WHY OWN AN ADU?

Accessory Dwelling Units, or ADUs, have become increasingly popular in the San Francisco Bay Area and beyond. Because for years, many additional living spaces were built without permits. Today, cities recognize that bringing these units into compliance can create additional housing—and additional tax revenue. But if you want to use an ADU legally and have it recognized for financing purposes, it generally needs to meet current building codes and permitting requirements. There are also homeowners who have enough space in their backyard to build a completely new ADU.

I recently came across an interesting example. We are financing a mortgage for a client who owns a two-unit rental property. She also built an ADU legally, with the proper permits. Because the property is outside San Francisco and the ADU was legally built, we can treat it as an additional dwelling unit and, under applicable lending guidelines, use the additional rental income to help her qualify for the mortgage.

I recently came across an interesting example. We are financing a mortgage for a client who owns a two-unit rental property. She also built an ADU legally, with the proper permits. Because the property is outside San Francisco and the ADU was legally built, we can treat it as an additional dwelling unit and, under applicable lending guidelines, use the additional rental income to help her qualify for the mortgage.

I am writing this from Portland, Oregon, where we came to celebrate our granddaughter’s birthday. We rented what is essentially an ADU—a cottage, studio built many years ago behind the main house. It had everything we needed: a little kitchenette, bathroom, and, most importantly for me, a king-size bed. I had a very good night’s sleep!

For the homeowner, that small additional space creates additional rental income. But an ADU doesn’t have to be small. Depending on the property and local regulations, it can be large enough for an owner to live in while renting out the main house. That can create a significant additional source of income, particularly during retirement.

So, why own an ADU?

It can provide housing, flexibility, and another source of income—and in some situations, it can even help with mortgage qualification.

ADUs are becoming an important part of addressing the shortage of rental housing in San Francisco and many other communities. And there are even financing programs available to help homeowners build them.

If you are considering building an ADU, converting an existing space, or using rental income from an ADU to help with financing, I’d be happy to discuss your options. Give me a call: (415) 225-7920

Manny Kagan,
Your professional mortgage broker since 1983
(415) 225-7920; mannykagan@comcast.net