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The Many Faces of ADU Housing: From Guest Houses to Rental Opportunities

The front entrance of a manufactured home is pictured. Properties like these can benefit from adding accessory dwelling unit (ADU) housing to their location.

There’s a lot of potential in expanding your home’s livable space. Spare bedrooms, rental opportunities, and more – it’s no wonder many mobile homeowners dream about building new rooms and making other additions to their properties.

However, it is not necessary to demolish walls or expand your personal house to unlock these exciting possibilities. Accessory dwelling units, or "ADUs," are stylish, potentially profitable additions you can make to your home under certain circumstances. In this article, we will explore what ADUs are, the different types of ADUs, and how you can secure financing for the best ADU for your property.

What is an ADU?

An accessory dwelling unit is a secondary living space located alongside a primary residence. For example, imagine that you have a shed next to your mobile home that's on the same land parcel as your primary property. If you turn that shed into a livable place, it could qualify as an ADU.

Some other examples of ADUs include:
  • A converted garage, basement, or attic
  • A guest house constructed next to the primary residence
  • An apartment over the garage

From a legal standpoint, an ADU is part of a bigger piece of real estate that contains a primary house. Because of this, you can’t purchase or sell an ADU home separately – instead, any ADUs on a primary property, including mobile or manufactured real estate, are bought and sold as part of the overall property package.

ADU vs. “regular” housing

The biggest difference between an ADU and regular real estate is whether the property in question is “primary.”

Imagine a normal manufactured house on a plot of land. The house is the primary property. An ADU built onto the same parcel of land, like a guest house or garage converted into a spare room, is a secondary property.

The primary property is larger than the ADU, usually has more connected appliances and accessories (at least at first), and is the property on the deed for the home.

A potential floor plan for an ADU under construction.

Types of ADUs

As you think about whether you should add an ADU to your home, keep in mind that there are several different types of accessory dwelling units you can construct. These types of ADUs have different implications for property value, property taxes, and more.

The major kinds of ADUs include:
  • Detached ADU homes, which are standalone housing units on the same lot or land parcel as the primary real estate property. Think of a guesthouse or a shed converted into a tiny home.
  • Attached ADUs, which connect to the primary property. A good example is a second garage you convert into a small living space. Attached ADUs could have shared or separate entrances from the main house, depending on their construction.
  • Interior conversion ADUs, which are accessory dwelling units constructed within a primary property. Basement or attic conversions are included in this ADU type.
  • Junior ADUs, which are only available in certain states, such as California. A junior ADU is an independent living space that has less than 500 sq. ft. and is located within the primary property.

Why build an ADU on your property?

There are lots of great reasons to think about adding ADU housing to your mobile or manufactured home! These home renovation projects are very popular among single-family homeowners for reasons like:

  • Extra housing space. Say that you need to invite a family member to live in your home for an extended period of time. If you have ADU housing, they can have their own private space for the duration of the arrangement.
  • Rental income. With a spacious ADU, full plumbing, and other amenities, you could rent out the accessory dwelling unit on your property to make some extra money each month.
  • Improvements to property value. If you build a top-notch ADU for your mobile home, you could potentially charge more money when you sell that property in the future.

Does an ADU increase property tax?

ADU housing is a fantastic upgrade to many mobile homes, but remember that adding an ADU to your home could also lead to changes to your property taxes.

When you build an ADU for your property, your property taxes increase accordingly. However, don’t worry about the ADU triggering a property tax reassessment for your house! Instead, your property taxes just increase based on the value of the accessory dwelling unit.

Let’s look at an example:
  • Say that you build an ADU worth $50,000 next to your primary home.
  • That $50,000 of value is added to your property tax total.
  • If the property tax rate is 1%, that means you’ll need to pay another $500 in property taxes per year.

The “value” of an ADU depends on a lot of factors, like square footage, the amenities and rooms included in the ADU, and whether it has a separate entrance.

Even with the caveat of an ADU increasing your property tax, adding one to your property might be a phenomenal way to boost property value and enjoy extra living space for your family plus any guests!

Additional living space in a property's attached ADU. Adding an ADU can increase the property's overall value.

What states allow ADUs?

Not all states allow the construction of accessory dwelling units, so it’s important to look at the rules and regulations for ADUs within your state before buying materials or hiring contractors. Every state either allows ADUs or structures very similar to ADUs, but each has its own set of requirements and restrictions.

For instance, Colorado ADUs must include independent living facilities and can’t be separate detached structures (in other words, they have to be attached to the primary property). It’s not the same way in California, which does allow detached accessory dwelling units along with much more flexibility in terms of zoning.

Because building an ADU is a distinct process in each state, it’s smart to do extensive research into your state’s ADU requirements as soon as you think you might want one. Keep in mind that each state’s ADU requirements may also affect financing options, the terms for ADU loans, and where you can get them.

How to finance an ADU

The best ADUs are comfortable to live in, have lots of space, and are built in adherence to both the ANSI A119.5 and HUD building codes. These codes have strict standards regarding ADU construction, durability, and safety, and they’re important for getting financing for any future ADU you want to build.

Financing the construction of ADU housing is possible in a few different ways. For instance, you can save up money until you have enough in the bank to build a guest home or redo your garage to make it into an ADU.

For many homeowners, the best way to finance an ADU renovation is to refinance their primary mortgage, such as through a cash-out refinance. With a mobile home cash-out refinance, you can take out a new mortgage and leverage a portion of your home’s equity to receive a lump sum. Then, you can use that money to finance the construction of an accessory dwelling unit.

However, you can also get the money to build a new ADU from a separate loan, such as a “home-only loan.” Home-only financing is advantageous if you don’t own the land your ADU will sit on, as it only covers the cost of building a new accessory dwelling unit, not purchasing the land below it. Because of this, home-only loans can be affordable and accessible for mobile homeowners, especially if you finance with 21st Mortgage.

A mobile home ADU with seating on the porch and roof space.

Get in touch with 21st Mortgage today about financing an ADU

Adding an ADU to your property might be the best possible renovation you can make, especially if you’re looking to boost your home’s property value or make sure your parents have a place to stay as they downsize. Getting the financing you need to purchase an ADU is easy with 21st Mortgage.

Our loan officers can help you refinance your home loan with a cash-out refinance, especially if you’re already a partner! Contact us today to get started and learn more about our financing solutions.

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