Backhouse, guest house, pool house, granny flat — all nicknames for a simple and powerful tool of personal wealth-building: the accessory dwelling unit, or ADU.
In a nutshell, an ADU is a small home built on a property upon which a single-family dwelling already exists.
The Municipal building code in Ontario defines ADUs as follows:
An attached or detached dwelling unit with complete independent living facilities for one or more persons, that includes permanent provisions for living, sleeping, eating, cooking, and sanitation on the same lot in which an existing principal single-family dwelling is situated.
There are a few different types of ADUs you can build, but we’ll save the technical talk for a little later on.
For now, let’s focus on the benefits of building an ADU.
The Benefits of Owning ADUs
First and foremost, building an ADU is a great way to provide yourself with an additional source of income.
Whether you are trying to sock away some savings for a rainy day, save for retirement or education costs, or simply boost your cash flow and upgrade your lifestyle, building an ADU could be a smart addition to your financial game plan. For those seeking a hands-off investment, management can be outsourced to a property management company, creating truly passive income.
As an added bonus, building an ADU can increase your property value, especially if you live in a high-demand area where renters are congregating.
On that note, ADUs are also a socially responsible rental option and an important piece of the puzzle when it comes to solving the housing affordability crisis in North America. Renters are desperate for solutions, and ADUs increase housing density in neighborhoods, offering an affordable alternative for small families and single renters while providing additional income for the local economy instead of large corporations.
So, how do you get started? We’re glad you asked. Let’s jump into the do’s and don’ts of the ADU life.
How to Get Started
First, you will need to get your project approved by your municipality. Nothing will mire your project more quickly than permitting and legal issues. Be sure to dot your i’s and cross your t’s before delving into the construction and design processes.
Before you start, decide what type of ADU is right for your needs.
Ontario building code stipulates three different designations for ADUs: Standard ADUs, Integrated ADUs, and Efficiency Dwelling Units — a subtype of Integrated ADUs. Windsor residents have slightly different regulations that can be consulted here: Additional Dwelling Units/Second Residential Units
Standard ADUs are independent living units that can be attached or detached from the main single-family residence. A standard ADU must have its own bathroom and living space. The ADU may not exceed 50% of the main residence’s square footage and may not exceed 850 square feet if the main residence is more than 1700 square feet. Additionally, the standard ADU must comply with all building codes the main residence is under unless specifically exempted in the ADU code.
Integrated ADUs are similar to the Standard ADU except that the unit is allowed to share living space. They are subject to the same size restrictions as a Standard ADU and must also meet all codes the main residence is under. The integrated ADU must also have independent exterior access to the unit.
Finally, Efficiency Dwelling Units can be as small as 150 square feet and must include a bathroom separate from the main residence and an efficiency kitchen with refrigeration, counter space, and cabinets relative to the unit’s size. Occupancy for these units is capped at two individuals.
For a full list of requirements, be sure to check your local building codes and go over them with your contractor, should you decide to hire one.
To minimize hassle and potential legal issues, we recommend contracting construction professionals or having a prefabricated ADU installed on your property. This could save you thousands in maintenance and legal fees down the road.
Many reputable and affordable companies offer prefabricated ADUs. These range in price from $33,000 CAD to around $125,000 CAD. Depending on your needs and the renters you want to attract, opting for a prefab ADU could be the most efficient investment of your time and money as it will eliminate the need for you to oversee the project and ensure that you receive a certified standard of quality and service.
That said, hiring local professionals to design and build your ADU may be the way to go in terms of cutting costs or if you are looking for a customized ADU process.
There are services that will connect you to approved contractors who build ADUs. You can use these services to find a contractor who perfectly matches your needs and budget.
Making Money with Your New Accessory Dwelling Unit
Now that we’ve discussed the do’s and don’ts of the building process, let’s jump into the fun part: making money with your new ADU.
To make money you need tenants. To get tenants you need to market your rental property to some degree. Whether that’s telling your friend group you have a rental property or listing your ADU on local apartment listing services’ websites, there are several different ways to go about getting the word out about your ADU.
Like with the building process, it’s up to you how involved you want to be. You can pay for property management companies like us to take all of the hassle out of the lease-up, management, and maintenance, or you can choose to take some or all of those tasks on yourself. It all depends on your preference and how much time you’re willing to spend maintaining your rental property.
Hiring a management company will also help you to avoid legal trouble down the road and can provide a sense of security to both you and your tenants. Having a management company backing your rental property adds legitimacy to your listing and can help attract more credit-worthy tenants.
Management companies also have all of the technology and service subscriptions necessary to run background checks on potential tenants, saving you the hassle of trying to corral all of those services on your own.
If you do go the management route, choose wisely. Make sure your management company is trustworthy and that the deal you make is a fair one. We would be happy to evaluate any agreement you are considering. Don’t hesitate to reach out and let us be your second opinion.