Pandemic boosts interest in granny flats, in-law suites
Tom Hudson spent more than $100,000 to add a separate apart - ment to his property in Portland, Oregon. The new place was so nice that Hudson decided to move in.
Now, he rents out his house, which seems dated compared to his freshly built apartment, and live sin his 550-square-foot loft.
“The house is a little bit older and didn't meet all my requirements,” says Hudson, an engineer who notes t hat a number of his neighbors also have built backyard boxes.
A nationwide boom in accessory dwelling units — also known as garage apartments, ca sit as, granny flats, carriage houses or in-law suites —has turned many American homeowners into developers and landlords.
A study released this month by mortgage giant Freddie Mac says there are at least 1.4 million accessory dwelling units, or AD Us, in the United States. Some date to a by gone area of multi generation al families sharing living quarters. Others are new additions, like the one Hudson built.
In response to afford ability challenges and a shortage of housing units, municipalities from Alexandria, Virginia, to San Jose, California, have freshened up ordinances regulating ADUs.
Pandemic boost
The corona virus contagion has spurred investment in housing, and t he pandemic has only increased interest in ADUs, real estate experts say. COVID- 19' s fatal spread in nursing homes means some homeowners would rather keep older relatives at home.
“People are looking for alternatives to assisted living ,” says Kol Peterson, author of “Backdoor Revolution,” a book about ADUs.
The units are typically 500 to 1,000 square feet and include bathrooms and kitchens. Some homeowners use ADUs to house aging parents or adult children. Others rent out the units.
Sam Khater, Freddie Mac's chief economist, says the trend is especially strong in expensive metro areas. For homeowners struggling to afford ever-appreciating homes, rental income from ADUs helps pay the mortgage. In cities with little new construction, granny flats add muchneeded housing stock, one backyard apartment at a time.
Ascertaining the precise number of casitas and garage apartments isn't easy .“There' s so little data on this ,” Khater says.
To arrive at i ts estimate of 1.4 million units, Freddie Mac analyzed millions of properties marketed through 600 multiple listing services since 1999. Researchers scoured listings for such A DU synonyms as “separate entrances” and “garage conversion.”
Backyard income
The ADU trend finds homeowners spending six figures to design, permit and build freestanding dwellings on their properties. Peterson says putting up an 800-square-foot backyard apartment in Portland costs about $210,000.
“It's probably twice that in California, and half that in Detroit ,” Peterson says. “There's a huge market variation based on regional costs.”
No matter where you build an ADU, it's a bi g expense. Before the coronavirus crisis, homeowners had been bankrolling ADUs with home-equity loans or cash-out re finances, but lenders have limited those loans since March.
How to pay for an ADU
An ADU can come with a six- figure price tag. Don't have an extra $100K in the bank? Here are some alternatives:
• Cash- out ref i nance. These have gotten harder to come by in the recession, but it's an option if you have plenty of equity.
•Home equity line of credit. HE LO C sand home equity loans also are scarcer now, but they typically can be closed more quickly than mortgages.
• Construction loan. This short-term financing is designed for building periods.
• Credit cards. Be careful with this option, of course, but if your credit is strong, you might be able to run up a balance with no interest or penalties for a promotional period.