What’s an ADU — and why are so many homeowners building one?
Accessory Dwelling Units (ADUs), also called backyard cottages, granny flats, or in-law suites, are popping up across cities from Los Angeles to Portland to Austin. These small, self-contained homes on existing residential lots are becoming a popular way for homeowners to create rental income, house relatives, or simply make better use of their property.
In this guide, we’ll break down what ADUs are, why they’re on the rise, how returns vary across states, and what to consider if you’re thinking of building one. We’ll explore how these small homes fit into changing urban housing patterns, who they benefit most (from young professionals to aging parents), and what it takes to make an ADU investment worthwhile.
ADU 101: The Basics
An ADU is a secondary housing unit on a single-family lot. It can take several forms:
- A detached structure (like a backyard tiny house)
- A garage conversion
- A basement or attic apartment
ADUs typically include their own kitchen, bathroom, and entrance — giving occupants privacy and independence.
Why ADUs Are Gaining Popularity
According to U.S. Census Bureau and Urban Institute data:
- ADU permits increased 35% nationally in 2024.
- California, Oregon, and Washington lead the nation in ADU approvals, thanks to progressive zoning reforms.
- In Texas and Florida, ADU growth is rising fast as affordability challenges push homeowners to seek new income streams.
Key drivers:
- Rising housing costs making extra rental income attractive.
- Multi-generational living needs.
- Cities seeking gentle density without major neighborhood disruption.
Do ADUs Pay Off? Regional Variations and ROI
ADU construction typically costs between $100,000 and $200,000, depending on location and size. In high-rent markets like Los Angeles or Seattle, owners report average monthly rents of $1,800–$2,500 for a well-designed unit — meaning breakeven often happens within 6–10 years. In lower-rent areas, the payback period can stretch longer, but owners still see value in property appreciation and flexibility.
“In Portland, my ADU covered its cost in 7 years — and I’ve had zero vacancy,” says a homeowner who built in 2016.
The Pros and Cons
Advantages:
- Extra income stream.
- Flexible space for family or work.
- Adds value to your property.
Challenges:
- Upfront construction cost (often $100,000+).
- Navigating permits and regulations.
- Potential for neighbor pushback in some areas.
What to Know Before You Build
- Check local laws: Zoning, size limits, parking requirements vary widely.
- Budget carefully: Get multiple bids and account for utility hookups, permits, and potential impact fees.
- Consider your timeline: In some cities, permitting alone can take 6–12 months.
- Think long-term: Consider how an ADU fits your financial and lifestyle goals.
Pro tip: Talk to homeowners who’ve built ADUs — their insights can save you time and money.
The Bottom Line: Small Homes, Big Impact
ADUs are helping cities add housing in a thoughtful way — and giving homeowners new options in a tight market. Like any major project, success comes down to smart planning and understanding local conditions.
