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Windermere Real Estate in Seattle


The Economic Viability of an ADU

Posted on September 20, 2010
Now that Seattle has finally fully embraced the Accessory Dwelling Unit (ADU), sometimes known as a Mother-In-Law Unit, as a way of increasing density in the City without changing or impacting the single family characteristics of a neighborhood, the door is open for homeowners to generate legal income from their residence.
 
Also, after years of deliberation, legislation just went into effect in December 2009 to legalize the Detached Accessory Dwelling Unit (DADU) whereby a structure such as a detached garage can be converted into a rental unit.
 
Note that there are specific guidelines and requirements for both the ADU and DADU concerning size, entrance door location, bedroom egress, electrical box location and parking as well as the necessity of meeting all of the other current Seattle residential building, mechanical, electrical and energy codes.
 
It is important to realize, also, that these ADU's do not create a "duplex" and there are strict requirements to register the ADU with the City and owner-occupy one of the two units for more than six months out of the year (although there are exceptions granted for a longer owner absence).
 
From the City's point of view, ADU's will provide hundreds (or even more over time) of affordable in-city apartments that should provide tenants with a quiet, homey residence with an ambiance quite different than the high rise apartment structures located on the busy arterials. 
 
The financial cushion that an ADU provides a homeowner is substantial and could make the economic difference when deciding whether to rent or own.  This additional income may provide buyers with the ability to buy a larger home or to afford a home in their preferred neighborhood.  In fact, I advise my clients that they should take this into consideration when looking at homes - even though it may not be something that they are currently interested in.  Circumstances do change and this option adds flexibility especially during a period of extended unemployment since many ADU's generate income that covers more than half of the mortgage.  In fact, this additional income could have kept some homeowners out of foreclosure.
 
Besides the rental income, homeowners may be planning space for an aging parent, an adult child or as room for an eventual caregiver (which would allow the homeowner to more easily age in place).
 
Another bonus would be the possibility of taking early retirement.  Unlike in the past, many middle age homeowners who bought their homes later in life will not have enough time (or savings) to pay off the typical 30 year mortgage before their target retirement date.  And even a paid off home will require the payment of real estate taxes and home insurance. 
 
As the supply of new apartment buildings in the pipeline drys up due to lack of financing, rental rates are projected to resume increasing this year and more rapidly in the near future especially in the desirable in-city neighborhoods.  It is feasible that, over time, the ADU could generate enough income to eventually cover the entire mortgage payment leaving the home owner to only cover the taxes and insurance - and still benefit from the federal mortgage interest income tax credit.  Your home would truly be an asset rather than a liability.   The inherent financial freedom of an income generating home provides a compelling reason to own rather than rent.
 
See the attached PDF's from the Seattle Department of Planning and Development on the actual requirements for putting in an ADU or DADU.
 

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