Should you add a new rental or care giver unit to your home?

There are various reasons why a homeowner might want to add a granny flat to their property. These flats are secondary housing units built on the same lot (or occupying the same structure) as a homeowner’s primary residence. In recent years, granny flats — like mini homes and converted garages — have become increasingly popular.

These days, granny flats (also known as accessory dwelling units or ADUs) aren’t only used as housing for aging parents and in-laws. Economists see them as a potential solution to the inventory shortage in housing markets across the country.

Bottom line: ADUs can add value to a property. Just keep in mind that the way you use your granny flat could have an impact on your homeowners insurance costs and tax rates.

Granny flats and homeowners insurance

A recent Pew Research Center study showed that 66.5 million Americans live in a multigenerational home with two or more adult generations under the same roof. This means that 20% of us are living with grandchildren or grandparents, up from 12% in the 1980s. It also means that having a granny flat that an elderly relative can live in might be more important now than it has ever been in the past.

Anytime you have other people living in your home — even if it’s family — there are additional risks that can potentially drive up the cost of your insurance premiums.

Putting a granny flat to good use

Some homeowners build granny flats to house their aging parents. Others simply want another source of income. Below are several ways to make the most of an extra unit you’ve attached to your home.

Long-term rental unit

A great way to turn a granny flat into a source of guaranteed income is to ask tenants to sign a lease. If you live in a heavily populated area or a place tourists often visit, an ADU could become a passive income stream. And if you’re strapped for cash, you could move into your granny flat and rent out the rest of your home.

Short-term rental unit

If you’re not interested in handing the keys to your home over to a tenant for a full year, consider renting out your granny flat temporarily. There are several online resources that you can use to list your unit, including VRBO, HomeAway, and Airbnb.

Keep in mind that you may need to pay lodging taxes. And if your flat is rented out at normal commercial rates, all of the money you earn will be taxable. However, you may be able to deduct expenses such as insurance premiums and utilities.

Elder care

As parents and grandparents grow older, allowing them to live in a granny flat connected to your home can be one of the most cost-effective ways to look after a family member. The U.S. Department of Health and Human Services estimates that a semi-private room in a nursing home costs about $6,844 per month, on average. Nationwide, the average cost of a bedroom in an assisted living facility is about $3,628 per month.

Housing for adult children

Finding affordable housing can be difficult for young adults. That’s why young professionals who want to save money may want to consider living in separate units attached to their parents’ homes. An ADU could also be a good option for an adult child with developmental or mental health issues who wants to remain connected to their family while living an independent life.

Home office or studio

If you work from home, an ADU could be a great place to escape to when you need to focus and avoid distractions. And if you’re an artist, you could easily turn a granny flat into your own personal sanctuary.

Guest house

Having too many family members and friends staying over your house can be overwhelming. Giving guests access to their own private unit would make everyone feel more comfortable and make your home feel less crowded.

The cost of building a granny flat
The cost of constructing a granny flat can vary depending on its size, its amenities and the location where you’re building it. Once the structure of the unit is built, you’ll have to pay to put in plumbing and electrical wiring. When it’s all said and done, you could end up spending hundreds of thousands of dollars. Pacific Modern Homes, which specializes in granny flat construction, offers pre-engineered home packages ranging from $26,977 to $166,737.

Taking construction costs into consideration is important when you’re thinking about adding in a granny flat. Watch out for hidden fees and make sure you have all of the permits you need for the project.

Still have questions about building and insuring a granny flat? Contact a Hippo specialist. We’re here to help!

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