What is an Accessory Dwelling Unit?

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By Dave Hansen Dani Romero

May 21, 2026

Key takeaways

• Building an accessory dwelling unit, or ADU, can cost anywhere from about $60,000 to $720,000 depending on size, design and location, with most projects taking six months to more than a year to complete.
• Costs extend well beyond construction. Homeowners must account for permits, site preparation, utility hookups and local zoning or homeowner association rules, which vary significantly by market.
• Adding an ADU can raise a home’s value and generate rental income, but it may also increase property taxes because the additional unit boosts the property’s assessed value.

They’re known as “granny flats,” “casitas,” carriage houses and in-law suites, but the official term is an accessory dwelling unit, or ADU. An ADU is a secondary home on the same lot as a primary residence.

It can be a detached structure or created by converting space such as a basement, attic or garage. Homeowners use ADUs for guest housing, rental income or additional living space, including home offices.

Interest in ADUs is growing as rules begin to loosen. Zoning requirements, costs and financing programs still vary by location and can change over time, so homeowners should check local regulations before building.

Changes are already underway in some areas. In Colorado, for example, an executive order issued in 2025 pushed local governments to allow more affordable housing options, including ADUs. Construction had been blocked in many municipalities before the order.

For homeowners, the policy moves open up more flexibility to add living space on existing properties, while developers are increasingly turning to ADUs as a lower-cost way to boost housing stock.

“They expand supply in places near jobs and schools without large rezones, which helps with availability and affordability over time,” said Whitney Hill, co-founder and CEO of SnapADU, a San Diego-based firm.

These share a wall with a primary home but function separately, with a private entrance and amenities. Attached ADUs usually have utility, sanitation and electrical access to a primary residence. This can simplify renovations and upgrades and make them more cost-effective.

These structures stand apart from a primary residence. Examples include garages located away from the main house, sheds and former carriage houses. Detached ADUs typically require more extensive renovations. The cost of building can include running power, plumbing and sanitation lines from the main house. These spaces may have more structural needs, such as roofing concerns.

ADUs within the main property are also a common type of smaller secondary housing. These types of dwellings are within the home's existing space, like a basement or attic. They can have private entrances and may be less costly since they are inside the main home.

While used interchangeably, a tiny home and an ADU are not always the same. Tiny homes tend to be below 400 square feet, while ADUs can range up to 1,200 square feet. Tiny homes are often on wheels and qualify as an RV. ADUs are permanently fixed to a foundation. Tiny homes have a lower entry cost.

Start by identifying the goal, such as rental income, resale value or housing for family. That will guide decisions on design, layout and budget.

“Borrow from proven plans and layouts,” Hill said.

Building an ADU involves many of the same steps as constructing a small home. Early research into zoning, permits and costs can help avoid delays and unexpected expenses.

Quick checklist before starting an ADU project:

• Check local zoning rules and size limits.
• Confirm homeowner association, or HOA, restrictions, if applicable.
• Get cost estimates that include permits and site work.
• Explore financing options such as HELOCs or construction loans.
• Review potential property tax changes.
• Update insurance coverage.
• Review rental requirements if leasing the unit.
• Schedule a feasibility study with a builder.

Builders price ADUs by square footage, typically ranging from $150 to $600 per square foot depending on location, construction type and materials.

A 400-square-foot unit may cost $60,000 to $240,000, while a 1,200-square-foot ADU can range from $180,000 to $720,000.

Many homeowners underestimate costs beyond construction. “It’s common to have $60,000 to $100,000 plus all costs beyond the building itself,” Hill said. Those costs include feasibility and design studies, property reports, construction documents, permits and city fees, site work and utility connections such as electricity, sewer and water lines.

“Ground yourself in real numbers,” Hill added. “Online ballparks are rarely all-in. There’s often $80,000 to $150,000 in site, utility and permit costs beyond the building itself.” A feasibility study can provide a more accurate estimate by outlining site-specific costs.

ADU type                                   Average minimum price              Average maximum price

Basement conversion                              $60,000                                        $150,000

Garage conversion                                  $60,000                                        $150,000

Attached new construction                     $100,000                                       $216,000

Above-garage construction                    $128,000                                       $225,000

Detached new construction                    $110,000                                       $285,000

Source: Angi.com

Homeowners can finance an ADU, but traditional mortgages are typically not used for standalone construction. Most rely on a home equity line of credit or a fixed-rate second mortgage.

“Some lenders offer construction or renovation loans and a few [construction-to-permanent] products,” Hill said.

Renovation loans offer another option. Programs such as Fannie Mae’s HomeStyle Renovation loan allow borrowers to finance the construction or conversion of an ADU as part of a single mortgage. These loans combine the cost of the home and improvements, reducing the need for cash or higher-interest financing.

Recent updates from Fannie Mae have expanded how ADUs can be financed. New rules allow single-family homes to include up to three ADUs, while smaller multifamily properties can add ADUs within a four-unit cap.

The changes also allow rental income from an ADU to count toward loan qualification, subject to limits, which can help borrowers qualify for a mortgage.

Eligibility has also expanded to include more types of properties, including certain manufactured homes, giving borrowers additional flexibility.

Building an ADU typically takes six months to more than a year, including planning, permitting and construction. Timelines vary based on location and project complexity.

Permitting is often the longest phase and can take several months, although some cities have streamlined approvals. Construction may take three to six months for a site-built unit. Prefab or modular ADUs can be completed faster because much of the work is done off-site.

Delays are common, especially in areas with high permit demand or on properties with site constraints. Starting early with design and permitting can help keep a project on track.

Most projects require a building permit, zoning approval and permits for utility connections such as water, sewer and electricity. Some jurisdictions also require design review or neighbor notification.

Permit requirements and costs vary widely by location and are a significant part of the budget. Skipping approvals can lead to fines or require removal of unpermitted work.

ADUs must comply with local building codes and zoning ordinances.

Building codes set safety and construction standards, covering structural elements, exits, smoke alarms, HVAC systems and window requirements.

Zoning ordinances govern how properties can be used. They may restrict whether ADUs are allowed, set minimum distances from the main home or property lines, and cap their size. For example, Richmond, Virginia, requires that an ADU “cannot exceed one-third of the floor area of the main single-family dwelling or 500 square feet, whichever is greater.”

Some states and cities have long supported ADUs, while others have recently eased rules to address housing shortages. California, which passed the first ADU law in 1982, remains one of the most ADU-friendly states. Washington and Oregon also have permissive laws. Richmond now allows ADUs by right in residential areas, and San Jose, California permits owners to sell ADUs as condos.

Many local governments limit ADU size, often between 400 and 1,200 square feet, and impose height, setback and placement requirements. These rules can affect where and how a unit is built.

State laws in some areas override stricter local rules. Checking zoning requirements early can help avoid redesigns.

Adding an ADU typically increases a property’s assessed value, which can raise property taxes. The change depends on local assessment methods and the value of the new unit.

Some states offer caps or exemptions, but policies vary by location. Checking with a local tax assessor can help clarify the impact.

In some states, ADUs can be used as a primary residence, though most are treated as secondary units.

Rules are evolving. Some jurisdictions allow ADUs to be rented without owner occupancy, while others are beginning to allow separate sales or ownership structures.

“As more jurisdictions allow separate sale of ADUs, they will also open new ownership paths for units of a more affordable size than many larger homes,” Hill said.

In most areas, ADUs can be rented for long-term stays. Short-term rentals are often restricted or require additional permits.

Owners must comply with local landlord and rental rules. Some cities require registration or permits before leasing the unit.

Homeowners associations may restrict or prohibit ADUs through their governing rules. Even where local laws allow ADUs, HOA requirements may still apply.

Some states limit HOA restrictions, but these protections are not universal.

A standard homeowners insurance policy may not fully cover an ADU. Owners may need to update coverage or add a rider.

Landlord insurance is typically required if the unit is rented.

Zoning laws may prohibit additional dwellings on a property. Building codes will govern what can be built, and permits are necessary for construction.

Most ADUs cost between $150 to $300 per square foot, according to 2026 data from home services marketplace Angi. Prices vary by type of construction and size of unit. The costs will include labor, materials and legal permits/inspections. Homeowners also should set aside an emergency fund, possibly 10% of the costs.

Homeowners can choose multiple funding structures. Many choose a home equity line of credit, a home equity loan or rely on savings or investments.

Review contractors who are credible. Ask friends and family for recommendations or find a local resident who operates an ADU to ask who they used. Once you get a few candidates, ask for quotes and estimated time of construction.

Ask contractors how long each part of the project will take, adding extra days for unanticipated construction issues. Consider starting a project after vacations or major events on your schedule.

Build an ADU that is attractive to tenants, if that is your target market. ADUs intended for aging parents should have accessibility features such as larger doorways, walk-in showers or railings in the hallways. If your ADU will be a rental, build it so that the space will be attractive and marketable to tenants.  

After completing an ADU, a homeowner can test it for themselves by being the first person to stay overnight. See for yourself if there are any amenities residents will need or anything you need to fix before leasing.

• Will building an ADU increase my property value?A permitted ADU can increase property value, although the impact depends on local market demand and zoning.
• Can I build an ADU on a rental property I own?In many areas, ADUs are allowed on rental properties, but rules vary. Some jurisdictions require owner occupancy.
• What is the difference between a detached and attached ADU?A detached ADU is a separate structure. An attached ADU shares a wall or is built within the main home, such as a basement or converted garage.

This story was updated May 21, 2026 by Homes.com.