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Ask McEnearney: What is an ADU and can I add one to generate income?

This week’s Q&A column is written by Karisue Wyson, Director of Recruiting & Agent Support at McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article, contact Karisue at 703-615-0876 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.

Question: What is an ADU and can I add one to generate additional income?

Answer: Homeowners have been using their properties to earn additional income or expand their living options for as long as there have been shared living spaces.

Whether they are over-the-garage studios, garden or “English basement” apartments, in-law suites, “granny flats,” or stand-alone carriage houses, Accessory Dwelling Units (ADUs) offer passive income while also easing limited inventory in the rental market.

But what qualifies an ADU, how are they regulated and what should ADU-aspirers watch out for as they begin the process of expanding their property management?

Simply put, an ADU is a second residential area on a homeowner’s property. It can be detached from the main home or built within the primary as an attached but separate or walled-off living space for the privacy of the residents.

An ADU will have its own bedroom(s), kitchen and bath, and usually have a separate entrance, allowing residents to function independently of the main property.

As with most residential real estate, ADUs are subject to zoning regulations and homeowners can expect applications, permits, inspections and tax assessments when establishing or building an ADU (helpful local links are provided below). Homeowners should be sure to follow local guidelines and laws when establishing an ADU.

ADUs can require significant financial investment and can be as utilitarian or luxurious as desired, and homeowners should budget anywhere from $300-$500/SF or about $125k-$400K for renovations, excavations and construction. How an ADU will be used — for living, home office, working out, etc. — will determine how much space you need, what utilities are required, necessary parking, accessibility needs and other logistics.

Depending on zoning requirements and the size of the lot, ADUs can be as custom and expansive as “Tiny Homes,” new or pre-fab construction of completely independent homes with a very small footprint. More often in a dense metro area like ours where buildable land is scarce, ADUs are converted spaces, usually in basements or garages and can be creative challenges.

How the ADU is used is up to the homeowner and can become additional living space for family members or as an income-generating property for long- or short-term rentals. Pandemic living has shown us the ways the home is the center of our world and ADUs offer flexible family living, whether it be for multi-generational members co-existing under one roof, childcare or eldercare staff, age-in-place parents, work/school-from-home refuge, or an artistic escape.

Rentals, quickly becoming one of the fastest growing uses of ADUs, are subject to local regulations for short-term offerings (less than 6-months) like AirBnB or VRBO. For example, in Alexandria an ADU can’t have more than three people living in it and the ADU can’t be rented at the same time as the primary home. Homeowners should check their local jurisdiction to see if there are any grants or benefits for adding affordable rental units on their property.

One of the most promising, but hotly debated outcomes of the popularity and proliferation of ADUs is their impact on the local housing market. At a time when rental inventory is historically tight, ADUs allow homeowners to earn income while also alleviating rental pressure with affordable housing. Many people believe this is a win-win for communities — enriching homeowners at a time of rising inflation while also providing much needed independent rental inventory at a price range that is often non-existent in urban markets.

But detractors across the nation (including, currently, in Arlington) say that density housing, including ADUs, are crowding single-family neighborhoods and putting additional pressure on parking and utilities and lead to noise, crowding and increased taxes.

A decade ago, our local leaders were debating the value of ADUs, and the ensuing years have only increased the popularity and push for this type of supplemental housing. Local systems throughout the region have been updated and adapted to clarify qualifications, streamline applications and ensure consistency throughout the process, making ADUs an attractive option for homeowners with the space, budget and creativity to expand their homes and their real estate empire in the process.

For more information about ADUs, follow the links below and stay tuned for updates at our McEnearney Blog.

If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.

McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. Equal Housing Opportunity. #WeAreAlexandria

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