A property with a guesthouse can draw significant appeal for a number of reasons – especially if one of those reasons is supplementing your income. We have written in the past about the change to many ADU (accessory dwelling unit) guidelines making them more attainable, and recently built our own personal experience through the construction of one. But that does not mean that purchasing a home with an additional unit is right for everyone. Here are some key considerations:
#1: LET’S TALK TENANTS.
If your primary reason for owning a home with a guesthouse is to rent it out for additional income, consider what type of tenants will draw the most consistent income with the least number of headaches. While short-term, vacation rental options such as Airbnb appear to generate the most income on the surface – there are rules about listings, amenities, cleaners and more (host etiquette). Not to mention your own city likely has very specific permitting, zoning, safety and health regulations that may apply. Long-term tenants will no doubt have their own needs and requirements (and your unit still needs to be properly permitted!), but the overall logistics can be easier to manage.
#2: LENDER LIMITATIONS.
Before you enter into contract on a home with an accessory dwelling unit, make sure the builder pulled permits. An unpermitted unit is a risk (that lenders and insurance agents likely will not take!), and the square footage cannot be used to calculate value. It is more often than not a deal-breaker to assume a unit is permitted only to discover later it is not.
Speaking of lending… note that only certain loan programs allow the purchase of a property with multiple residences. If your approval was for a single-family residence only, be sure you understand how buying a home with a guesthouse could impact your financing. (Note: FHA financing typically allows rental of one unit on the property as long as you live in the other.)
#3: WHAT TO SHARE… OR NOT.
Remember when you thought having a college roommate was going to be awesome… until it wasn’t? Yep, don’t forget the challenges of communal living that come with the joys. Sharing a driveway, splitting utilities equitably, allowing use of outdoor space (or not), yielding to weekend parties and guest parking… these are all common considerations that start as small annoyances but can build-up into big frustrations. Agree in writing as much as you can (consult a property management professional for what can be binding and how) and consider a tenant whose lifestyle and communication methods are congruent with your own.
Helpful Resources:
7 THINGS YOU'LL WANT TO KNOW BEFORE BUYING A HOME WITH A GUESTHOUSE
DON'T RENT OUT YOUR HOME ON AIRBNB BEFORE YOU READ THIS
ACCESSORY DWELLING UNIT (ADU) RESOURCE CENTER
Please let us know if you have any questions, any time! And if you are on the hunt for a specific home to meet your own specific needs - please let us know (if you are NOT already working with an agent of course)! We come across all types of properties both on and off-market ALL the time!
~ Mark & Jason