Paying for Your ADU

An ADU is a serious investment, but it’s also one that can pay off over time through rental income, selling the unit, increased property value, or family support. Let’s talk cost, financing, and how to plan ahead.

What Does an ADU Cost?

It depends on the type and design:

  • Basement or garage conversion (AADU) generally costs less.
  • Detached backyard cottage (DADU) is generally more expensive.

Costs vary based on:

  • Size and layout
  • Design complexity
  • Materials and finishes
  • Site conditions (access, slope, critical areas, trees)

How Do People Pay for It?

Most homeowners use a combination of savings and financing. Common options include:

  • Home equity loans or lines of credit (HELOCs)
  • Cash-out refinancing
  • Construction loans
  • Personal loans (for smaller projects)

Tip: Many banks don’t count potential rental income when assessing loan eligibility, so plan financing based on current income.

Planning to Rent It Out?

If you plan to generate rental income:

  • That income can help you repay the loan
  • You may qualify for different financing options
  • You’ll need to follow landlord and rental rules (see “Moving In” section)

Thinking Bigger?

Some homeowners choose to:

  • Condo-ize their ADU (make it legally separable)
  • Sell the ADU later as a separate unit (requires upfront legal and permitting steps)

This route has more complexity, but it may also offer long-term financial flexibility.  Talk to a contractor, architect, and land-use lawyer early, as they can help you scope your budget and avoid surprises.

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