Build an ADU Now, Avoid a Reverse Mortgage in the Future?


I recently completed a class for certification as a Senior Real Estate Specialist (SRES). One of the topics in the class was reverse mortgages, which senior adults sometimes use to tap into the equity in their homes when they need income. During the Great Recession of 2008-2009, the number of senior adults who obtained a reverse mortgage increased dramatically. While a reverse mortgage may make sense for a certain number of seniors, there are downsides to this financial instrument. The fees are generally high, and as the homeowner uses the equity from their home, less money can be passed on to heirs.

In planning for retirement or semi-retirement, it is a good idea for a homeowner to consider an accessory dwelling unit (ADU). After building an ADU, the homeowner can choose to live in the main house or the ADU, and then have the other living unit available for a:

  • Family member or relative. This person can help pay for some of the housing expenses (mortgage, property taxes, insurance, etc.)
  • Renter in the community. ADUs can generate rental income that can supplement a senior adult’s retirement income.

In addition, the construction of an ADU will increase the value of a homeowner’s property. Having an ADU may put senior adults in a better financial situation so that a reverse mortgage is not necessary.

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