07-05-2025
Can an accessory dwelling unit put an end to your housing crisis? Here's where to start.
Can an accessory dwelling unit put an end to your housing crisis? Here's where to start.
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Accessory dwelling units (ADUs) are gaining popularity as backyard additions for various purposes, including housing family members, creating office spaces, or generating rental income.
Prefabricated ADU kits offer a streamlined construction process, with companies like Studio Shed delivering pre-built units ready for assembly.
The cost of ADUs varies widely, starting from around $40,000 for basic models and reaching upwards of $250,000 for larger, more elaborate designs, with additional expenses for site preparation and utility connections.
A mail-order catalog in the late 1800s could easily lead to a home purchase. Sears, Roebuck and Company offered five-bedroom Craftsman-style homes — complete with lumber, siding, windows, doors, shingles, flooring, even the kitchen sink — for $1,945. Supplies were delivered via railroad boxcars. Customers assembled the homes themselves.
The concept is alive and well today. Take Catherine MacNeal's Vashon, Wash., studio, for example. MacNeal's 12-by-16-foot retreat, nestled among a half-acre of lavender plants, was ordered from Studio Shed, a Boulder, Colo.-based company that offers eco-friendly prefabricated structures.
Sleek and modular with French doors and windows across the front, it has mountain and water views. With a Duxiana bed, kitchenette, bathroom and easy access to boating and kayaking, it has all the trappings of a lovely getaway.
Known as an accessory dwelling unit (ADU), these tiny buildings are popping up in backyards across the nation as space for in-laws, offices or rental units.
MacNeal rents her Betty's Blue studio 10 months out of the year on for $140 to $165 a night, and her total rental income for the studio ranges from $22,000 to $27,000 per year.
'Because it's small and easy to clean, I usually do it myself, so overhead is minimal,' she says. 'And there are only a few amenities and improvements each year.'
Manufactured in Studio Shed's factory, MacNeal's ADU was built to local government code and shipped to her as a kit that included drywall, lighting, flooring, paint, appliances, cabinetry, countertops and finish items. A Studio Shed contractor built the foundation, assembled the ADU and trimmed the interior and deck. Local technicians completed the bathroom, electrical wiring and heat panels — all at an extra cost.
When Rene Daniella bought her Los Angeles home, it already had an ADU; she rents it to family and friends for $3,000 a month or about $125 a night. 'The rent is a substantial portion of my monthly mortgage, so it's a great investment,' she says.
Budgeting for an Accessory Dwelling Unit
In 2008, Jeremy Nova, Studio Shed's co-founder, created a storage solution for his mountain bikes. Fast forward to today, and he produces 500 Studio Sheds a year, starting at $39,000 for a 12-by-16-foot studio to a two-bedroom that goes for around $250,000.
When mapping out your plans, it's important to remember the additional costs. 'The major expenses outside of our kit are the foundation and the cost to connect utilities to the site,' Nova says. 'Our prices include the plumbing and electrical work inside the building but not the cost of trenching and installation of those utilities to the site.'
Nova's not the only one who sees huge potential in this market. Dwell makes ADUs starting at $439,000. So does Cottage, starting at $200,000, and Abodu, starting at nearly $230,000. Even Airbnb co-founder Joe Gebbia's company Samara is offering a studio ADU starting at $279,000.
'The demand for ADUs increased steadily prior to the (COVID-19) pandemic and continues to grow,' says Gregg Cantor, president and CEO of San Diego-based design and construction firm Murray Lampert. 'Zoning, parking and building regulations are favorable for ADUs here.'
With the median price of homes in San Diego upward of $1 million, ADUs are very popular as rental units.
What to know before you build your ADU
A typical timeframe to build a detached ADU is approximately six to eight months depending on existing conditions, architecture and finishes.
'It is important to get a feasibility study of the property to determine if surveying, soils engineering, utility upgrades or right-away improvements will be required,' Cantor says.
Securing permits starts with submitting construction documents to your local municipality. 'In some areas of the country the permit process takes a couple weeks, in others it can take as long as six to nine months,' Nova says. 'Laws governing ADUs are mostly at the local level and all states allow them in some form in some places. It's a pretty regional patchwork of regulations.'
Can ADUs add value?
The rental income from your ADU depends on where you live, the size of your ADU and how many bedrooms it has. 'In the short term, the added value of an ADU to an existing property is at least equal to the cost of the work,' Cantor says.
The fully furnished ADUs his company builds include design, permit fees and construction costs and range from $200,000 to $500,000.
'In San Diego, real estate values have continued to rise and there's a housing shortage,' Cantor says. 'Long term, ADUs add value and passive rental income, making properties worth more in resale.'
