential or make it more challenging to find tenants for the ADU.

Gentrification: The addition of ADUs in certain neighborhoods can contribute to gentrification, which may lead to displacement of lower-income residents or changes in the socio-economic makeup of the community. It’s important to consider the potential social impacts and work towards inclusive development practices.

Management and Maintenance

Maintenance: Owning an ADU means taking on the responsibility of maintaining both the main property and the accessory dwelling unit. This includes regular upkeep, repairs, and addressing any issues that may arise, such as power outages.

Sewage and Waste: Proper management of sewage and waste is crucial when owning an ADU. Ensuring that the plumbing system is in good condition and that waste disposal is handled appropriately is essential for maintaining a healthy living environment.

Energy Consumption: Managing energy consumption in both the main property and the ADU can be a challenge. It’s important to consider energy-efficient appliances, insulation, and other measures to minimize energy usage and reduce utility costs.

Safety Concerns: Safety should be a top priority when managing an ADU. This includes ensuring that fire safety measures are in place, electrical systems are up to code, and security measures are implemented to protect both tenants and property.

Tenant Management: If you plan on renting out the ADU, tenant management becomes an important aspect of ownership. This includes screening potential tenants, handling lease agreements, collecting rent, addressing tenant concerns or complaints, and maintaining a positive landlord-tenant relationship. This all takes time if you are acting as your own property manager. If you decide to hire a property manager, you need to add in those expenses also. For instance, property management fees can be equivalent to 8.49% of the total monthly rent. Setup fees could average about $185.24, according to iPropertyManagement.

Family Dynamics: If you plan on having family members live in the ADU, it’s important to consider how this may impact family dynamics. Clear communication, boundaries, and expectations should be established to maintain healthy relationships within the household.

Local Services: Access to local services such as schools, healthcare facilities, grocery stores, public transportation, etc., should be considered when building an ADU. These amenities can greatly impact the desirability of the unit for potential tenants or family members living in it.

Miscellaneous Challenges

Skill Level: Building and managing an ADU requires a certain level of skill and knowledge. As pointed out earlier, an ADU may take a couple of years and hundreds of thousands of dollars to build. Construction will be ongoing. Since many of us work remotely now, the constant construction and coming and going of workers may be a distraction. It’s important to assess your own abilities and determine if you have the necessary skills or if you need to hire professionals for certain aspects of the project.

Short-term Rentals: Some areas have regulations or restrictions on short-term rentals, such as through platforms like Airbnb. It’s important to familiarize yourself with local laws and regulations regarding short-term rentals before considering this option for your ADU. Regulations against short-term rentals of ADUs curb (pun intended!) interest for ADUs. From a paper titled “The Effect of Short-Term Rentals on Residential Investment“:

We find that over the first 12 months following the start of the regulation, STR regulations reduce Airbnb listings by 11.3% and residential permits by 11.2%…The effect is especially pronounced for accessory dwelling units, which decline by 16.5% across regulatory boundaries.

The effect seems obvious. Many build accessory dwelling units to take advantage of Airbnb and short-term rental income. If that option isn’t there, then it’s financially unfeasible to proceed with building an ADU. So, the key is to be aware of any upcoming government regulations restricting ADU rentals before you go down this road.

Emotional Stress: Building and managing an ADU can be emotionally stressful. Dealing with construction delays, tenant issues, or financial concerns can take a toll on your mental well-being. You have to be prepared for the potential emotional stress that may come with owning an ADU.

While building and owning an accessory dwelling unit (ADU) can offer numerous benefits, it is crucial to acknowledge the challenges that come with it. From zoning restrictions and permitting hurdles to financial barriers and design limitations, homeowners must be prepared to tackle the legal, financial, and logistical obstacles that may arise. Additionally, community and social factors, as well as management and maintenance responsibilities, demand careful consideration. By understanding and addressing these challenges head-on, homeowners can better navigate the ADU journey, fostering a successful and rewarding experience for both themselves and their tenants or family members living in the ADU.