{"id":5552,"date":"2023-11-10T21:32:00","date_gmt":"2023-11-11T01:32:00","guid":{"rendered":"https:\/\/propertyonion.com\/education\/?p=5552"},"modified":"2023-11-28T18:25:06","modified_gmt":"2023-11-28T22:25:06","slug":"accessory-dwelling-units-adus-opportunity-for-ohio-investors","status":"publish","type":"post","link":"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/","title":{"rendered":"Accessory Dwelling Units (ADUs); Opportunity for Ohio Investors?"},"content":{"rendered":"\n<p>The Cincinnati City Council recently modified the zoning provisions to permit the construction and use of Accessory Dwelling Units (ADUs) in residential settings. Do ADUs represent a viable supplementary or auxiliary opportunity for ambitious real estate investors?&nbsp;<\/p>\n\n\n\n<p>Located in the southwestern corner of Ohio near the Kentucky border, Cincinnati is the state\u2019s third most populous city and is the first to formally permit ADUs. In recent years, city leaders have continued looking for new ways to create affordable housing that may benefit seniors and those with disabilities while also helping existing homeowners offset rising property taxes.&nbsp;<\/p>\n\n\n\n<p>The city council defines Accessory Dwelling Units as additional, secondary housing units&nbsp;<a href=\"https:\/\/www.cincinnati-oh.gov\/cityofcincinnati\/news\/accessory-dwelling-units-adus-now-legal-in-cincinnati-single-family-residential-zones\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">located<\/a>&nbsp;on the property of a single-family home. Informally, ADUs are often referred to as \u201cgranny flats\u201d or \u201cmother-in-law suites.\u201d&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">In this Article:<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Possible_Configurations_and_Amenities\" >Possible Configurations and Amenities&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Requirements_and_Limitations\" >Requirements and Limitations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Potential_Concerns_and_Challenges\" >Potential Concerns and Challenges&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Possible_Benefits_for_Real_Estate_Investors\" >Possible Benefits for Real Estate Investors&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#How_to_Pay_for_an_ADU\" >How to Pay for an ADU?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Ongoing_Costs_Involved\" >Ongoing Costs Involved&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#ADUs_as_Separate_Properties\" >ADUs as Separate Properties?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Federal_Financing_Initiatives_on_The_Horizon\" >Federal Financing Initiatives on The Horizon&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/propertyonion.com\/education\/accessory-dwelling-units-adus-opportunity-for-ohio-investors\/#Should_Ohio_Real_Estate_Investors_Assess_ADUs\" >Should Ohio Real Estate Investors Assess ADUs?&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Possible_Configurations_and_Amenities\"><\/span>Possible Configurations and Amenities&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>ADUs must be independent, self-contained, and permanent housing units with a separate entrance, kitchen or kitchenette, bathroom, and bedroom. Some of the most common configurations are:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Detached, standalone structures are usually located behind or beside the primary home.&nbsp;<\/li><li>Attached, or \u201cadd-on\u201d structures.<\/li><li>Interior units on the home\u2019s upper or lower level.<\/li><li>Units located above a detached or attached garage.<\/li><li>Garages that are fully converted to housing units.<\/li><\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>Those with aging parents might consider an ADU as an economical alternative to assisted living.<\/p><\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Requirements_and_Limitations\"><\/span>Requirements and Limitations<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Only one ADU is permitted per lot. The property owner or a designee (responsible party) must occupy the main home for more than 75% of the year. Also, owners of ADUs must complete some basic training regarding fair housing laws, creating rental agreements, and landlord best practices.&nbsp;<\/p>\n\n\n\n<p><strong>What is a \u201cDesignee\u201d or \u201cResponsible Person\u201d?&nbsp;<\/strong><\/p>\n\n\n\n<p>Because of the owner occupancy requirement, some prospective real estate investors are deterred from considering ADUs, as they have no intention of residing in the primary home. However, the Cincinnati Municipal Code also&nbsp;<a href=\"https:\/\/library.municode.com\/oh\/cincinnati\/codes\/code_of_ordinances?nodeId=TIXIZOCOCI_CH1421GESIST_S1421-06ACDWUN\" target=\"_blank\" rel=\"noopener\">allows<\/a>&nbsp;for the owner to \u201cdesignate a responsible person\u201d who will reside in the primary single-family home instead.&nbsp;<\/p>\n\n\n\n<p>Under CMC \u00a7 1421-06(l)(4)(ii), a \u201cresponsible person\u201d is assigned by the owner who assumes the duty, financial responsibility, and authority to \u201coperate, maintain, and manage\u201d all dwelling on the lot. Based on the city\u2019s provisions, a real estate investor who will not be occupying the primary home might consider naming (designating) an individual to assume this role as an onsite property manager.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Potential_Concerns_and_Challenges\"><\/span>Potential Concerns and Challenges&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>City leaders, local agencies, and neighborhood residents commonly express concern regarding the following:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Worsening problems in neighborhoods that already struggle with insufficient on-street parking.<\/li><li>Units being used for short-term rentals, which often house tenants who are a nuisance.<\/li><li>Feelings of diminished privacy among occupants of adjacent homes<\/li><li>Newly constructed or modified ADUs might alter the character of the neighborhood.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Possible_Benefits_for_Real_Estate_Investors\"><\/span>Possible Benefits for Real Estate Investors&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A real estate investor might consider exploring ADUs for a host of potential reasons.&nbsp;<\/p>\n\n\n\n<p><strong>Opportunity to Generate Rental Income on Primary Residence<\/strong><\/p>\n\n\n\n<p>ADUs represent an opportunity for homeowners to use their primary residence to generate income that will partially offset their home mortgage expenses. Those without a mortgage on their primary home could generate an additional rental income stream.&nbsp;<\/p>\n\n\n\n<p>In Cincinnati, the current provisions require the owner of the unit to occupy the main home; however, investors might explore other markets for opportunities to construct ADUs as secondary rentals with their existing rental properties.&nbsp;<\/p>\n\n\n\n<p><strong>Diversify Investment Portfolio<\/strong><\/p>\n\n\n\n<p>ADUs are yet another opportunity for real estate investors to <a href=\"https:\/\/propertyonion.com\/education\/10-ways-of-making-your-investments-work-for-you-in-2024\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"diversify (opens in a new tab)\">diversify<\/a>, which has traditionally been encouraged.&nbsp;<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>Another reason why investors might consider exploring ADUs is that the concept and opportunities are still evolving.<\/p><\/blockquote>\n\n\n\n<p><strong>Venture into a New Niche in an Emerging Market&nbsp;<\/strong><\/p>\n\n\n\n<p>With Cincinnati being the first city in Ohio to permit ADUs, we might be at the precipice of a popular trend that will soon extend into Columbus, Dayton, and other cities. Investors might capitalize on this opportunity to explore this new niche.&nbsp;<\/p>\n\n\n\n<p><strong>Using an ADU as an Airbnb&nbsp;<\/strong><\/p>\n\n\n\n<p>Using an ADU as a short-term rental (STR) is another potentially lucrative option. Data from NerdWallet&nbsp;<a href=\"https:\/\/www.nerdwallet.com\/article\/travel\/airbnb-pricing-statistics\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">shows<\/a>&nbsp;that the median rate for a one-night stay in an Airbnb is approximately $314. The median daily rate is roughly $213 for weekly short-term rentals ($1,491 total).&nbsp;<\/p>\n\n\n\n<p>Across the county, <a href=\"https:\/\/propertyonion.com\/education\/this-is-the-best-market-in-ohio-for-airbnb-properties\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Airbnb rentals (opens in a new tab)\">Airbnb rentals<\/a> have demonstrated an ability to generate significantly higher rental income in comparison to more traditional 12-month leasing arrangements. In recent years, most Ohio cities have implemented licensing and tax requirements. For example, Cincinnati&nbsp;<a href=\"https:\/\/www.airbnb.com\/help\/article\/2322\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">imposes<\/a>&nbsp;a 7% Short Term Rental Tax.&nbsp;<\/p>\n\n\n\n<p><strong>A Cost-Effective Alternative Amid Challenging Market Conditions<\/strong><\/p>\n\n\n\n<p>In the Cincinnati region, the average home sales price for September 2023 was 6.1% higher, which equates to an increase of roughly $13,900, over September of 2022. In this highly-priced market, savvy investors might consider an ADU as a smart alternative. Keep in mind that buyers are also currently facing sky-high mortgage interest rates, which makes ADUs a viable alternative for the near future.&nbsp;<\/p>\n\n\n\n<p><strong>A Home for Aging Parents&nbsp;<\/strong><\/p>\n\n\n\n<p>Those with aging parents might consider an ADU as an economical alternative to assisted living. Current&nbsp;<a href=\"https:\/\/www.forbes.com\/health\/senior-living\/how-much-does-assisted-living-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">estimates<\/a>&nbsp;for assisted living in the Midwestern U.S. range from $3,500 to $8,000 per month ($42,000 to $96,000 annually). For those whose parents have limited resources, an ADU might offer tremendous savings.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Pay_for_an_ADU\"><\/span>How to Pay for an ADU?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Data from Experian&nbsp;<a href=\"https:\/\/www.experian.com\/blogs\/ask-experian\/how-to-pay-for-accessory-dwelling-unit\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">suggests<\/a>&nbsp;that roughly 62% of homeowners <a href=\"https:\/\/propertyonion.com\/education\/how-to-use-creative-financing-to-purchase-an-investment-property\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"finance ADUs (opens in a new tab)\">finance ADUs<\/a> with savings or other assets that are easily convertible into cash without incurring penalties. Others use home equity loans, home equity lines of credit (HELOCs), cash-out refinancing, or home construction loans.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Ongoing_Costs_Involved\"><\/span>Ongoing Costs Involved&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As with any property, investors will have some ongoing expenses with an ADU. Examples include additional property taxes, <a href=\"https:\/\/propertyonion.com\/education\/what-kind-of-insurance-do-real-estate-investors-need\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"homeowner\u2019s insurance (opens in a new tab)\">homeowner\u2019s insurance<\/a>, utilities, and maintenance costs.&nbsp;<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>ADUs are a potentially worthwhile opportunity for those in the realm of rental property investing in Ohio. <\/p><\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"ADUs_as_Separate_Properties\"><\/span>ADUs as Separate Properties?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Another reason why investors might consider exploring ADUs is that the concept and opportunities are still evolving. For example, California has an Assembly Bill 1033, which essentially&nbsp;<a href=\"https:\/\/www.latimes.com\/california\/story\/2023-10-14\/a-new-law-allows-homeowner-to-sell-adus-like-condos-boosting-homeownership-heres-how-ab-1033-works\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">treats<\/a>&nbsp;ADUs as separate or standalone condominiums.&nbsp;<\/p>\n\n\n\n<p>Mortgage lenders in California explain that the buying and selling of ADUs will soon be viewed similarly to \u201ctraditional\u201d real estate transactions.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Federal_Financing_Initiatives_on_The_Horizon\"><\/span>Federal Financing Initiatives on The Horizon&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Further evidence of the opportunities associated with ADUs is emerging at the federal level. Recent&nbsp;<a href=\"https:\/\/www.businessinsider.com\/adu-tiny-home-financing-fannie-freddie-mortgages-afforable-housing-2023-10\" target=\"_blank\" rel=\"noopener\">changes<\/a>&nbsp;by the Federal Housing Administration (FHA) allow Fannie Mae, Freddie Mac, and other federally insured programs to consider future rental income from an ADU when making lending decisions. Keep in mind that new standards that are implemented by Fannie and Freddie often become the norm, as other lenders soon follow suit.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Should_Ohio_Real_Estate_Investors_Assess_ADUs\"><\/span>Should Ohio Real Estate Investors Assess ADUs?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For many of the above reasons, ADUs are a potentially worthwhile opportunity for those in <a href=\"https:\/\/propertyonion.com\/education\/how-to-earn-a-great-passive-income-with-ohio-state-student-rentals\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"the realm of rental property investing in Ohio (opens in a new tab)\">the realm of rental property investing in Ohio<\/a>. Cincinnati is the first major city in the state to allow them, yet it is safe to assume that Cleveland, Columbus, Dayton, and others will monitor and assess ADUs for themselves.&nbsp;&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Cincinnati City Council recently modified the zoning provisions to permit the construction and use of Accessory Dwelling Units (ADUs) in residential settings. Do ADUs represent a viable supplementary or auxiliary opportunity for ambitious real&hellip;<\/p>\n","protected":false},"author":47,"featured_media":5645,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[763,473,762,764,765,766,436,262],"class_list":["post-5552","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-articles","tag-accessory-dwelling-units","tag-airbnb","tag-cincinnati-market","tag-opportunity-for-investors","tag-permanent-housing-units","tag-rental-income","tag-rental-market","tag-short-term-rental"],"_links":{"self":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/5552","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/users\/47"}],"replies":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/comments?post=5552"}],"version-history":[{"count":2,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/5552\/revisions"}],"predecessor-version":[{"id":5646,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/5552\/revisions\/5646"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media\/5645"}],"wp:attachment":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media?parent=5552"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/categories?post=5552"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/tags?post=5552"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}