This is an interesting question that came up when we completed a Backyard Home in Walnut Creek earlier this year. What started out as a plan to house his mother on site with them turned out to be the best investment decision he’s ever made. Our client was reviewing his assets with his financial planner upon completion and was shocked when he and the planner realized that they just turned a portion of his assets into something that has at least four times the benefits of what it was doing prior to building the Second Unit.
To understand this we need to look at the first pieces of the puzzle. Bradley had two things going for him when he started down this journey. He had a home with a lot that had space for the additional structure and he had the money sitting in his investment portfolio. All he needed was someone qualified to help him with the design and building process. What he did not realize was that this simple addition to his property just made him one the most savvy real estate investors around.
If you look at a traditional investment portfolio of most Boomers and early Gen-X’ers you will see that real estate is typically limited to their main home. Some have a second home, but it’s traditionally a vacation property or timeshare. The remainder of the portfolio is usually held in their IRA, 401K and stocks. For the most part these investments are pretty straight forward when it comes to gains & losses over a period of time and don’t offer any other contributions other than the periodic gains.
- His property value increased upon completion (ranges from 2-20% over cost, depending on location and size)
- Increased return on annual value gains of real estate (usually double digit gains for Bay Area)
- Added depreciation option for new unit (ranges from $10k-$20k annually over 10yr period)
- Added revenue stream for unit as rental (possible $1400/mo income)
- Created optional retirement home for owner while renting out the main house (possible $4000/mo income)
Even if we made the assumption that Bradley was a great investor and his portfolio was in the 10-15% annual return rate, which is almost impossible given the roller coaster market over the last 10 years, that $100,000 he rolled over to build the second unit would have gained $10,000 to $15,000 this year. By building the second unit he immediately increased the value of his expenditure by 8% since the appraised value exceeded the cost to build by that much as soon as it was completed. He can now expect to exceed the traditional gains of his non-real estate investments by moving the money over to real estate, plus he can write down some of those gains through depreciation, and pick up another $16,800 annually in rents for the little unit, or $48,000 annually if he moves into the unit and rents out the main house. Since the rental market is less volatile than stocks I think it’s safe to say the return averages overall would stay much higher if we include the rents into the basket of earnings . All this without really spending a single dollar, since he just moved his money from one asset to another. Sounds like the best investment decision to me!
Maybe I should change my title?
OK – guru may be a stretch!
Everyday people call our office looking for information about building a home using one of our advanced building methods. Usually the conversations center on one technology vs. the other based on the information they give us. If you have great access to a flat building area we recommend a Modular solution. If access is limited or the design doesn’t fit our box building templates, we suggest a Panelized solution. Lately a new breed of homes has us pretty excited about where we are going with the evolution of building – The “Hybrid” Home.
For us, Hybrid Homes were born out of the goal of using Modular as far as we can possibly go with a design and then layering in other building methods to complete the process. A simple example of this that we have done for years is the site built garage or front porch attached to one of our Modular homes. There are examples here and here. But that’s just the tip of the iceberg when it comes to what we can do. Why build this way, you ask? Simple, to address a client’s desire while maximizing the factory building options which speed the build cycle and maintain affordability. Here are two examples of how we are using this Hybrid building method:
Example one – The Tuscan Vineyard Guest House
For this project we needed to build a 1000sqft Guest House with an attached two story garage and RV carport to the side of the house. The house was a natural fit for Modular home construction, but the garage and carport were not so a panelized building method was the next best thing. The third component is the Entry tower that is circular and sits right where the two building intersect with a section that sits over the Modular. Due to the curved walls, the tower will be built using conventional site-built methods. Once the Modular home is set on the foundation and the garage & carport are erected we will stucco the entire structure, install the roofing material and stone accents.
Example two – Country Farm House
This project is the dream home of a couple who’s father is a pretty well known Bay Area custom home builder. They fell in love with the idea of a Modular home for all the typical reasons (speed, controlling budget, controlled building environment…) but the design pushed the limits of our factory building techniques with the high pitched roof and number of dormers. There is also a large Living room in the center of the house that is two stories tall to take advantage of the views out of the main front gable. Because of these issues we decided to build the first floor using three Modular boxes and site build the entire second floor, attached garage and front porch. This allows us to bring in over 50% of the home completed at the factory with the larger expense items built with the highest efficiency while allowing us complete flexibility to design and address the roof and dormers with conventional building methods. This is a huge benefit to the homeowner since one of their goals is to defer the 2nd floor finishes until a couple years down the road when their family grows into needing the space.
As we come up on our 10th year of building homes using these advanced building techniques we have come to the conclusion that these systems are not unlike pre-hung doors and other assemblies that we are all used to dealing with as builders. They are just components of the building process and when used as such we can maximize their use while maintaining flexibility with the design options, speeding up the process and getting a consistent, affordable product.
Today we broke ground on a new Secondary Living unit project in Walnut Creek. This client wanted a space for their mother to occupy, but were also thinking about their long term goals for the property as they consider their retirement plans. We designed a 700sqft home that will be placed directly to the right of their Ranch style home that is large enough for their mother and addresses future hadicap issues, but also could be used for the owners should they decide to move into the unit.
The secondary or future use came about during the design. While were going through the approval process, one of their neighbors converted a 400sqft portion of their home into a studio and is now renting that space for about $1300/mo. You could imagine what this meant to our client and their project as they pondered this possible income generator during their retirement years. When they are ready to retire they can rent out the second unit for more than $1800/mo. while they stay in the main home or they can rent out the main home for almost three times that amount while they live in the second unit. How many of you have a plan that doubles or triples your retirement benefits?
Every day I get calls and emails from people who are looking to add a second unit on their property. While the idea of a completely independent smaller home is appealing it does come with some issues here in California. The two areas affected most by this choice are placement (setback restrictions) and cost (Impact fees).
Typically, second units have similar setback requirements to the main home. Since most primary homes occupy the space allocated by these setback rules, it leaves very little area to work with for the new unit. Sure there may be plenty of room on the side or rear yard, but these areas often have restrictions limiting their use beyond landscaping. Even when we do manage to squeeze a structure into these areas our reward for creativity is often met with a hefty set of fees that are tacked on because we are building a full living unit.
When we met Pat in Los Altos to discuss these issues a decision was made to consider building an Accessory Structure rather than a full Second unit. So “What’s the difference”, you ask? Simple – we remove the kitchen from the plan. That’s it. Once the kitchen is gone the structure is no longer a home. This small technicality change’s the way a city typically looks at what’s being submitted. You’ll think this is crazy but now the structure is not unlike a shed in the city’s mind, even though we could be building a 490sqft unit with a Living Room, Bedroom & Bathroom.
In Pat’s case, this thinking dramatically changed the setbacks and wiped out any impact fees. Now we’re looking at as little as 5ft setbacks from fence lines and sometimes 10% of the total fee structure for a Second Unit. In Pat’s case it allowed her to have the 496.5sqft structure you see here approved in less than 30 days! We are almost completed with this project so look for a a full photo spread and virtual tour soon. In the meantime, you can stop by our facebook page and see more of the photos.
It’s always fun to complete a project and turn the home over to the new owner. I also love to look back and see how close the actual home came to the intital rendereing. I think this home looks better that the rendering! We’re working on getting the complete home shoot up on the website along with the virtual tour, but for now I thought I would show you some photos and a link to the video tour I shot last week.
Youtube video shoot of new Backyard Home http://www.youtube.com/watch?v=FAfLQ3vbyX4
We spent the last few months working out all the details for the home design and approval process and I thought I would share the resulting home plan with you as we get ready to deliver it tomorrow (Friday the 13th). I visited the home this Tuesday and can’t be happier with the Skyline product. As you can see by the images below it’s ready to be shipped to the site and we’ll apply the stucco once we set it on the foundation. Look for some set and install photos soon, along with a time lapse video of the delivery.
While we were putting the finishing touches on the Walnut Creek home I got a call from a couple in Fremont that wanted to build something for their mother to stay in. The property slopes down from the street, the home is a split level and they wanted the space to be accessible from the lower level so their mother would not have to use stairs regularly. There was a small area just outside the Living Room before the property terraced down again.
After looking at a few ideas we came up with a 490sqft. addition plan that would connect to the lower level and not need a kitchen since the main homes kitchen is also on that level. The resulting plan was put together and approved by the city, but not without some city induced changes. For those of you unfamiliar with California fire codes, this home requires the entire exterior to be finished with non-combustible materials. The home is in an area designated as a WUI zone (Wildland Urban Interface) which is pretty much most of the rural areas of the state and hilly open space areas within some cities. Over the past couple years we have built several homes to this requirement, but this is the first within city limits.
The owners also did not want the project to exceed a certain budget and if we did this as a full second unit (with kitchen) the permit fees (and impact fees) would have pushed us over the top. We completed this project in two months and below are some photos of the completed addition. We should also have some virtual tours posted soon.
We finished the little 375sqft Backyard Home in Walnut Creek about a month ago and I finally got some time to schedule the photo shoot and virtual tour. I have to say that this project turned out great and the home owner could not be happier. For anyone thinking about building a smaller unit, this home exemplifies the use of a very small space. The home is just 15 x 25, but feels a lot larger. As the home owner put it “My life is much easier now that I live here. I get up in the morning and my entire routine is more fluid and faster than it’s ever been.”
A few weeks back we completed this little Manufactured Home in Santa Cruz. Today the final numbers came in on our Green Build. We needed 108 points from the City’s Green Build program to achieve the highest rating possible which includes a plaque and ceremony from the City Council. Our home scored 161 points! To get an idea of the difficulty achieving this award, the Green Building Specialist told us only 5% of the structures built in Santa Cruz meet the requirements for this award. We exceeded the requirement by 33%. And yes, that was with a manufactured home, built to blend in with the neighboring homes and done affordably (under $175/sqft).
In an area where homes are built for $200-$300/sqft. this represents a huge savings to coastal homeowners, while demonstrating the superior building materials and methods used on today’s manufactured/modular homes. As the building inspector said on the final inspection “This is not your grandma’s mobile home!” So much has changed with the codes over just the last few years and we intend to show the world that this is a viable method of building quality homes quickly, affordably and consistently for our customers.
Last week I spoke to a homeowner that wanted to build a detached Backyard Home and couldn’t because of the rear yard setbacks, so I suggested they consider an attached unit. So many people contact us looking to build a detached Backyard Home. While this is my preference when the lot size and placement allow it, I also like the idea of an attached unit as well. There are some benefits to attaching that should be considered.
First and most obvious is the ability to create a covered (and enclosed) access between homes. If there is an elderly or disabled person living in the Backyard home it’s much easier to go back and forth between homes using a common door with no grade changes. Attaching the utilities is less work ($$) and sometimes the lot will simply not allow for the proper setbacks and building separation when the homes are detached. Sometimes we find that attaching the units allows for the best use of the remaining open space.
Now for the stuff most people don’t think about! Attached does not necessarily mean connected living spaces. We have built several Backyard Homes where they look like they are one home, but they are in fact two homes with no interior connections at all. The second unit is accessed from an exterior door and there are no doors that lead to the main home. This is still legally an attached dwelling. Sometimes we build the homes separated by 3’ to 7’ of space, but install a “Breezeway” that connects the roof lines. This Breezeway is just a covered walkway from a door on the Backyard Home to the main home. No exterior walls touch, but it’s still technically considered attached.
Below are some images of the house without the second unit and a concept of a Backyard Home attached to the rear. These are early concepts, but you can how this design allows for a second unit and keeps a great deal of the rear yard for the occupants.
For more images of attached Backyard Homes, look at our projects page.