by Erik Hutslar
A nationwide boom in accessory dwelling units (ADUs), also known as garage apartments, casitas, granny flats, carriage houses or in-law suites, has turned many American homeowners into developers and landlords.
A study released July 2020 by mortgage giant Freddie Mac says there are at least 1.4 million accessory dwelling units, or ADUs, in the United States.
Sam Khater, Freddie Mac’s chief economist, says the trend is especially strong in pricey 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 much-needed housing stock, one backyard apartment at a time.
“Clearly we’ve got a supply problem that’s not going to be fixed anytime soon,” Khater says. “ADUs can be a small part of the solution.”
One of the most appealing things about an ADU is the income potential. Some people build an ADU with the intention of renting it out to others, while others consider building an ADU to live in themselves, then rent out their main house to both downsize and provide a steady source of income.
Homeowners who rent out their ADU, whether long-term or to short-term vacationers, add an income stream to cover some or all their housing costs. It is a strategy known as House Hacking, finding a way to reduce/eliminate your housing costs through someone else paying them.
Because an ADU is an entire dwelling space, you can easily rent it out for additional income as a home but charge accordingly. You might take a few hundred off the price because it is on your property, so your renters will not have the privacy that they would get from having a property to themselves. But in most places, the cost of rent will still pay for the cost of the ADU in less than a decade.
If you do plan to rent out your ADU, it is recommended to not attach it to your house. If you have the space for a standalone unit, it is the much better option. You will save money because you will not have to pay to attach it to your house, and renters are likely to pay more for it because they’ll have extra privacy.”
If you price your ADU according to the size and privacy constraints that often are characterized by ADUs, then yes, renting out your ADU is a very appealing option for many renters. Think newlyweds, single professionals, or even empty nesters as prime renter candidates.
ADUs are also great for aging parents. “People are looking for alternatives to assisted living,” says Kol Peterson, author of “Backdoor Revolution,” a book about ADUs. Assisted living facilities can be more expensive than an ADU alternative.