How ADU’s Can Improve Your Retirement

Accessory Dwelling Units (ADUs) can go by many names – backyard cottages, carriage houses, granny flats, mother-in-law flats, ancillary units, and many more – but whatever you call them, their general concept is to provide a separate living space within the same single-family property.

ADU’s are smaller, self-contained dwellings or living areas built within the property, and designed for the needs of the older homeowner. Easy-to-open cabinets and doors, wheelchair-capable access, accommodating bathroom fixtures, and the like can be incorporated, as well as modern efficiency improvements such as solar panels and improved construction materials.

Until the older homeowner needs it, the property can be rented out for income or used as a starter home for children or other relatives. When the time comes, the situation switches and the older homeowner moves into the ADU and the larger home is occupied by other family members, or rented out for income.

The advantages in retirement are obvious, especially with family members living nearby. Grandparents get to see their grandchildren more often, and working parents have a backup source for childcare. Older family members can be cared for more economically and with a greater quality of life and a better feeling of independence.

An AARP study in 2000 found that over 80% of older households preferred to age in their own home instead of alternatives like assisted-living facilities, and that 36% of respondents considered an ADU for their property in case they needed assistance in later years.

Why aren’t ADUs more prevalent? Regulations and zoning laws are the primary reason, compounded by the fact that ADU’s can take different forms. A separate home built on the property is a fairly straightforward classification, but what about the limitations on size? Can they be considered equivalent to a duplex? Does it matter if the home is mobile?

ADUs that are within the same building are equally tricky, if not more so. They may violate local ordinances on single-family dwellings, zoning laws, or even neighborhood covenants. Further, how are they classified? Is a basement apartment or a converted attic area over a garage equivalent to an addition built on to a house? How does it change the tax assessment?

Zoning definitions and restrictions vary widely. More progressive areas such as Portland, Oregon, and Santa Cruz, California, have worked out ADU-friendly zoning to encourage their use. Other areas are beginning to see ADUs as a way to increase affordable housing (and therefore the tax base) without engaging in speculative commercial housing efforts.

If you decide an ADU is for you, how do you proceed?

  • Check Zoning Laws – There is no point in making a plan until you verify what is allowed in your area. Verify the rules with your city Planning and Zoning department.
  • Set Your Plan – What is the purpose of the ADU? Is it for you, family members, rental, or all of the above at different times? You will want to design the space to make sure that everyone’s needs are met when it is their turn to occupy the ADU.
    If you decide to rent it out, make sure you are okay with the responsibilities of being a landlord. That typically gets more difficult as you get older.
  • Select a Builder – Find the proper builder/contractor and get preliminary costs based on your needs. Have a budget in mind to start with to give the contractor a place to start.
  • Financial Planning – How will you finance the ADU? A home-equity loan or a separate loan? Withdrawals from your IRA or 401(k)? Not only do you need to consider how to finance building the ADU, but you also need to consider income and tax ramifications. There may be time windows where it makes more economic sense to build (or conversely, to hold off).

With all of the above in place, you can execute your plan. You can then look forward to spending your later years living in your familiar surroundings, with loved ones nearby if you choose. Your grandkids can visit you with a simple walk across the yard – and you can send them home just as quickly when you need peace and quiet.

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