In-law apartments are hot properties

Jim Gallant
| 5 min. read
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Published on January 22, 2015

In-laws get a bad rap. From The Honeymooners to Everybody Loves Raymond to today’s Black-ish, TV has mined living with the in-laws for sitcom gold. But when the word “in-law” is married with “apartment,” the result for real estate pros is pure platinum.

“In-law apartments,” or what the industry calls accessory dwelling units (ADUs), grew at a brisk 30% from 2000 to 2010.  For property managers advising their clients about how to maximize rent revenue and home value, ADUs deserve a closer look.

This isn’t your grandmother’s in-law apartment

For the latter half of the 20th century, the traditional ADU was an apartment for an aging parent or mother-in-law built over the garage. In the early 2000s, U.S. cities and towns with little-to-no land available for development began exploring creative alternatives for building more affordable housing in their communities.

Since then, ingenious homeowners and developers (sometimes that person is one in the same) have come up with an array of imaginative ADU designs. In-law apartments now come in all shapes and sizes, and there are three basic types, according to Accessorydwellings.org, a non-profit dedicated to providing information to the public on the subject:

  • The old standby, the apartment over the garage
  • An attached unit carved out of an existing home, such as a basement or attic apartment, sometimes with a separate entrance for greater privacy
  • A “tiny house,” which is detached from the main house and rests on its own foundation

The standalone tiny house, sometimes called a “granny flat” or “granny pod,” affords greater independence and privacy than a unit tucked into the footprint of an existing home. And in recent years, an entire cottage industry has sprouted around these tiny homes.

Players in the tiny house niche include the Tumbleweed Tiny House Company, which specializes in the miniature homes, and nationally known house builders like Toll Brothers. There’s even a  web TV show, Tiny House Nation, dedicated to the movement, as well as a Tiny House Conference that features guru guest speakers, exhibits, and a variety of workshops on planning and building tiny homes.

Why homeowners and builders are fans of ADUs

Accesorydwellings.org cites studies that suggest two reasons why ADUs are growing in popularity: the uptick in homeowners providing housing to aging family members and the ability to charge higher rents.

In-law units also can be a good bet for short-term rentals. In her article on the ADU phenomenon, Katy McLaughlin of the Wall Street Journal reported, “Fully permitted in-law units see the highest property values in areas where short-term rentals are both in-demand and legal, brokers in various parts of the country said.”

Another plus is the boost in value homeowners can realize after they build in-law apartments on their plots.  A Zillow study  of new home listings over the past four years revealed that homes with in-law apartments boasted prices 60% higher than those without them.

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The cost of building in-law units

Martin Brown, one of the principles at Accessorydwellings.org, in his data analysis of a survey by the Oregon Department of Environmental Quality, confirmed a  wide range of construction costs for ADUs:

  • Detached ADUs, such as tiny houses, cost from $9,000 to $300,000 (the mean is $98,000), and the cost per square foot ranges from $13 to $438 (with a mean of $151).
  • Attached ADUs cost from $3,500 to $200,000 (the mean is $52,000), and the cost per square foot ranges from $6 to $308 per square foot (with a mean of $82).

Ryan Mitchell, of tinylife.com and the Tiny House Conference, said that the average cost of a DIY tiny house is $23,000. Compare that with premium tiny homes built by the Tumbleweed Tiny House Company: the 161-square-foot “Elm” model is priced at $66,000, which is about $410-per-square-foot.

I asked Chris Keivit, senior property manager at Nightingale Chancellors in Surrey, England, whether in-law apartments are promising investments for property managers to recommend to owner-clients. Keivit, formerly a property management analyst in Chicago, broke down the financials of constructing an ADU.

“Let’s say, for example, that you’re building a two-bedroom, 800-square-foot granny flat, at a cost of $120,000,” Keivit said. “If debt amounts to $650 per month and you collect rent at a very modest $1,200 per month, after insurance, taxes, and other expenses, you’re operating at a profit.”

Current trends bode well for investing in in-law apartments. Forbes cites a 2010 Pew Research Report that said “…20% of people 65 and older live in a multigenerational household, and the numbers are growing.”

Additionally, ADUs provide homeowners with the peace of mind that comes with having aging parents nearby, especially those with disabilities, mobility issues, or other health-related problems. And when circumstances permit it, parents gain a solution to one of today’s biggest challenges in the U.S. — cost-effective and trustworthy day care.

Have a chat with your property owners: maybe this weekend is the perfect time for them to invite the in-laws over for dinner?

When it comes to recommending ADUs as an investment to your clients, are you a bull or a bear? Leave us a comment and let us know.

Read more on Property Management Trends
Jim Gallant
Jim Gallant

Jim Galant is a freelance writer from Boston, MA.

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