(StatePoint) Adding an accessory dwelling unit (ADU) to your property can increase the value of your home, become a source of rental income, or help you expand your living space for your adult children or parents.

If you don’t know what an ADU is, you’re in good company. A 2023 Freddie Mac survey found that 71% of respondents were unfamiliar with the concept. ADUs are often known as in-law apartments, granny flats, carriage houses or secondary suites. According to Freddie Mac, here’s why investing in adding an ADU may be worth it:

The Basics: An ADU is a smaller, independent residential structure built on the same lot as a single-family home. To qualify as an ADU, the additional living area needs to include a kitchen, bathroom and separate entrance. Common examples include a dwelling over a detached or attached garage, a suite above the main floor of the home, a basement apartment, or a detached structure such as a guesthouse or backyard cottage.

The Benefits: Building an ADU on your property may contribute to the supply of affordable housing in your area, but it also has a wealth of benefits for you, the homeowner. It can boost the value of your home by as much as 35%, and become a potential source of extra income if you rent your ADU to a tenant. An ADU can also make for a great home office, guest house or workshop, or be a good solution if your adult children are returning to live with you, or you are the caretaker to aging or disabled relatives.

Eligibility: Before adding an ADU to your home, you will need to learn about the zoning codes that apply to your property. Ordinances and policies vary by location and change frequently. Make sure you understand any federal, state or local laws involved with renting your ADU. Discussing this with an attorney is one option. To find your zoning code, check your local government’s website or reach out to your local zoning or building code office.

Financing: You should create a construction budget and consider how you will pay for a new ADU or renovations to an existing ADU. The good news is that you don’t necessarily need to pay the expenses upfront. There are loans designed to help you pay for improvements to your home. For example, Freddie Mac CHOICERenovation is a financing solution that can provide you with funding to add an ADU on your property. Speak with your lender about the financing options available to you and which may best suit your needs.

To learn more about home equity and renovating your home, visit My Home by Freddie Mac.