What will you use an ADU for?

Where should you start?

Start with who will live there, not with the building. An accessory dwelling unit (ADU) is a second small home on the same lot as a house, and who will use it decides its type, its size, the rule that matters most and the money questions. Uses change over time, so build for more than one.

In a 2021 survey of California owners, about half rented their ADU out, 16% housed a relative for free and about 16% used it as an office, studio or guest house (UC Berkeley Center for Community Innovation, 2021). There’s no New York equivalent.

Two local rules decide more of these cases than anything else. A family-only rule lets only relatives live in the ADU, so it can’t be rented to the public. An owner-occupancy rule means the owner must live in the house or the ADU.

In New York: each city, town and village writes its own ADU rules. Around Rochester and the Finger Lakes, we’ve checked 95 local codes, and 38 describe a way to approve an ADU or accessory apartment. Of those 38, 11 limit who may live in the unit to family members, and at least 26 require the owner to live on the property (New York town-by-town pages). Those are counts across many codes, not the rule in any one town, and a village can differ from the town around it. Look up your own town there, or start with the property checker.

Is it for a parent or an aging relative?

In a 2021 AARP survey, 62% of adults 50 and older said they would consider building an ADU for a loved one (AARP, 2021). It suits a parent who wants help nearby and their own front door.

Type and layout. Keep the bedroom, bathroom, kitchen and laundry on one level, with a no-step entry, wide doors and a curbless shower. A cottage gives more privacy; a ground-level addition puts help a few steps away. With a live-in caregiver, each person needs a bedroom, or the caregiver takes the ADU and the parent stays in the house.

The rule. A family-only rule fits this use. If a paid caregiver might move in, read the exact words. The Town of Rush allows relatives or domestic employees (Town of Rush code); other codes allow relatives only.

The money. A new detached cottage is usually the costliest type, at $110,000 to $285,000 before permits and fees in Angi’s national figures (Angi, 2026). If a parent helps pay, see an elder law attorney first: nursing-home Medicaid looks back 60 months at gifts and transfers (42 U.S.C. 1396p). Tell your insurance agent who will live there, even rent-free. See building an ADU for aging in place.

Concept homes to look at: the one-level Stay Cottage and the attached In-Law Addition. With a caregiver, try the Family Two-Bedroom.

Is it for an adult child or a young family member?

In March 2021, 18% of Americans lived in multigenerational households, and money was the reason given most often (Pew Research Center, 2022). An ADU gives a grown child or a young couple their own door while they save.

Type and layout. Stairs are usually fine. Converting space you already have is usually cheapest; Angi’s 2026 average for turning a garage into an ADU is $110,000 (Angi, 2026). Give it its own entrance, a real kitchen and walls that block sound.

The rule. A basement unit depends on headroom and escape windows, openings big enough to climb out of in a fire. When a basement in an existing house becomes living space, New York allows ceilings as low as 6 feet 8 inches (2025 Residential Code of New York State, R313.1.2). Over a garage, floor under a ceiling lower than 5 feet doesn’t count toward a room’s minimum size (same code, R312.3). Ask, too, whether non-family could live there later.

The money. Decide early whether your child pays rent. Rent is taxable, and charging a relative less than a fair rent counts as personal use, which limits your deductions (IRS Publication 527).

Concept homes to look at: the Garage Apartment and the Lower-Level Apartment, or the Family Two-Bedroom for a young family.

Is it for long-term rental income?

Renting on a lease of 30 days or more was the most common use in the California survey (UC Berkeley Center for Community Innovation, 2021). It suits an owner who is ready to be a landlord under New York’s tenant rules.

Type and layout. Privacy on both sides comes first: a cottage or garage apartment with its own entrance, parking path and thermostat, and windows that don’t face the other home.

The rule. A family-only rule rules this use out. Owner occupancy keeps you living on the lot, and some codes let you collect rent on only one of the two units, as the Village of Avon’s does (Village of Avon code). In Rochester and Ithaca, ask whether Good Cause Eviction applies (NY DHCR, 2026).

The money. No one can promise a rent. HUD’s Fair Market Rent for a Rochester-area one-bedroom was $1,256 for its 2025 fiscal year (NY DHCR, 2026). Fannie Mae lets a lender count 75% of one existing ADU’s rent, up to 30% of your qualifying income (Fannie Mae Selling Guide, 2026). A landlord policy costs about 25% more than homeowners coverage (Insurance Information Institute). At sale, a detached rental unit usually doesn’t share in the home-sale tax break unless you lived in it (IRS Publication 523). See renting an ADU, taxes and insurance.

Concept homes to look at: The Grove, a one-bedroom backyard cottage, and the Garage Apartment.

Is it for short-term or vacation rentals?

A short-term rental is an Airbnb-style stay of a few nights or weeks. It suits lake and wine-country lots, especially if family will use the cottage too.

Type and layout. A studio or one-bedroom cottage with a covered entry; a sleeping loft adds beds without much floor area. If it might sit unheated in winter, a frost-protected shallow foundation isn’t allowed (2025 Residential Code of New York State, R403.3).

The rule. Check this first, because towns can ban short-term rentals outright (NYSAC, 2024). Others require a permit. The Town of Canandaigua charges $300 a year and needs a special use permit, a board’s approval after a public hearing, above 12 guests (Town of Canandaigua).

The money. Since March 1, 2025, New York sales tax applies to short stays costing more than $2 a day. A booking platform that handles the sale collects it (NY Tax Department, 2025). The state requires at least $300,000 of liability coverage (NY Senate, S820 of 2025), and regular renting needs business-style insurance (Insurance Information Institute). Short stays usually won’t help you borrow under FHA, whose appraisers leave out rentals under 30 days (HUD, 2023).

Concept homes to look at: the Lake Guest Cottage, with a bedroom, loft and screened porch, and the Studio Cottage.

Are you downsizing into the ADU yourself?

Some owners move into the small house and hand the big one to a grown child or a tenant. In AARP’s 2021 survey, 60% of adults 50 and older said they would consider living in an ADU themselves (AARP, 2021).

Type and layout. An accessible, one-level cottage built to your own long-term standard, not a rental standard. A second bedroom gives a guest or a future caregiver a bed.

The rule. Owner-occupancy rules differ. The Town of Canandaigua lets owners live in either unit (Town of Canandaigua code), but the Village of Geneseo’s code says the owner lives in the main unit (Village of Geneseo code). Under a family-only rule, ask how it applies when you live in the ADU. Planning to deed the house to a child? In the Town of Penfield, a change of ownership ends the permission (Town of Penfield code).

The money. Giving a child the house is generally a gift. Gifts above $19,000 per person in 2025 or 2026 need a gift tax return, even when no tax is due (IRS, 2026). Medicaid’s 60-month look-back applies too (42 U.S.C. 1396p). If you rent out the house, ask a tax preparer how the home-sale tax break splits between the units (IRS Publication 523).

Concept homes to look at: the Stay Cottage, or The Grove for a roomier one-bedroom.

Is it a home office, studio or guest space?

Some people want a quiet place to work, paint or host visiting family. Without a kitchen, though, it usually isn’t an ADU. In New York, every dwelling unit needs its own toilet, sink, tub or shower, and a kitchen area with a sink (2025 Residential Code of New York State, R326). Without them, a backyard office is usually an accessory building, one that isn’t a home, under different permit and zoning rules.

Type and layout. Good daylight, sound insulation, plenty of outlets and solid internet wiring. If you might want housing later, build to full home standards now: rough in the plumbing and size the electrical service for a kitchen and heat.

The rule. Check your town’s accessory building rules now and its ADU rules for later. Adding a kitchen makes it a second home, which needs ADU approval first. Paid overnight guests bring in short-term rental rules.

The money. Your assessment, the value your property tax is based on, follows market value, so a finished building will likely raise your tax bill (NY Tax Department). Ask your insurance agent whether it’s covered as an “other structure,” and for how much.

Concept homes to look at: the Studio Cottage, planned to become a legal ADU later where the town allows it, and the Lake Guest Cottage for visiting family.

What if the use changes?

It usually does. California owners described housing parents, adult children and caregivers, and some older owners moved into the ADU themselves (UC Berkeley Center for Community Innovation, 2021). A parent’s cottage may become a rental, then an office, then your own home.

Choices that keep those doors open:

• Build a full home. Its own entrance, kitchen, bathroom and sleeping space make it a dwelling unit, not a guest room.
• Build it accessible. A no-step entry, wide doors and a curbless shower work for a parent, a tenant with a bad knee or you at 85. They cost little before the walls close.
• Read the strings. A family-only unit can’t go to a paying tenant later. The Village of Spencerport even requires an added kitchen to come out within six months after the permit ends (Village of Spencerport code). Owner-occupancy rules can shrink a buyer’s loan, since FHA appraisers estimate ADU rent only when the unit can be rented without restrictions (HUD, 2023).

Before you design, ask your town what happens to the permit if the use changes, the house sells or you move.

What this means for you

• Name the use, and the next one. Who lives there now, and who might in ten years? That picks the type and the size.
• Build for more than one use. One level, a full kitchen and bath, its own entrance and accessible details.
• Treat rent as a maybe. No one can promise a rent or a rise in your home’s value.
• Bring in the right people early: an elder law attorney for family deals, a tax preparer before you rent, and your insurance agent before anyone moves in.
• Check your town’s rules on family-only units, owner occupancy and short-term rentals with the property checker.
• Ask a question if you want help understanding which use, type and size could fit your lot. Get in touch.

General information, not legal, tax or financial advice. Your municipality decides what can be built, and a professional should review decisions about money and contracts.