Housing may be the biggest challenge facing the San Francisco Bay Area — and for solutions, some enterprising builders are thinking small.
Among the providers of new Accessory Dwelling Units, or ADUs, is Alameda Tiny Homes. Founder Hank Hernandez recently welcomed dozens of prospective East Bay buyers to an evening seminar in Alameda, where they learned the ropes of building and owning an ADU.
“They came with questions,” Hernandez said. “We’ve been talking about it for two hours.”
Hernandez calls his presentation “ADU 101″. He expects to build a lot more ADUs, now that the state has streamlined the permitting process, and loosened restrictions on renting them out.
“We’re in a housing crisis,” Hernandez said. “I truly believe it’s part of a solution.”
ADUs — also known as granny flats, backyard apartments, in-law units, and cottages — come with many potential benefits for both owners and tenants. For renters, there’s the opportunity to live in a semi-private space, sometimes at a lower rate than a similarly-appointed apartment or efficiency.
For homeowners, there’s the possibility of additional income, whether by renting the ADU to a tenant, or moving into the ADU and renting out the house to another family. An ADU can also provide an affordable, private place for an aging parent or a family member with special needs.
Those possibilities appeal to Colin Zak, an East Bay homeowner and contractor. Zak attended ADU 101 to learn more about building an ADU in his own backyard.
“It’s a good opportunity,” Zak said. “It’s too expensive to rent a house, for most people.”
Sophia Niu, a real estate agent, agrees.
“Now people see it as extra office space; home for in-laws; rental abilities,” she said. “It’s great.”
Hernandez is up-front about the cost: it’s not cheap. Prospective buyers should expect to pay upwards of $100,000 to $300,000 to build an ADU.
“If your house is your biggest purchase in your lifetime, this is basically your second-biggest purchase,” Hernandez said. “You’re just putting it on the same lot with the one you already own.”
You don’t necessarily have to pay for it yourself. Rent the Backyard, a San Francisco start-up, offers to do all the work for you — and even front the construction costs.
In July 2019, Rent the Backyard co-founder Brian Bakerman told NBC Bay Area all you need is the space for the ADU, and his company will take care of the rest.
“[We require] absolutely no money down for the homeowner,” Bakerman said. “We just ask that they enter into a partnership with us, and agree to split the rental income for the long term.”
So, who chooses the tenants? Who handles repairs? Can the homeowner evict the tenant, if they become a nuisance?
Rent the Backyard’s website says a property manager juggles those details.
If you agree to a deal like that, real estate attorney Monica Deka suggests a detailed contract.
“It could work out, as long as you plan accordingly,” Deka said. “You [should] really make sure the lease covers everything that needs to be covered.”
The same goes for renting out your backyard bungalow yourself — but Deka says hiring an expert could help you avoid major problems in the long run.
“I would recommend that you have an attorney review that, for sure,” Deka said.
Deka strongly cautions against using an ADU for short-term rentals, like Airbnb, VRBO, or HomeAway. For one thing, it might be illegal in your city or county.
“I can tell you cities are looking at Airbnb postings and going after homeowners who are violating this,” Deka said.
Another important factor to consider: property insurance. The Insurance Information Institute told NBC Bay Area traditional homeowner’s policies do not usually cover ADUs, especially if they’re used as a rental. You should talk to your insurance agent before committing to an ADU, to see how much coverage you need, and what it will cost.
For Zak, the costs are outweighed by the benefits.
“Long term, it’s a good investment,” he said. “The matter is: can you come up with the two, three, or even four-hundred-thousand dollars to do it?”