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How Much Does Building a Granny Flat Cost?

How Much Does Building a Granny Flat Cost?

A current trend in home design spurs from the interest in tiny house living. What we’re talking about here is the granny flat, which, by the name, you could assume would mean a space fit to house the elderly. The name ‘granny flat’ derives from the fact that these flats, often connected or near to the main house, are built for the grandparents to move into.

By and large, these structures are self-sustainable, small, and a perfect home to a couple’s aging parents. You could best think of them as a detached or attached unit that is built upon the grounds of the property. In other words, a guest house or casita addition aimed specifically towards complete sustainability. They will have all the proper amenities of a larger home consolidated into a smaller space.

The real estate industry calls them ADUs (accessory dwelling units), which then adopts terminology like casitas, in-law units, in-law apartments, father-in-law apartments, carriage units, accessory homes, and more. Being that in today’s’ age multigenerational housing is quite accepted, a granny flat is regarded as a home improvement project that raises the total value of the property.

Our point: the granny flat is a popular addition to the main house.

Three Types of The Granny Flat

In-Home Granny Flat

One of the most sought-after types of granny flats is the in-home version. Reason being—although the governing laws for construction vary dependent on the property and location—this type of granny flat is the least costly, easiest to build, and least restricted. Think of it as a separation within an existing primary residence, with the main difference being that typically a granny flat begets a new entrance (the point is for those living in the space to remain with autonomy).

Once this separation is made, new amenities are often added to the granny flat, allowing for the area to operate as its ‘own house.’ Structurally, this also makes it easier for the property owners to check on their parents or anyone living in the house, although it’s not usually used as a rental space, being that the degree of separation is dismal.

Home-Extension Granny Flat

This type of granny flat falls along the lines of a renovated home—with the aim of extending the property. The restrictions that tack along with this type are dependent on the space of the property and the city in which it resides. However, it is what you would consider a renovation, with a new granny flat being added to an existing home.

Typically, this means another room, living room, bathroom, and kitchen, with a separate entry door. Again, this type of granny flat does not have the degree of separation most property owners would like between them and renters, so it’s usually built for the in-laws, as a guest home, or for another live-in family member. Due to the nature of renovation, it is costlier than the in-home granny flat.

Detached Granny Flat

A detached granny flat is exactly as it sounds; detached from the original home. This can accrue more costs as conduits must be dug and piping run to the area (if they are not preexisting) and typically, city ordinances will limit the types of building possible. Still, they are sought after because not only do they provide a sustainable living situation for the grandparents, but the degree of separation provides full autonomy.

What Are the Benefits of a Granny Flat?

To speak on AUDs as a whole, the benefits are somewhat endless. At the very least they’re more space and at the very most they’re a home for your aging parents or a lucrative source of rental income. They haven’t quite taken off in the US due to zoning laws that vary depending on the location. However, with their growing popularity, the states are seeing a rise in this type of housing and are witnessing community leaders rally to question zoning laws that prohibit them.

Outside of personal benefits, they’re great for communities. Being that they’re smaller buildings, they require fewer resources than the primary residence or apartments or apartment complexes. They provide those not wealthy enough to rent a ‘full’ home the ability to have their own independent property, and because they’re often placed in walkable or bikeable locations, the tenants tend to drive less, further having less of an impact on the environment.

By most accounts, the granny flat is a fantastic accessory to a home and a great trend in modern real estate. Within the new few years, expect a massive rise in this type of housing. California is the current leader in reducing statewide regulations to allow ADUs the flexibility to grow in presence.

How Do I Build a Granny Flat?

Before pouring in a ton of research into building a guest house or an AUD, it is paramount that you identify whether or not your city will give you the permit to build it. If you live in California, you’re going to have a better chance than other states. Still, it’s important that you reach out to a construction company that focuses on building and remodeling, as they will provide all the information required.

How Much Does A Granny Flat Cost?

The cost of a granny flat depends on a host of variables; the type, where you’re building, and the scope of the project. It is impossible to provide a base cost that is ubiquitous across the industry, as different housing markets vary in pricing and projects will be different than others. A detached granny flat will obviously cost more than separating an already-constructed home to serve as ‘two homes.’

With that being said, a recent report published in Portland, Oregon, states that a granny flat costs $75 per square foot. That means that a 1000 square foot dwelling unit (the general size of a two bedroom apartment) will cost around $75k. While that may seem steep to you, building a detached (or extending a home) unit anywhere costs money.

This price can fluctuate drastically but—even if it’s high for your area—at least it’s a median to reference.

An Investment

Spending money on an already-existing home can be scary. Without knowing what the future holds, a renovation that costs tens of thousands of dollars can occur simultaneously to a massive drop in the market, rendering the ‘investment’ to hold no merit as the value of the property plummets. AUDs, fortunately, are different.

Being that they’re an add-on to the home, they create more livable space which will increase the property value despite the market (we mean as a whole, here). Furthermore, they can be used as rental housing which will generate income that will go towards the mortgage or property tax. They add versatility, livability, and another option for guaranteed income (so long as you can find a renter).

When Should I Build a Granny Flat?

Taking the granny flat cost into consideration, the timing in which you should build one depends on your overall goal. Are your or your spouse’s parents in need of assisted living? Or do they simply need to be closer? Are your kids moving out soon and in need of their own living space? Do you plan on using your property as a source of income? If you’re currently purchasing your home to be used as a source of income, could a granny flat increase revenue?

If you answered yes to any of these questions, then it is likely the timing is right (regarding objective). However, the finances might not be in order. In which case, see below:

How Can I Finance my Granny Flat?

The middle-class homeowner doesn’t have an infinite bank account capable of shelling out a hundred thousand dollars for a granny flat. That’s simply not a reality. Still, being that these additions are certainly investments, there exists an array of different financing methods.

A Traditional Loan

Being that the granny flat trend has not ‘taken off’ per se, finding someone that will back the finances may prove difficult. There are development fees mixed into projects like these—set forth by the city—which work to mitigate any new building in certain neighborhoods and communities. With that being said, now that they’re becoming popular, and now that you can make the ‘investment’ argument, it is not out of the realm of possibility that you could land a traditional loan for your new AUD.

This is where research comes into play, as you’ll need to see just how high-interest rates are going to be, and exactly what ‘type’ of project your loaner considers the granny flat to fall under.

Innovative Alternatives

Being that by default, the granny flat is defined as an alternative, there are now alternative methods in funding their development. Take the Palo Alto profit share model, for instance, where a builder helps cover the cost of an AUD in return for a percentage of the rental profit. Research your specific area to see if anyone else is trying to build a granny flat and identify their successes in doing so.

There might be an option limited to your city or county that could prove worthwhile. At the end of the day, the very fact that they’re now considered an investment helps shape the overall perspective of the addition. Again, reach out to construction companies in your area as they can point you in the right direction for financing.

The more this trend evolves, the easier it’s going to be to finance the projects.

Calculating Your Risks

With all the above being said, when it comes to building a granny flat, it’s important to measure your risk versus your reward. Timing is one thing but a cost-benefit analysis can solidify your decision. Are you planning to sell the home soon and want to increase value? Are you parents in a condition where they will need a comfy place to live in the near future?

Both of these motivations stem from two different places; financial gain and love. Still, both attribute to the cost-benefit analysis as a whole. On one hand, if the risk is worth the reward then the cost of the AUD is an investment. On the other, if it is reasonable to spend the money, you’re giving back to your parents and investing in your property.

Of course, calculating the risk is solely dependent on your specific situation. We write this for the purpose of encouraging you to think through every facet of building a granny flat.

The Process

To summarize the entire granny flat process, here’s an overview that could help shape your perspective. You know how much building a granny flat costs—if that’s within reason, see below.

Determine If You Can Build One

Do your research. Determine if your property can be a host to an AUD.

Identify Goals

Is this for financial gain (investment or rental)? Or is this to house loved ones?

Find A Builder

Reach out to someone that focuses on these specific projects. They should provide you with an architect and the know-how to execute.

Financing

If you haven’t secured financing, now is the time to do it. Research alternative methods.

Secure Permits

Your general contractor or construction company should handle this. However, you’ll need to have the proper permits in order to build.

Don’t Neglect the Building Process

Once the AUD is in construction, do not step away. Stay attentive, involved, and on top of it.

Conclusion

The granny flat could very well be the housing trend of the future. Particularly in big cities, where finding an affordable standalone one or two bedroom is nearly impossible. It is an investment in the property as a whole and an asset for your loved ones, particularly those grannies! The cost of a granny flat addition should be anywhere from 40k-150k and if that’s within your budget, then become part of a growing trend here in the US.

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