Will adding an accessory dwelling unit pay off?

Accessory dwelling units, or ADUs, are separate living spaces added to an existing home — typically on a single-family residential lot. That addition could include a converted basement or backyard cottage. ADUs can house older family members, provide lodging for young adult family members or serve as a source of rental income. Despite their utility, ADUs aren’t allowed in many areas.

Even where ADUs are legal, construction costs and higher property taxes can make them a costly investment. Before you build an ADU, weigh the pros and cons and look around your city to see what your neighbors are doing. Accessory dwelling units are known by many names: in-law suites, guest houses, backyard cottages, or basement or garage conversions, among others. What all ADUs have in common is that they’re a separate living space typically added to a single-family residential lot, and they’re having a moment.

Constructing an ADU could increase your property value while providing rental income or extra living space for a family member. Then again, adding an ADU could be an expensive hassle you live to regret.

If you’re thinking about an ADU, here’s what to consider before you commit.

Why ADUs are increasingly popular

In recent years, several cities and some states — including California, Oregon and New Hampshire — have passed laws making it easier for homeowners to create ADUs, in part to address housing shortages and rising costs that have led to an affordability crisis in many communities. ADUs are seen as a relatively inexpensive way to increase the supply of more affordable housing without drastically changing the character of residential neighborhoods.

Demand is also being fueled by the aging of the U.S. population, says Rodney Harrell, vice president of family, home and community for AARP, which publishes a guide called “The ABCs of ADUs.” People are considering adding space for older family members or caretakers. The pandemic may have accelerated that trend, as people looked for alternatives to the nursing homes where at least 175,000