Backyard cottages, tiny homes and ADUs (accessory dwelling units): What's the difference?

The short answer: ADU describes a home’s use on the property. Modular describes how it is built. Tiny describes its size. A backyard cottage is a common name for a separate small home. A Wolf modular home can be a primary residence or an ADU, depending on the approved use.

For real examples, compare a Vancouver Model I primary residence with a Vancouver Model E home for a parent. They serve different purposes even though both are modular homes.

More cities are encouraging infill, which means adding homes on land that’s already developed. Property owners are also looking for flexible ways to use their land. So you hear terms like backyard cottage, tiny home, granny flat, and ADU more and more.

People often use these terms as if they mean the same thing. They don’t always.

In many cases, they all describe some kind of extra living space on a property. They’re often self-contained, set up for independent living, and may be permanently attached to the land. But a few things can change depending on what you build and where your property is. Those include the legal definition, the allowed use, financing, zoning rules, and long-term value.

Before you decide, it helps to know the difference between a tiny home, an accessory dwelling unit, and a backyard cottage.

What is the small house in the backyard called?

Most people call it a backyard cottage, a granny flat, or a mother-in-law suite. On the permit, your city or county will usually call it an accessory dwelling unit, or ADU.

What is a tiny home?

A tiny home is usually a small home under 400 sq ft. Some tiny homes are built on wheels so they can be towed. Others are placed on permanent foundations.

A tiny home on wheels is often treated as a recreational vehicle (RV) under the law. That can affect how it’s taxed, where it can go, and whether you can live in it full time. In many areas, zoning rules don’t let people live full time in an RV. So a tiny home on wheels may not count as a legal granny flat or long-term backyard home.

A tiny home on a permanent foundation is different. A foundation alone does not change an RV into an approved dwelling. The structure and its placement need to meet the applicable dwelling requirements. In many places, a tiny home on a foundation can qualify as an accessory dwelling unit, depending on local rules. Every Wolf tiny home is built to residential code and set on a permanent foundation.

A compact home can be a primary residence where the property and applicable building rules allow it. Do not assume that an ADU size limit governs a main home. If you plan to build a tiny home on your property, you’ll usually need permits, inspections, and approval from your local building department.

Size limits, zoning rules, and foundation rules vary by city and county. Check with the building department, or a builder who knows your area, before you buy anything. That way you don’t end up paying for a structure you can’t legally live in.

What is an ADU?

An accessory dwelling unit, often called an ADU, is an extra home on the same property as a main house. ADUs are meant for permanent housing and independent living.

An ADU can take several forms, including:

• A detached backyard cottage
• A tiny home on a permanent foundation
• A basement apartment
• A garage conversion
• An apartment above a garage
• An attached addition with its own living space

In other words, “ADU” is usually the legal or zoning category. Terms like “backyard cottage,” “granny flat,” or “mother-in-law suite” often describe the style or how it’s used.

ADUs aren’t just for family members. Many homeowners use an ADU for rental income or to house aging parents. Others use one to give adult children more independence, or to make better use of extra space on the lot. For empty nesters, an ADU can also make it possible to downsize while staying on the same property.

For example, some homeowners live in the smaller ADU and rent out the larger main house. That can bring in income while the owner stays close by to manage the property.

Because ADUs are permanent homes, they usually need building permits and inspections, and they have to meet local building codes. Once built, an ADU becomes part of the property. Separate sale or ownership depends on the jurisdiction and any required land-division or ownership process. Our ADU builder page shows how Wolf checks the lot, then permits, builds, and sets a detached ADU.

Financing for ADUs has also become more common. Many banks and lenders now offer loans for homeowners who want to add an accessory dwelling unit, though rates and requirements vary. See our financing page for lenders who work with Wolf projects.

What is a backyard cottage?

A backyard cottage is usually a small detached home behind or near the main house. It may also be called a granny flat, mother-in-law suite, cottage home, or detached ADU. The exact meaning depends on local rules. If your family says granny flat, our granny flat builder page covers the same home by that name.

In some areas, a cottage home means a small main house on its own lot. In other places, a backyard cottage means a second home built on the same parcel as an existing house. These homes are usually self-contained, with a bedroom, bathroom, kitchen, and living area.

Backyard cottages are often larger and more home-like than many tiny homes. They may offer more privacy and long-term comfort. They also give homeowners more room to house family, earn rental income, or downsize without leaving their property.

A backyard cottage usually isn’t a separate legal property, though. Its ownership and any separate sale depend on the jurisdiction and approved property arrangement.

Building a backyard cottage generally means meeting local zoning rules and building codes, and getting permits and inspections. A well-designed cottage can also raise property value, which may lead to higher property taxes.

Tiny home vs. ADU vs. backyard cottage: key differences

The biggest difference between these homes isn’t always the design. It’s often how your local jurisdiction classifies the structure.

A tiny home may be mobile or permanent. If it’s on wheels, it may be treated more like an RV. If it’s placed on a foundation, it may qualify as an ADU.

An ADU is a legal category for an extra home on a property. It can be attached, detached, converted from existing space, or built new.

A backyard cottage is usually a small detached home on the same property as the main house. In many cases, it counts as a type of ADU.

Size caps come from your city or county. In Washington, HB 1337 requires covered cities and counties to allow ADUs of at least 1,000 sq ft inside urban growth areas (see our Washington ADU laws guide). Oregon has no statewide ADU size, so the cap comes from your local code.

Which option is right for your property?

It depends on your budget, the layout of your property, and your long-term plans. Our cost page lists Wolf’s home starting prices and what permits, delivery, setup, and site work add.

Tiny living can be appealing because it often costs less and may take less time to build. But living in a very small space can mean major downsizing. If you don’t want to part with your things or adjust to a simpler lifestyle, a tiny home may feel limiting over time.

A converted ADU, such as a basement or garage apartment, may be ready to use sooner if the structure already exists. It may also mean less outdoor construction than building a new detached unit. Still, you may need renovations to make the space comfortable, up to code, and legal to live in.

A backyard cottage can offer more privacy and feel more like a standalone home. It may be a good fit for aging parents, adult children, long-term guests, or renters. The tradeoff is that new construction can involve permitting, financing, site work, and some disruption during the build.

Pros and cons of tiny homes

Tiny homes are often the lowest-cost option and may take less time to build than larger homes. They can work well for minimalists, students, young couples, or homeowners who want a compact place to live.

But tiny homes can feel cramped over time. They often require serious downsizing, and the versions on wheels may not be legal for full-time living in many areas. Storage is limited, and zoning rules can make placement trickier than many people expect.

Pros and cons of ADUs

ADUs are flexible and can meet many needs, from rental income to family housing. Maybe you already have a basement, garage, or other structure you can convert. Then an ADU may give you usable living space without building a whole new home.

ADUs can also help homeowners start earning income sooner, especially when the structure already exists. On the other hand, they may cut into your privacy and need renovations. If you rent one out, you also take on landlord duties. When a tenant relationship goes badly, it can feel more personal because the tenant lives on the same property.

Pros and cons of backyard cottages

Backyard cottages offer more independent living than many attached or converted ADUs. They can feel like a real standalone home. That makes them a good fit for extended family, aging parents, guests, or renters.

They may also raise property value and give you more options down the road. But they often need new construction, financing, permits, inspections, and site prep. You might plan to rent the main house and live in the cottage. If so, you’ll need to be comfortable with someone else living in what may have been your own home.

Choosing between them

If keeping costs down and keeping things simple come first, a tiny home may be worth a look. If you want flexible rental or family housing, an ADU may be the better fit. If you want a roomier, permanent, standalone home, a backyard cottage may give you the strongest long-term value.

Before you decide, check your local zoning rules and learn how the permit process works. Then talk with people who can help you figure out what’s possible on your property. Our What is an ADU? and backyard cottage builder pages have more on each.

Want to know which type of ADU or backyard cottage could work on your property? Schedule a free property evaluation with Wolf Industries. It’s a first look at zoning, setbacks, and what’s generally allowed on your lot.