The Beginner’s Guide to ADU & DADU Investing (2025)

Ashley:
Welcome to the Real Estate Rookie podcast, the show where we help you go from real estate beginner to confident investor, one actionable step at a time. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And today’s episode is all about a strategy that’s getting a lot of attention right now, building a dadoo or a detached accessory dwelling unit, and how you as a rookie can actually find the right lot and get started.

Ashley:
We know so many rookies get stuck, wondering if their first deal is big enough or worth it, and a dad can be a creative way to add more income and long-term value to a single property,

Tony:
And that’s what we’re excited for. Today’s guest, someone who’s not only built several of these but has made it her mission to teach others how to do it too. Let’s give a big warm welcome to our friend and guest, Laika DHA Leika. Thanks for joining us today. Super happy to have you,

Leka:
Tony. Ashley, thank you for having me. It is always just so fun to hang out with you guys podcast or not. I

Ashley:
Just

Leka:
Love

Ashley:
Seeing you two. Well, we’re glad this time we’re having you back to talk about something other than squatters in your property. And if you guys did not listen to the episode, needs to go back into the catalog to find Leah’s episode where she tells us her squatter horror story. But today, Leika, we’re going to be talking about a dadoo. So what does a dad do and what does DADU even stand for?

Leka:
Yeah, so dadoos are basically detached accessory dwelling units, and if you haven’t heard of it, I highly encourage just Googling the term or going on the BiggerPockets forums and checking it out. There’s so much information. They could be either attached ADUs or ddus, which are just detached dwelling units. Think backyard cottages like above garage units, attic renovations because those are all ADUs additions on properties, basement conversions. There’s a whole plethora of properties that qualify as ADUs and das.

Ashley:
Why does this strategy actually make sense for a rookie investor? It kind of seems like a lot of work. You got to find the law, you got to figure out if you can build there, you got to build something. What makes this attractive for a rookie investor?

Leka:
So because it’s an accessory unit, it typically means that you can either build it on a large lot, an underutilized lot, or you can build it in an existing home where you’re not even increasing the footprint of the house or the square footage, you’re just converting it into an EDU or sometimes a ddo. You can also put these on garages, so if you already have an existing garage on the property, you can easily build it on top of it. It’s just a really cost effective way to increase equity in a property. But there are lots of caveats, there’s a lot of legal stuff that you have to go through, so we can talk about some of that.

Tony:
Let me ask, because obviously I think there’s value in the whole A DU and DDU process because like you said, there’s already an existing footprint, but is your recommendation to Ricky’s that they add a dadoo to an existing property in their portfolio or that they should be going after properties to purchase with the potential to add a dadoo? Which one of those do you think is better for Ricky and why?

Leka:
You know both. First of all, it’s super important to make sure that the city, the neighborhood that you want to actually invest in allows for dads and ADUs or researching those neighborhoods that actually allow for it. There’s certain cities in the country that just doesn’t have any housing inventory, and this is a really good way to increase inventory for tenants, for homeowners, for investors. And so cities like Seattle, Portland, la, Austin, these are just prime for dads because of the housing legislation that’s going into place in these cities. And so these cities are basically saying, Hey, we don’t have enough housing, so let’s take large lots and we can add these accessory dwelling units and just increase housing that way and even create affordable housing where some of these cities are just unaffordable right now. So the reason I love this for rookies is because you can buy a distressed home and you can flip it, but imagine buying a distressed home with a big lot where you can actually add another unit in the back. You are essentially getting the land for free, so you’re buying a house, you’re fixing it up, you’re using that same land to build another unit, and these dads typically cost about three 50 to 400 K to build, but then they’re worth 6 60, 7 50, 800. There’s some locations in Seattle where a dad who can even go for like a million dollars. It’s pretty amazing and it costs the same to build.

Tony:
I guess two questions that I want to talk about the financing portion. This you talked about the build price and the appraisal, but we’ll stick a pin on that and come back to it, but first you said that the dad who can appraise for depending on your neighborhood, upwards of a million dollars. So is the DADU being appraised separately from the main structure or when you say a million dollars, is that the main home and the dadu together?

Leka:
No, just the dadu is being appraised for almost a million dollars in some parts of Seattle and la. So there, I would say on average it’s anywhere between five to 600 K to a million for a thousand square foot structure.

Tony:
Let me ask, right, because you said the bill costs 350 K. If I’m adding a DA to a property that I already own, is there financing available specifically for the DA or does this have to be a cash purchase and then I get my money back when I refinance on the backend?

Leka:
No, the amazing part is, so I just got done building a dadoo and I just used a hard money lender and the way that they structure it is there’s a purchasing piece. If you are going to renovate the house that you’re buying that’s on the lot, then there’s a rehab piece associated with that existing house and then there’s a construction of the dadoo. So a lender will actually finance all of this. You just have to bring in 15 or 20% of the down for acquisition. But I got my entire rehab financed. I got all of my ddu, construction finance, and the beauty of this, using this step of a lender that understands dadu laws and how to build DAUs is that you don’t have to pay interest until you start drawing from your construction funds. So what that then means is say you have to spend six to eight weeks in permitting timelines in designing and then getting all the permits for that timeline, like eight weeks, sometimes even 12 weeks. You are not paying any interest on the money that you already have as a holdback for construction. You only pay the interest on funds that you actually withdraw.

Tony:
This sounds like a pretty interesting strategy. So I want to recap for the rookies to make sure that we’re all tracking along. So on the deal that you just talked about, you’re saying that you found a property for a sale that had enough space on the lot to add this data or this detached a DU you, you’re able to go out, find a hard money lender who with 15% down of your total project cost was able to finance the other 85% of your acquisition and your construction and your renovation on the primary residence. Am I understanding that correctly?

Leka:
You are absolutely correct.

Tony:
And then once you’re done with this, that’s when you get that big appraisal on the backend to say, Hey, the primary house appraises for X, the dad do appraises for Y, and then either you can sell it as a flip or refinance and keep it as a rental. I’m assuming that’s the strategy.

Leka:
Okay. So for a hard money lender to finance a project like this, they are going to appraise a project as is with the future potential of the building. So they look at a project, they’re like, okay, this house on this lot is only worth 550 K, but what this investor wants to do is build a dad. What is that going to, what’s the future value of that property? Once the dadu has been built and this house has been renovated, it’s like all hard money lenders, they look at the RV and then they base their entire lending on that RV amount, right? That basically shows you the health of the deal. So the DDU lots are no different. The lender that’s going to lend on it already has an exit value in mind for what that DDU potential is going to be and what the rehab house is going to be based on that they finance this project.
But when you’re actually done building the DA and you get another appraisal done, your DA might actually appraise for a little bit more based on what’s happening with market conditions, interest rates, all that good stuff. One other thing about using a lender that actually understands the DA process, lenders have to understand partial lien releases. Now what that means is when you buy a piece of land, the lender is financing that entire piece of land, but then when you build a dadu and you ize that land or you subdivide it, that means you can sell off the dadu and that lot separately from the original parcel of the land. When you do that, that’s called, that can trigger a partial lien release, which means that your lender can get paid back a certain amount when the dad who sells, and then another amount when the house sells. And a lot of conventional banks don’t do partial lien releases. And so you have to find a lender that understands partial lien releases and then actually does the lien release.

Ashley:
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Tony:
Alright guys, welcome back. We are here with Laika and she’s kind of blown our minds with the power of the Dadoo. And if you’ve ever scrolled through listings and thought, man, how do I know if this property would even work for a dadoo? This is the part you’ve been waiting for. So Lake, a million dollar question, what are the key factors to look for in a lot? If I want to build a dadoo,

Leka:
There’s so many different kinds of dadoo lots, and that’s the beauty of building dadoos is it pretty much works on multiple kinds of lots. So what you want to look for is first of all, go through your zoning and your regulations for your city. Every city is different. Where I live in my county, there’s multiple cities and every city has its own zoning and regulation. And so let’s just talk about the city of Seattle, for example. Seattle says your lot size can be a minimum of 3,500 square feet, 3,500 square feet. You can put another structure on it, which is great. Like some cities may say 10,000 square feet, another city may say it has to be over 15,000 square feet. So I don’t know, but go through the zoning regulations and then the types of lots to look for. I typically look for corner lots because corner lots have multiple access points into the lot and alley lots where there’s a house fronting a street, but then there’s an alley in the back.
So if you did put a backyard daddo, then the accessibility is easy through the alley. There’s another way to build dads. It’s called flag lots, where essentially you have a single family home and then you build a daddo behind the single family home, but then the access to that is through a side driveway, and so that becomes a flag lot. And then my favorite type of lot for Dadoos is the through lot where not only is there a street in the front of the house, but there’s a street behind the house, which is exactly the kind of project I did was I had a through lot. These lots are very rare to find because you literally have a house between two streets and that way both the Dadu and the house can have its own street frontage. So lots of different ways to look it up, but the beauty of Google Maps is that you can actually pinpoint to a certain neighborhood a certain address and see exactly what kind of lots work for dads, and then you can go online and see, okay, you can do online searches for properties.
If you have off market deals, then you can tell your wholesalers this is the kind of property you’re looking for. Or if you’re going direct to seller, you can go look at the address on maps and see, okay, can I add a dadu here somewhere? Another great way to do it is we already spoke about if there’s a house and then a driveway to the side of the house, which leads to a garage, you can either convert the garage into a daru or you can add a daddo on top of the garage. So so many different ways to find daru lots.

Ashley:
What are some of the red flags? So you went through the list of all the things we should look for, but are there any red flags where maybe it meets all the other criteria, but there’s something else that means you should not buy this for a dad doula?

Leka:
Yes, Ashley? Actually, I just went through a huge situation with one of the condos that I’m doing in Seattle literally this month. So let me talk about the red flags. Some of the red flags include zoning. If you have to get a variance to make it a daddo lot, then it’s probably not worth it because just in case you’re not able to get that zoning, you’re now stuck with a lot that is unbuildable. So huge red flag. Make sure to get that out of the way.

Tony:
Can you explain what you mean when you say variance? What does that mean for Ricky investors?

Leka:
Okay, so a variance is if the lot is zoned a specific way and then you have to change the zoning to make sure that it becomes a residential small lot or one of the lots that does allow dadu and a DU regulations. That variance has to go through the city and the city has to approve it. And then there’s a whole, sometimes it could be weeks, sometimes it could be months of process to get that variance on a lot. So you’re basically changing the zoning from one to another. A huge red flag that I sometimes see, and what I saw in my mostly latest project was utilities. Most cities will allow just if there’s an existing service, they allow you to connect to that existing service, but a few cities will say, Nope, you have to put in your own sewer line. So every dad who has its own sewer line, own water line, and so that can get really expensive.
And what I just ended up doing was I bought a three unit triplex. They were side by side, not stacked, one on top of the other. And so we condo ized it, which means we separated out, we put different tax parcels on it, all that was great. Then the city basically red tagged us, which means they put in a code violation on my project and said, you can’t do this because each of the units don’t have a separate sewer line. And so then I had to pay for permits. I had to actually go and build out these separate sewer lines and water lines and put its own different water meters and it cost me 50 K in addition to all the work that I did. So just be really careful because from city to city it’s different. So before you go into it, talk to the city about what is required to actually build a ddu.

Ashley:
Now are there contractors that you work with that specifically do ddus or do you think that any kind of builder or contractor would be fine with the strategy?

Leka:
So anyone that can build new construction can build a da, but I prefer using contractors that only specifically build das. And there’s so many out there right now because this whole dadoo craze is so prevalent that there’s builders and design build firms that only do dadoos and they’re just so good at it. They design amazing. You want to stand out and so just I would say hire someone that only does dadoos.

Tony:
Now on your point of like, hey, not knowing about the city wanting separate sewer lines and metering for utilities, aside from talking with the city, because sometimes the city, they’re only going to give you answers to the questions that you ask. I guess is there anyone else that Ricky should be working with to get a better understanding of all the requirements that would go into building a dadoo?

Leka:
Oh my gosh, what a great question. Thank you for asking that, Tony. A lot of people don’t ask that. Yes, there’s a whole slew of people that can help you build your dadoo and make it a successful project. Okay. First is you have to get a land user attorney to work with a land user attorney basically can look at your project and can look at the title that the house is associated with and actually see, does the title in some way limit the building of a dad? Who on that specific lot, number one. Number two, they can talk to the city and find out from the city if the zoning laws have changed, if utilities have changed and kind of gather all that information in order to be able to say, yes, we can build a dadoo. The first thing that I do if I’m building a dadoo lot is go to my land user attorney and say, Hey, can we build a DA U on this project on this lot?
And then she goes through, she looks at, because it’s not just the building variance and the zoning, but there’s also setbacks, right? So if there’s a street, what is a setback that is required in order to place the DA U on that lot? So sometimes it’s five feet, sometimes it’s 15 feet. So she’s the one that goes in and says, okay, we can put our ddu and we can place it over here. Then I work with an architect to design the ddu that is perfect for this lot, and then the architect works on the design getting the permits working with the city. So then I get my permit to build a dadoo. Then I go back to my land user attorney that can then help with condo the lot, creating the HOA. And between all this, I also have a surveyor that has to survey the lot first to just even figure out where to put the dad.
And then also once the dad is completed, they have to survey the lot again before we actually record it with the county in order to be able to say, okay, everything was done to plan, or we had to move the dad a little bit on to the left side or the south side. And so they are the ones that will then plot exactly where the dad is on the lot and that whole thing gets recorded by the city in Washington state. We have to have HOA homeowner’s association when there’s more than two properties on a specific lot. And so we also create an HOA for this whole project. So lots of people involved, and that doesn’t even include designers and builders and contractors.

Ashley:
This sounds like a lot. It really does. I think the point of getting an attorney to help you through a lot of the legal aspect and the planning aspect is such a great idea instead of trying to figure it out yourself. The next thing is that think about how many millions of people build their own home. They figure out what kind of land they can build on. They figure out how to get drawings done, they figure out the engineering for the septic, the well how to tie into the sewer. If every average day person can figure out how to build one home, you can figure out how to build this A DU. And yes, it does make it different with having to get the HOA, but all of those things you can get help with hiring an attorney. So you said that you specifically found a land attorney. Is there any other type of attorney you would recommend to be able to help rookies with us?

Leka:
No, just a land attorney, like a condo attorney, someone that does HOA docs. These are all types of attorneys that can help with the whole condo process. A lot of times when I’m struggling, I was struggling to find a sewer contractor to do the sewer work for me for this latest project of mine. So I just called a city and I said, do you have a list of contractors that you work with that you recommend? And she sent me 10 sewer installers. And that was great because every one of these sewer installers had worked with her in the past. They knew what the city wanted, they knew how to do the work. They knew Ali restoration process, they just knew it. And so I just went down the list. I got 10 different bids and then I went with the guy that gave me the most confidence and he wasn’t the cheapest, but also he was not super expensive and we got it done.

Tony:
Lake is talking about a project right now that’s probably a little bit more complex because it is three units. There’s a whole condo aspect of that as well. But let’s say that you’re just buying, hey, there’s an existing structure you want to build one dad. What is the sequence of events? Do you have a dadoo plan, like the same plan that you just drop on every single home that you buy? Or are you coming up with something new for every single property? So I guess the question is what comes first is it let me find the land that matches the plans that I have, or let me find the right piece of land and then figure out what plan makes the most sense.

Leka:
Okay, another great question. So most dadoos are between a thousand to 1,200 square feet. So you can go in with a pre-approved plan. The pro to a pre-approved plan is that the city has already seen it before, they’ve already given permits on a different project for that same plan. So then the city actually knows what to look for and not. So that reduces your timeline for permitting drastically. Once you have just a pre-approved plan, the most important thing is to actually look for lots that can house this plan. Even if you don’t have a plan. The plan is having a pre-approved plan. The only thing you’re saving on is yes, you’re saving a bunch of money on design and costs, but you’re also saving money on the permitting timeline itself. But I think a lot of times just looking for a lot that is prime for dad who is most important. Another reason why I love this for rookies is because they can actually, if they just bought a single family home that needs a little bit of love on a large lot, they can actually live in the house, house hack in a different way by building in their backyard. And so if you buy the right lot and then you’re able to just buy the lot, move in and build in your backyard.

Tony:
So when you say pre-approved plan, is it you can literally just walk into city hall and say, can I have the plans? And they say, yep, here they are. Or is there still some sort of fee you have to pay to the city to get access to those plans?

Leka:
It’s typically not the city that has a plans. It’s an architect. So you can go to an architect and say, Hey, the scooner is a dad who plan that is super popular in Seattle. Everyone was doing schooners a couple years ago, so now we have hundreds of schooners across the city. So the schooner is a plan that a dad who plan that the city is extremely familiar with, and multiple different architects have that plan. So you just walk into an architect’s office and say, I want to build a schooner in my backyard. Architect has the plan, they have the drawings, and then they just submit that to the city based on your lot and your topography, and then typically that plan just gets approved. The other famous one is the Eres, again, has been done a million times. So these are just plans that are available at the city or with the architects,

Tony:
Just so you go to the architect and say, I want a pre-approved plan for this city. And they’ll say, Hey, here are the pre-approved plans that we have. Make your choice.

Ashley:
Yeah, exactly. I actually had that happen to me before when I worked for another investor, I did six patio homes for him and I designed the whole layout and the floor plan and everything working with the architect. And after we finished building, somebody else came in and said, I want to build that exact same thing. And they basically bought our plans from the architect and it was actually really annoying. I spent all this time, all this money to have the plans built out. Then you just go and take ’em. But hey, if it saves you a lot of money, ask the architect what they already have because instead of starting from scratch,

Tony:
Alright, so now you know what to look for and what to avoid when scouting for a dadoo lot. But what happens once you actually own the property? How do you line up your team, your budget, your timeline without getting in over your head? So don’t hit pause. We’ll cover all of that more right after a quick break.

Ashley:
Alright, let’s get back into it. You’ve bought to your lot now, what lake is about to share the step-by-step of how to actually get your dad do built and cash flowing and some rookie mistakes you want to avoid. Okay, so laca, we’ve got to build what is the best value that a dadou can add to a property? You kind of went over how much that value is, but besides adding the property onto the lot, what are some other amenities or different things that make the dadoo valuable?

Leka:
So I always say build a dadoo that looks like a single family home. If you look at photos of dadoos in backyard cottages, they’re typically long and skinny because stuffed into a small lot, but I like dadoos that actually look like a home. So they have to have garages, a nice living and kitchen plan. And typically if you can add three bedrooms and at least two and a half baths to a thousand square foot structure and make it look like a single family home, those are the ones that get the most demand. And so once you have that built, there’s so many ways to maximize on that. You have a single family home and now you have a dadu. They each have their own access points. You can then exit that as selling the data off to an end user, or you can hold it as another rental property. You can use that as a midterm rental. I mean you can live in it, sell the bigger home. There’s just so many different ways of maximizing value.

Ashley:
Are you guys redoing the basements too? Because in Seattle a lot of homes have basements, right? Are you guys redoing any of the basement to maximize the space since it is such a small area?

Leka:
Yeah, so basements and attic conversions are also very popular in Seattle because a lot of older homes have these massive attic spaces. So we convert attics and then basements that sometimes have wet bars or kitchens. You can even get an A DU permit for that. But again, I would just be cautious and ask the city for utilities, does it require its own electrical meter, water meter, sewer line? Most often than not. If it’s a basement or an attic, it’s not going to require its own sewer meter, but it’s best to just ask the city about it. But yeah, we do convert a lot of basements. They’re great income producing units.

Tony:
I just looked at the Seattle schooner and yeah, it looks like a true single family home, so you wouldn’t even know that it’s considered a dadoo. And yeah, it’s solving a problem, right, because it’s like a win-win because the investors are getting a good return on a property, but then I’m assuming the homeowners are probably getting a better deal than if that home was just a single property on a standalone lot. So it feels like both sides are winning, but I think what I would love for rookies to walk away with LA is what is the simplest version of the dad for a rookie? So let’s say that you’ve never done this before or maybe you’re given advice to someone who’s never done this before. What is the simplest version or maybe the less riskiest way from just 30,000 foot view A to Z of doing a dad?

Leka:
So the simplest way, if you want to build a detached accessory dwelling unit is find a lot that has a garage that has an access to the garage and then convert the garage into a daou. A lot of garages are like three, 400 square feet. If you can build another floor on top that’s a nice six, 800 square feet and you’re not actually excavating pouring in new foundation, you’re using all the existing structures to build out the dad. Say you don’t have that. Honestly, building a dadoo is so much easier than renovating homes as a long-term fix and flip person that does a lot of down to the studs renovations, and I did a down to the studs reno on the house and built it dadoo in the back at the same time. Trust me, the dadoo was so much simpler. Like new construction, you have the lot, you’re giving it off to a builder, so you’re having them just build a brand new structure rather than renovating what’s within the confines of four existing walls.

Tony:
Why do you say it’s simpler? What is it about new construction that is less complex in renovating home? Because I think for a lot of people, like HGTV house slipping is what they think is the end all, be all bread and butter for real estate investing, and it’s just what people have so much exposure to, but what you’re saying is somewhat contrarian to actually building is easier. So what was it about those two side by side? What made the new construction easier than the reno?

Leka:
So with the renovation, I open up the floors to find out there was no concrete footings under the house. So now that the house is built, I have to go in and put concrete footings under the house. Not just that. In most old homes, the floor plan is just not ideal for current living, so you’re either opening up walls, you are adding additional rooms, bathrooms. Sometimes the flow is just not right, and so you have to literally take everything down to the studs. With building new construction, you are putting all of your ideas and your design elements on paper and someone’s literally drawing that up, getting it permitted, and then a builder is just building to plan so easy and with all the walls that you have to open up, you just don’t know what’s behind the walls. Just for siding, for example, this home that I bought was like a 19 hundreds home, so we opened the siding and then we found out there was four additional layers of siding on this house. And so it’s like you take out, and my siding budget was like eight grand, and then quickly it went up to 15 because there was so much more demo. And so there’s unforeseens, there’s errors that can be made. It’s just more complicated.

Ashley:
I guess on my last question before we kind of wrap up here is the tax side of it. We just had a guest on whose episode will come out in a couple weeks, a rookie investor who bought a property and right away his property taxes doubled. What do the taxes look like when you build a dad do either you’re keeping it on that same lot or you’re separating, what is the best way to estimate how your property taxes would change?

Leka:
So that’s a really good question again for your attorney, but in my case, what happened was whatever the tax amount was for the existing single family home, it got divided with the dadoo. So it went up. It went up because we added another structure. But so my tax for the existing single family was I think 3,500 for the year because it was a small single family was 800 square feet. Then my entire tax on the parcel became I think 6,500. But it got divided between the dadu and the existing single family and the dad who was a thousand square feet, the single family is 800 square feet, so the total square footage was about 1800. It got divided by the two.

Ashley:
It’s just crazy to think about an 800 square foot house being a million dollars in my market. You could buy a 5,000 square foot house for a million dollars. So it’s always so interesting to see the comparisons in market.

Leka:
Yeah.

Ashley:
Well, Laika, thank you so much for joining us today. Can you let everyone know where they can reach out to you?

Leka:
Yes, you can reach out to me on Instagram or on LinkedIn. My handle is, and it’s always a pleasure to be on the BiggerPockets podcast, and I cannot wait to see you guys at the conference this year in Vegas.

Ashley:
Yes, Leika will be with us. It’s BP Con. If you guys haven’t already, can get your tickets at biggerpockets.com/conference. And if you guys need a discount, send Laika a DM on Instagram and she might be able to hook you up with a pretty good discount. That is just for her BFFs,

Leka:
I promise. I will.

Ashley:
Thank you guys so much for joining us. I’m Ashley. He’s Tony, and we’ll see you on the next episode of Real Estate Rookie.