ADUs and Fix-and-Flip Properties: What Paces Funding Borrowers Should Know
When purchasing a fix-and-flip property, there may be an opportunity to build an accessory dwelling unit (ADU) on the lot to increase the property's appeal to potential buyers. Paces Funding, which lends in the Carolinas, provides some useful context around what ADUs are and what requirements borrowers may need to be aware of.
An ADU is a dwelling unit that is separate from the main home but located on the same lot. This includes structures such as garage apartments and backyard cottages. An ADU can accommodate independent living for up to two adults. In some cases, an ADU may also be located within the main home itself, provided it functions as a genuinely separate unit.
Before building an ADU, certain conditions must be met to gain approval from state and local authorities. Since Paces Funding operates in the Carolinas, the following outlines key requirements specific to the city of Charleston, South Carolina, based on the city's zoning ordinance.
6 Requirements for an Approved ADU in Charleston, S.C.
- Either the main home or the accessory dwelling unit must be owner-occupied, and no more than two adults may reside in the ADU.
- If a buyer intends to rent out the ADU for income, the unit must meet Affordable Housing income and rental thresholds as outlined in Charleston's Zoning Ordinance.
- Neither the main home nor the ADU may be used as a short-term rental. In Charleston, a short-term rental is defined as any rental period under 29 days.
- An application for approval must be submitted before construction begins, along with a copy of a recorded covenant affidavit confirming that no existing covenants prohibit the construction of an ADU on the property.
- The ADU must be provided with at least one dedicated parking space, in addition to any parking required for the main home.
- ADUs are limited to 850 square feet of conditioned floor space.
How This Relates to Paces Funding's Lending Services
Paces Funding focuses on lending for real estate investors in the Carolinas. Understanding local ADU regulations can be relevant for borrowers who are evaluating whether adding a detached ADU, in-law suite, or similar structure could add value to a flip property before resale.
It's worth noting that zoning requirements can vary significantly between municipalities. The Charleston requirements outlined here are specific to that city and may not apply elsewhere in South Carolina or North Carolina. Borrowers are encouraged to consult local zoning authorities or a qualified ADU contractor familiar with the relevant jurisdiction before proceeding with any construction plans.
Adding an accessory dwelling unit to a flip property is not a straightforward decision — it involves navigating local regulations, construction timelines, and financing considerations. Paces Funding's familiarity with the Carolina market positions them to help investors think through the financial side of such projects.
