Does building a granny flat in backyard for a rental make sense?

Question

We live in Fort Collins, CO and affordable housing is hard to find. We have a .34 acre lot and the way it's situated we could have a 500-800 square foot granny flat out back for a rental. We would still have our own yard and would have a fence to separate the properties. I'm pretty sure that we would be able to get about $1000 a month(it would have it's own little yard and patio). I'm just starting this process so I don't have hard numbers for what it might cost with permitting and sewer, etc. I would hope to do rooftop solar. But when I think about how hard it would be to get $1000 a month from any other investment, it seems like it would make sense. We would like to pay cash but even if we took a HELOC for say 40-50K, where else do you get that kind of cashflow with so little debt? We would share an outside entrance to the home via our side gate, but other than that I think we could keep things pretty separate.

Does anyone have experience or expertise to share? Thank you!!!!!

Ian I Leinwand · Answer

New construction costs in Fort Collins are around $200 a square foot. Material costs are also going up due to COVID and it can be hard to find a contractor to get a project like that done in a timely manner. I have a friend in FC who was going to build a garage with a ADU above and do a lot of work himself but the cost was still prohibitive.

If you could build it and then refinance your entire home, ADU, and lot after construction that would be the way to go since owner-occupied interest rates are low and you likely have equity in your home now.

Patrick Soukup · Answer

@Aimee Lawrence I would definitely check on zoning. NCM, NCL and NCB are (from what I've researched) the ONLY zones that would allow for a RENTAL ADU. I may also be incorrect, so if I am (which I would love to be), let me know. I'd love to track your project as it could be a major opportunity in Fort Collins.

Good luck!!

Theresa Harris · Answer

As others said check your local rules. It is a great way to add value and earn extra income. If you have a back lane on your property, you can also have them get access through that and still keep a lot of your privacy.

Find out what the costs are to build. Putting it over a garage is also a good idea. If you do solar, consider using that electricity for your house and having the accessory unit on regular power as the tenant will pay for that. You'd also need a separate meter.

Teri Feeney Styers · Answer

@Aimee Lawrence I have constructed several versions of ADUs. Here is a picture of a current project... They are a lot further along now and everyone that visits the site is just tickled with the concept. If you don't mind sharing the space and the math works then DO IT! You are helping to solve an affordable housing crisis while taking care of your financial future. Win win.

Aimee Lawrence · Answer

@Darius Ogloza We did check with zoning and we just need 6,000 square foot per dwelling. Our ADU restrictions are easing for the same reasons. Privacy is definitely a consideration, it would have to be the right person.

Darius Ogloza · Answer

I would love to do this at my home in California and our counties, under enormous pressure to accommodate low cost housing, have eased zoning restrictions in recent years to make ADU construction feasible. My wife, however, is a privacy nut.

Gordon Starr · Answer

Be sure to check with the zoning department in your town. Its a great idea and safer than most rental startup business as you could keep a close eye on it. Ask yourself this before you proceed.. Would you care too much about the little things.. like the privacy you would give up.. about tenants that are annoying and etc.

Does building a granny flat in backyard for a rental make sense?

Does building a granny flat in backyard for a rental make sense?

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