Buying a House With an ADU Rental Unit — Portia Green, REALTOR® — Cømpass

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Buying a House With an ADU Rental Unit

ADU to Lease as Rental Property

01 November 2022

Buying Properties

Buying a house can be full of difficult decisions, and for people looking for a different way to help pay for their mortgage every month, buying a home with an attached rental unit might just provide a monthly bump. That makes the payment a little easier to accomplish.

What Is an Accessory Dwelling Unit (ADU)?

An attached rental unit, formally called an Accessory Dwelling Unit (ADU), is typically a smaller living space adjacent to a main home. It might be a tiny house in the backyard, or something more like self-contained mother-in-law quarters attached to the house. It can even be a small apartment over the garage. There aren’t a lot of rules about what an ADU has to be, except that it should be fully autonomous.

The reason for autonomy is that this is what it takes to really have solid rental income potential from a secondary dwelling on a regular lot. Imagine if you were renting an apartment somewhere, you’d certainly want to have your own kitchen and bathroom, wouldn’t you? It’s difficult to rent units without these features, so typically, they’re part of any successful ADU.

What are the Benefits of Renting an ADU?

Having a rental can be a lot of work, but there are also a lot of benefits to having an ADU on your lot. Not only does the rent from an ADU help pay the mortgage every month, it can also act as flexible space for whatever life might throw at you down the way.

For example, when you first buy your home, maybe you really need help with the mortgage payment, so you use the ADU as a long-term rental unit with a tenant who has signed a year-long lease. This tenant not only pays the utilities for that unit, but they also help out with the mortgage by paying rent. It’s a great situation while you’re trying to pay down your mortgage and ramp up your income.

As time goes by, you might get tired of dealing with a long-term tenant, but you can still use that unit for short-term tenancy, if allowed by your neighborhood and city. Airbnb, for example, gives you the option to rent by the day or week, so you never have to stick with a tenant for too long. You can turn off being a landlord for a few weeks and go on vacation yourself without having to worry.

If AirBnB isn’t your thing, your ADU can still be used by your college-aged child or aging family member. Remember, these are essentially self-contained apartments, so they should provide a great deal of privacy and autonomy to anyone living inside. ADUs have long been favored by people with aging parents, hence the formerly popular nicknames “mother-in-law quarters” or “granny flat.”

Financing a Property With an ADU Rental Unit

If you’re looking for a house with a rental unit, you may also wonder how you’re going to finance it. Do you need a special kind of loan or is this edging into the realm of commercial financing? Not at all. Most mortgages will allow you to purchase a property that has up to four units on it. That’s a lot to handle if you’ve never had a rental, but a single ADU is pretty easy upkeep.

All you need to do is choose a property that you like and ensure that it will pass any requirements from your lender (your Realtor can help with this). Certain programs may have specific inspections, such as FHA, VA, or USDA, so you definitely want to let your lender know that you’re looking for a property with an ADU before you commit to your loan.

Preparing to Finance a House with an ADU

Well, you’re going to need a good lender who isn’t shy about writing loans on properties that might be a little less than typical. Your HomeKeepr community can help you find them! Just ask for a recommendation for the best lenders in your area and before you know it, you’ll have a home of your own, and a small rental unit to help pay the extra bills.

Already have that ADU in play? Compass can also help you maintain it. The list of home pros within our real estate community is staggering, and we can help you figure out exactly what kind of professional you’ll need to get the ball rolling.

Portia Green, REALTOR®

Portia’s clients all have a similar story. Most likely, you met her huddled around a tablet at the dinner table yet she feels like a friend. Her personable nature and easy going approach attract Sellers and Buyers alike, in what can be a stressful and emotionally charged event. A talented REALTOR® with 15 years experience, Portia is just as excited about real estate today as she was with her first transaction. She remains ever-committed to helping her clients find their place in the world and helping busy people navigate this crazy real estate market like a pro.

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