Thinking about adding an accessory dwelling unit to your South Lake Tahoe property but not sure how to pay for it? You are not alone. Between Basin rules, local utility fees, and rising construction costs, funding an ADU takes a clear plan. In this guide, you will learn what drives cost in Tahoe, the most common financing options, grants that can help, and the practical steps to move forward with confidence. Let’s dive in.

What makes Tahoe ADU funding unique

South Lake Tahoe projects move through layered rules. If your home sits in the Tahoe Basin, the Tahoe Regional Planning Agency reviews ADUs first and sets standards for lot coverage, stormwater best practices, and possible bonus units. Start with the TRPA ADU page to understand eligibility, application type, and timing.

Inside city limits, the City of South Lake Tahoe allows ADUs on most residential lots and provides a local guide and contacts. The City’s ADU page also notes ADUs may not be used as short‑term rentals. Given recent changes to short‑term rental rules citywide, verify current policy on the City ADU page before counting on rental income.

Some parcels fall under El Dorado County rules. If your property is outside city limits, use the county’s checklists and resources on the El Dorado County ADU page.

Utility capacity and connection fees can be significant. The South Tahoe Public Utility District sets water and sewer requirements, meter sizing, and capacity charges. Review STPUD’s current process and fees and ask for an early estimate using the STPUD permit guidelines and connection fees page.

How much does an ADU cost here

ADU budgets vary by type, site, and finish level. Industry reporting in 2024 to 2025 shows typical ranges:

• Garage conversion or interior ADU: roughly $60,000 to $180,000.
• Attached ADU: roughly $120,000 to $300,000.
• Detached ADU: roughly $180,000 to $450,000 plus, with mountain sites trending higher due to snow loads, foundations, and utility runs. See indicative ranges in this ADU cost guide.

In the Basin, TRPA stormwater measures and coverage limits can add design and site work. Soft costs such as surveys, engineering, energy compliance, and permits often equal 8 to 15 percent of your budget.

Financing options that work in Tahoe

Construction‑to‑permanent loan

A single loan funds construction draws, then converts to a standard mortgage when the unit is complete. It offers one closing and predictable long‑term financing. Learn the basics with this construction‑to‑perm overview.

HELOC or home equity loan

A HELOC gives flexible, as‑needed draws secured by your home. Rates are usually variable, and payments can change when the draw period ends. A fixed home equity loan provides set cash but less flexibility. See how HELOCs work in this CFPB explainer.

Cash‑out refinance

You replace your current mortgage with a larger one and take the difference in cash. Compare the new rate and closing costs against other options. The CFPB reviews borrower outcomes in its cash‑out refinance report.

FHA options and 203(k)

FHA now lets lenders count a portion of ADU rental income when qualifying and treats ADU work as eligible under 203(k) rehab mortgages. This can help if you plan a garage conversion or a renovation with an ADU. Review the policy update in HUD’s FHA ADU guidance.

Conventional loans that recognize ADUs

Many lenders follow agency guidance that addresses ADU appraisal and underwriting. Policies vary by lender, so ask how they treat projected ADU income and what documentation they require.

Vendor and factory‑built programs

Some prefab providers offer financing or partner programs tied to their product. These can speed delivery, though terms vary and may be higher than traditional loans.

Grants and local help

• CalHFA ADU Grant Program. Eligible homeowners can receive up to $40,000 for pre‑development and closing costs like permits, plans, and reports. Funding opens in rounds and can run out, so check status on the CalHFA ADU grant page.
• County resources. El Dorado County offers ADU checklists and pre‑reviewed plan options to streamline design and permitting. Start with the county ADU page.

Plan for utilities, TRPA fees, and soft costs

• STPUD capacity charges. Water and sewer capacity fees and meter sizing can be meaningful one‑time costs. Confirm whether your ADU triggers a capacity charge or qualifies for any current exemptions using STPUD’s fee guidance.
• TRPA fees and coverage. Expect line items for applications, stormwater, and possible coverage mitigation. Review process types and requirements on TRPA’s ADU page.
• Soft costs. Design, surveys, soils, energy reports, engineering, permit fees, and plan check add up. The CalHFA grant is designed to offset these expenses.

Sample budgets and how to stack financing

• Detached ADU example. A 600 square foot detached unit with mid‑range finishes might target a $240,000 build. Add soft costs, TRPA items, and possible STPUD charges, plus a 10 to 15 percent contingency for snow‑zone surprises. Many owners use a construction‑to‑perm loan for the full budget, or a HELOC to cover part of the cost with cash for the rest.
• Garage conversion example. A conversion can run $50,000 to $120,000 because you reuse the structure and utilities. Owners often pair a HELOC with the CalHFA grant or use an FHA 203(k) if the project is part of a larger rehab.

These are illustrative scenarios. Always confirm current fee schedules and lender terms before locking your plan.

Timeline and next steps

• Typical timing. TRPA review can range from about 40 days for Minor Projects to around 120 days for Single‑Family Dwelling applications, followed by local plan check. Many Tahoe Basin projects take 12 to 24 months from concept to move‑in depending on site conditions and revisions.
• Your action plan:
  1. Check eligibility and coverage limits on the TRPA ADU page.
  2. Confirm city or county process using the City ADU page or El Dorado County ADU page.
  3. Request a utility review and preliminary fee estimate from STPUD.
  4. Ask lenders how they treat ADU income, what appraisals require, and which loan fits your budget and timeline. Share HUD’s FHA guidance if relevant.
  5. Apply for the CalHFA ADU grant if you qualify.

Taxes and rental use to keep in mind

ADU rental income is generally taxable. The IRS explains income reporting, deductible expenses, and depreciation rules in Publication 527. Also check local rental rules. The City’s ADU page currently states ADUs cannot be used as short‑term rentals. Given recent changes in the city’s broader short‑term rental environment, verify current code before relying on projected short‑term income using the City ADU page.

Ready to map a funding plan that fits your goals, timeline, and lifestyle vision for Tahoe? Reach out to Kristin Warrick for thoughtful guidance and a connected, concierge approach from first idea to final inspection.

FAQs

What permits do you need for an ADU in South Lake Tahoe

• Most Basin projects go to TRPA first, then the City or El Dorado County for building permits; start with the TRPA ADU page and the local City ADU page or County ADU page.

How do lenders count ADU rental income when qualifying

• FHA allows lenders to count a portion of ADU income and includes ADUs under 203(k) rehab loans; ask your lender for their exact percentages and required documentation and see HUD’s FHA ADU update.

How much should I budget for water and sewer in Tahoe

• Capacity and connection charges vary by meter size and square footage; request a project‑specific estimate early using STPUD’s fee guidance.

Are ADUs allowed as short‑term rentals in South Lake Tahoe

• The City’s ADU page currently says no; the broader short‑term rental environment has been changing, so verify the current code directly on the City ADU page before modeling income.

What is the typical ADU timeline in the Tahoe Basin

• Many projects run 12 to 24 months from concept to completion, with TRPA review ranging from about 40 to 120 days depending on application type, followed by local plan check.