The Economic Viability of an ADU
Updated: Aug 22
Now that Seattle has fully embraced the Accessory Dwelling Unit (ADU), sometimes knows as a Mother-In-Law Unit, as a way of increasing density in the City without significantly changing or impacting the single family home characteristic of a neighborhood, the door is open for homeowners to generate legal income from their residence.
Also, after years of deliberation, legislation in 2009 also legalized the Detached Accessory Dwelling Unit (DADU) along with the previously approved Attached Accessory Dwelling Unit (AADU). So now free standing structures can be erected in the backyard or a detached garage can be converted to living space - provided the lot meets minimum size requirements.
Note that there are specific guidelines and requirements for both the AADU and the DADU concerning size, entrance door location, bedroom egress, electrical box location etc. This construction must also meet current Seattle residential, building, mechanical, electrical and energy codes. (See the attached PDF's for current code requirements)
From the City's point of view, ADU's will provide hundreds (or even more over time) of relatively affordable in-city apartments in the close-in urban villages which would afford tenants a shorter commute, greater amenities in more walkable neighborhoods and a quiet, homey ambiance quite different than the high rise apartment buildings going up on the busy arterials.
Last year the City revised and significantly loosened up ADU restrictions by allowing two units on site (in addition to the principal home) removing the parking requirement (as long as no current parking is removed) and stipulating that the owner is no longer required to live on-site. Pre-approved plans are also now available which will allow quicker and easier permitting for backyard cottages.
The financial cushion that an ADU provides a homeowner is substantial and could make the economic difference when deciding whether to rent or own. This additional income may provide buyers with the ability to purchase a larger home or to afford a home in their preferred neighborhood. I advise my buyer clients that they should take this into consideration when looking at homes (such as when choosing one with an unfinished basement to focus on those with a higher ceiling height and the potential to have a separate entrance) even though it may not be something that they are currently interested in. Circumstances do change and this option adds flexibility especially in times of unemployment or disability.
Rents in Seattle have nearly doubled in the past ten years and many ADU's now generate enough income to cover much of the mortgage and even real estate tax and insurance in some cases. This income boost could have kept some homeowners out of foreclosure during the Great Recession of 2008 and could be important during future economic disruptions.
Some people claim that they would not want to impact their privacy with the addition of an AADU but with close attention to entrance location and acoustical design, along with utilizing the latest sound mitigation products (such as Roxul insulation and QuietRock drywall), intrusive sound transmission can be mostly abated.
Besides rental income, homeowners could also use this space for an aging parent, an adult child, or as a room for an eventual caregiver (which would allow the homeowner to more easily age in place). Other than a monthly rental, there are also opportunities to run an Airbnb business out of this space.
Also, having someone around to watch over the house, if extended travel is in your plans, is another plus.
Another bonus would be the possibility of taking early retirement. Unlike in the past, many middle age homeowners who bought their homes later in life will be carrying a mortgage into retirement. This is usually the greatest monthly expense and may force a downsizing or a move to a less expensive area without the added income. And even after a mortgage is paid off, real estate taxes and insurance premiums must still be paid. Over time, the share of housing expenses covered by the ADU income stream should continue to increase.
Building a proper ADU is not inexpensive - but the inherent financial freedom of an income generating home provides a compelling reason to own rather than rent.