Building an ADU in Raleigh NC: Here's What You Need to Know

[Benjamin Carver]

Accessory Dwelling Units (ADUs) are an increasingly popular way to generate additional rental income on an existing property. Utilizing empty lot space in this way helps to combat the increasing housing prices and limited supply many markets have been experiencing. In most of Raleigh city limits specifically, the lack of room to build new construction developments has stirred the folks in zoning. They have taken strides to pave the way for ADUs - here’s the implications for real estate investors.

It's crucial to understand Raleigh’s zoning rules for ADUs BEFORE deciding to implement this strategy on your current or future long term rental, Airbnb, student housing, MTR, house hack, flip, etc. I've done a lot of research on this topic as both an investor and as one who assists other investors in exploring this strategy. Always validate what you read online, things change, I could be wrong, but use this as a starting point in your research.

What Is an ADU?

An ADU is a secondary dwelling unit located on the same lot as a primary residence. These units can be:

1. Detached: A separate structure like a tiny house, guest house, or mother in-law suite in the backyard.

2. Attached: An addition to the primary residence, such as a basement or garage conversion, or a literal addition with shared wall.

Who is an ADU for? To list a few...

Anyone who wants to increase their property’s income potential (and equity) and build new housing in a market that struggles with high prices, low supply, and few new construction.

House hackers who live in their primary and want to airbnb an ADU love this strategy or vice versa

Investors who want to do both long term and short term benefit from having two separate units.

Rental Restrictions on ADUs.

Thankfully, Raleigh is very STR friendly and ADU friendly right now. Many investors are successfully renting out their ADUs to short term travelers. And if you build it the right way, you can always fall back on the long term rental strategy here too.

Location is always key here. But a wide ballpark would be around $800-1200/mo long term or $1500-2000/mo as a short term rental.

Understanding Zoning Requirements for ADUs in Raleigh.

1. Zoning Districts That Allow ADUs

ADUs are permitted in residential zoning districts and some mixed-use districts. As of now that definitive list is ADUs are allowed in the following zoning districts: R-1, R-2, R-4, R-6, R-10, RX, OX, NX, DX, and CX. This list was pulled directly from Raleigh’s website here:

Raleigh Permits for ADUs and Guidelines Click Here to View

To find your specific lot’s zoning, use IMAPS: https://maps.raleighnc.gov/imaps/

2. Lot Size Requirements

Raleigh does not mandate a minimum or maximum lot size for ADUs, but the size of the ADU is limited relative to the lot and primary structure.

- Maximum build size: typically 800 square feet or 50% of the size of the primary residence, whichever is smaller. Some specific sites allow 1,000 square feet ADUs.

Example: If your home is 1,500 square feet, the ADU cannot exceed 750 square feet.

- Detached ADUs: Maximum height is 25 feet or two stories, but cannot exceed the height of the primary structure.

3. Setbacks

Setbacks are the minimum distance the ADU must be from the property lines and it all comes down to the specific zoning you are in. An example may be:

- Rear yard: Minimum 5 feet distance

- Side yard: Minimum 5 feet distance

Here is a screenshot of the most recent Unified Development Ordinance (UDO) which outlines setback requirements (pg. 48)

ODU Click Here to View

4. Parking

Raleigh does not require additional parking spaces to be compliant. But of course, having an additional spot or two reserved for the ADU would be ideal. At the very least, plenty of street parking would likely suffice. In the future, parking may become more of an issue as we increase housing density.

Timeline and Costs

1. Timeline

How long does it take to build an ADU? Expect a custom ADU to take 9–18 months, with 3–6 months for design and permitting and 6–12 months for construction, depending on complexity and contractor availability, and the speed of processing permits.

Raleigh specifically has introduced “Fast-Track Plans” designed to streamline permitting to build ADUs faster and more cost-effectively. Typically this takes 6–9 months, including 2–3 months for permitting and 4–6 months for construction.

You can browse their current plans online, with design costs ranging from a few hundred to close to $2,000:

ADU Fast Track Plans

2. Estimated Costs

ADU costs can range DRAMATICALLY depending on the state of the lot, custom vs fast track plans, size of ADU, materials and finishes, speed and quality of the builder, etc. Your best bet is to get on the phone, get multiple opinions, multiple quotes, and make decisions on the type of build before pulling the trigger. And as investors we should know this, but always anticipate higher costs and longer waits.

EXAMPLE Breakdown of Costs:

1. Plan Purchase: $1,500
2. Permitting Fees: $2,500-7,500
3. Site Preparation (grading, utilities, foundation): $20,000–$30,000
   1. ADUs require separate utility connections for water, electricity, and sewer but you can tap into existing utilities at the primary house
   2. In Raleigh you CANNOT split lots fee simple, so setting up completely separate utilities would not allow you to section off the ADU as of now
   3. Your ADU must be on a permanent foundation (no wheels, no ability to move the structure)
4. Construction (labor and materials): $100,000–$150,000
   1. Low-grade: $150–$180/sq ft average
   2. Mid-grade: $180–$220/sq ft average
   3. High-end: $220–$250/sq ft average
5. Landscaping/Finishing Touches: $5,000

Total Estimated Cost: $125,000–$200,000

You could easily spend $200k+ with super end high finishes, custom designs, complicated sitework, adding a second story or more sqft, etc. In other markets, this could be north of $300k.

3. Financing

ADUs are rather difficult to finance historically, but that is getting somewhat easier. If you include the costs to build in a purchase of the primary structure, then you can typically roll that into the final loan product. You can also do this on a refinance.

Else, you can find private money, take out a HELOC if you have a lot of equity, go hard money and then refinance after, or see if your preferred builder offers financing.

FHA allows the construction or renovation of an ADU on the property by refinancing into a 203k loan, but the property must remain your primary residence.

This stuff is subject to change, lender specific, and subject to other factors. Do your homework here

Are Raleigh's Suburbs Similar in How They Approach ADUs?

Great question, glad you asked. Without getting into the nitty-gritty here..... Cary is definitely more restrictive in their zoning and permitting, and lot requirements. Wake Forest and Garner are coming around, a little tighter and less streamlined. Apex and other outer smaller suburbs tend to be more ADU friendly. Durham is also more complex in nature than Raleigh.

Raleigh stands out as the only municipality with Fast-Track ADU plans to streamline the approval process for homeowners. Wow!

Other things to consider:

HOA RESTRICTIONS: If your property is part of a homeowners' association (HOA), check their rules, as they may prohibit or restrict ADUs even if city zoning allows them. My personal thesis is to avoid the HOA altogether, problem solved.

RESTRICTIVE COVENANTS can still run with the land even if there is no HOA, placed on by the developer. Look into these with your realtor!

Raleigh specifically says you cannot rent out an ADU if you've built it yourself, even if you got it permitted. Sorry to all you handy men (I am not one of you…)

Raleigh’s website goes on to say “a licensed NC General Contractor is required for projects with a total project valuation greater than $30,000.”

Your ADU MUST NOT be on wheels

Only one ADU is allowed per single lot unless located in a Frequent Transit Area (as referenced in UDO Section 2.6.3 or 3.6.2). In these areas, two ADU units may be added.

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Building an ADU in Raleigh is a fantastic way to enhance your property's value (a whole other discussion there) and increase your property's income-earning potential.

Last thing I will leave you with:

Ultimately, the best answer is always to triple-check everything. I am a real estate expert but not a contractor, not an ADU expert, and not a zoning expert. Call Raleigh zoning and permitting to discuss your preliminary plans for your ADU. They will advise you on how to proceed with your proposed ADU given your site-specific situation.

For a condensed roadmap to building an ADU provided by wake county, use this link: Click Here

[Phillip Bradrick]

@Benjamin Carver great post with lots of helpful information. We manage a bunch of ADU's and higher density new builds for investors in Raleigh and Durham. The one big caution I would have for investors on the design is don't make the room size too small. It's better to have less rooms and to have them large enough to comfortably fit a queen bed. A good sized room with small pocket office is much more desirable than two cramped rooms. We've seen this issue cause otherwise wonderful new builds to sit on the market because it just doesn't work with peoples furniture.

[Ron Dancy]

Excellent explanation!

[Benjamin Carver]

Quote from @Phillip Bradrick:

@Benjamin Carver great post with lots of helpful information. We manage a bunch of ADU's and higher density new builds for investors in Raleigh and Durham. The one big caution I would have for investors on the design is don't make the room size too small. It's better to have less rooms and to have them large enough to comfortably fit a queen bed. A good sized room with small pocket office is much more desirable than two cramped rooms. We've seen this issue cause otherwise wonderful new builds to sit on the market because it just doesn't work with peoples furniture.

 Gold tip. Thank you so much!

[Jorden Barnard]

Hello @Benjamin Carver great post thank you for sharing this. The wife and I are in the middle of building an 800sqft detached 2BR 1 bath ADU in our backyard near St.Augustine in downtown Raleigh and was curious what you find they return in equity. We plan to rent out the main house and ADU in the future but also concerned on the return if/when we do sell.

[Adam Schneider]

@Benjamin Carver

That was an OUTSTANDING post. Thank you for sharing. Do you know what Raleigh's position would be on the placement of a MH (taking away the wheels)?

[Avery Heilbron]

@Jorden Barnard I just finished building mine in Durham. There are not a lot of comps and sales as of now but more are being built so time will tell with your ROE. My home went from a 2bed2bath to a 3bed3bath after building a 1bed1bath ADU. a 3bed3bath at 1800 ft in my neighborhood sells for 750-800. I'd guess I could sell my house with ADU for 650-675. So it can be good for cash flow and building in tighter spaces but it is less of a equity play in today's market if you're looking to sell right away

[Benjamin Carver]

Quote from @Adam Schneider:

@Benjamin Carver

That was an OUTSTANDING post. Thank you for sharing. Do you know what Raleigh's position would be on the placement of a MH (taking away the wheels)?

Last I checked they don't allow ADUs legally that aren't fixed, they want to see foundation for it to be rented out and considered an ADU. If you bought MH or pre fab and made it permanent that would be okay for permitting and renting

[Benjamin Carver]

Quote from @Avery Heilbron:

@Jorden Barnard I just finished building mine in Durham. There are not a lot of comps and sales as of now but more are being built so time will tell with your ROE. My home went from a 2bed2bath to a 3bed3bath after building a 1bed1bath ADU. a 3bed3bath at 1800 ft in my neighborhood sells for 750-800. I'd guess I could sell my house with ADU for 650-675. So it can be good for cash flow and building in tighter spaces but it is less of a equity play in today's market if you're looking to sell right away

Avery's right you won't make your money back in full most likely. More about cashflow. Could always get lucky and sell to an investor who pays higher, or it appreciates faster as it becomes more desirable with density increases. But those are all what ifs.