In real estate, an ADU — an accessory dwelling unit — is a self-contained second home on the same lot as a single-family house, with its own kitchen, bathroom, and sleeping area. Federal housing policy treats the ADU and the main house as a single real estate interest, meaning they share one deed and transfer together.1U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook Glossary You’ll also hear them called granny flats, in-law suites, or backyard cottages. Thousands of municipalities now permit them, and more than a dozen states have passed laws requiring local governments to allow them in single-family zones.
The Four Forms an ADU Can Take
Which type fits a given property depends on the lot, the existing house, and local rules.
A detached ADU is a freestanding structure, often a backyard cottage or a unit built above a detached garage. It offers the most privacy for both the homeowner and the occupant, and it is usually the most expensive option because it needs its own foundation, utility connections, and full framing.
An attached ADU shares at least one wall with the main house and is typically built as an addition off the side or rear.
An interior conversion carves a separate unit out of existing space, such as a finished basement or attic that gains its own entrance, kitchen, and bathroom. Conversions tend to cost the least because the shell is already there.
A junior ADU, or JADU, is a smaller subcategory capped at roughly 500 square feet and built entirely within the footprint of the existing single-family home. A JADU often converts a spare bedroom and may keep an interior connection to the main house while also having a separate outside entrance.2California Department of Housing and Community Development. Frequently Asked Questions – Junior Accessory Dwelling Units
What Makes a Space Legally an ADU
A bonus room or finished garage is not an ADU. To qualify, the space has to function as an independent residence, which under federal housing policy means it must include kitchen, sleeping, and bathroom facilities.1U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook Glossary In practice that comes down to four things:
- Permanent cooking facilities — at minimum a stove or cooktop, a sink, and space for a refrigerator.
- A private bathroom with a toilet, sink, and either a shower or tub.
- A designated sleeping area that separates the unit from a studio or home office.
- A separate entrance that doesn’t require walking through the main house. JADUs are often an exception, since they may keep an interior connection.
Local building codes layer on more technical standards — minimum ceiling heights, natural light, ventilation, and emergency egress — that the finished unit has to meet before it can be occupied.
Where You Can Build One and How Big
Zoning ordinances and building codes decide where ADUs are allowed, how large they can be, and how they have to sit on the lot. The specifics vary, but a few patterns show up almost everywhere.
Size Limits
Most jurisdictions cap the square footage. A common ceiling is 1,200 square feet, though many codes tie the maximum to a percentage of the primary home’s living area (often 50 percent) or to the lot size. Minimums usually sit around 200 to 250 square feet. JADUs are generally limited to 500 square feet or less.
Setbacks and Height
Zoning codes require ADUs to sit a minimum distance from property lines and impose height limits to keep the second structure from towering over neighbors. Detached ADUs typically face stricter setback and height rules than attached units or conversions.
State Preemption
Since 2017, a growing number of states have passed laws forcing local governments to allow ADUs in single-family zones. Some of those laws also bar localities from imposing excessive lot-size minimums, parking requirements, or owner-occupancy mandates. If you live in a state with this kind of legislation, it may override a stricter local ordinance.
HOA Rules Can Still Block You
Even if zoning allows an ADU, a homeowners association can prohibit one. CC&Rs recorded against the property may restrict additional structures, impose tighter size or height limits, or ban rentals outright. In most states, these private deed restrictions survive alongside public zoning reforms, so an HOA rule can effectively block a unit the city would otherwise approve. A few states have addressed this conflict in their ADU statutes, but many have not. Pull your CC&Rs before spending money on design or permits.
Building without the required permits, or outside size and setback limits, can trigger fines that accumulate over time and, in serious cases, a court order to remove the structure at your expense. Unpermitted work also tends to surface later when you try to sell, because lenders and title companies flag structures that lack proper documentation.
Can an ADU Be Sold or Rented Separately?
Sale
In most jurisdictions, no. The ADU and the primary home share a single deed and must transfer together. A small number of states have begun creating narrow exceptions — allowing separate conveyance when a qualified nonprofit is involved, for example, or through condominiumization with local government approval — but these remain the exception.
Owner Occupancy
Some local codes require the property owner to live in either the primary home or the ADU, on the theory that it keeps owners from converting both units to rentals. The requirement has become controversial, and at least eleven states (including California, Oregon, Washington, Colorado, and Massachusetts) have banned local owner-occupancy mandates for ADUs.
Short-Term Rentals
Many jurisdictions restrict or ban short-term rentals (stays under 30 days) in ADUs. Where those limits apply, the unit can typically be rented only on month-to-month or longer leases. Some areas allow short-term rentals only if the owner lives on-site. The point is to keep ADUs working as long-term housing rather than as vacation rentals.
What It Costs to Build
Costs vary widely with the type of unit, local labor and material prices, permit fees, and the level of finish. As a rough national guide, total project costs in 2025 generally fell between $150,000 and $350,000, with custom detached units sometimes exceeding $400,000. Conversions of existing garages or basements tend to land at the low end.
Permit fees typically run from a few hundred to several thousand dollars depending on the jurisdiction and scope. Utility connection fees are a separate line item: extending water and sewer from the main house is usually cheaper than running new connections from the street, and the electrical panel may need an upgrade to support a second dwelling. Some states cap or waive certain impact and connection fees for ADUs, so it is worth asking whether your jurisdiction offers any reductions.
Ongoing costs include higher property taxes (see below), increased homeowner’s insurance to cover the second structure, and maintenance. If you rent the unit, you also take on landlord responsibilities — tenant screening, repairs, and compliance with landlord-tenant law — and landlord or umbrella insurance is worth considering.
How People Finance an ADU
Several mortgage products can cover ADU construction, and federal mortgage agencies have updated their rules to make this easier.
Fannie Mae treats an ADU like any other home feature or improvement, so standard purchase, refinance, and affordable lending products apply. Borrowers building a new ADU on a property they are buying or refinancing can use a HomeStyle Renovation loan to roll construction costs into the mortgage. The property has to be a one-unit dwelling: two-to-four-unit properties and manufactured homes as the primary residence are not eligible, and only one ADU per property qualifies.3Fannie Mae. Accessory Dwelling Units
On the FHA side, rules finalized in 2024 let borrowers use projected rental income from an ADU to help qualify for a 203(k) renovation loan.4U.S. Department of Housing and Urban Development. Mortgagee Letter 2024-04 The 203(k) program covers attached ADU construction and renovation of existing units (both attached and detached), but building a brand-new detached ADU from scratch is not eligible.
Fannie Mae also lets rental income from an existing ADU on a one-unit principal residence count toward qualifying income, capped at 30 percent of the borrower’s total qualifying income. Lenders calculate qualifying rental income by multiplying gross monthly rent by 75 percent to account for vacancies and maintenance.5Fannie Mae. Rental Income For borrowers who couldn’t qualify on their own earnings alone, that can be the difference.
Taxes If You Rent It Out
Rental income from an ADU is taxable and has to be reported on your federal return. You can deduct ordinary and necessary expenses tied to the rental portion of the property — repairs, insurance allocated to the unit, utilities, and a share of property taxes — to offset that income.
The IRS lets you depreciate the cost of a residential rental structure over 27.5 years using the straight-line method under MACRS. Depreciation applies to the structure only, not the land. If you converted existing personal-use space, like a basement, your depreciable basis is the lesser of your adjusted basis or the fair market value on the date you placed the unit in rental service. A newly built ADU is treated as a separate property for depreciation, with the 27.5-year clock starting when the unit is ready and available to rent.6Internal Revenue Service. Publication 527, Residential Rental Property
Completing an ADU usually triggers a property tax reassessment on the new construction. The assessor adds the value of the newly built or converted space to your existing assessed value; the land and original home are generally not reassessed just because you added an ADU. Increases in the range of a few percent to 20 percent of your prior bill are common, depending on local rates. Call your county assessor’s office before you build so you know what to expect.