The Granger House: Own Two, Rent One

The Granger Place

The Granger's LEED Platinum home includes an ADU over the garage

When I biked up to Bob and Julie Granger’s place I was greeted by their ten-year-old grandson, standing sentinel across the street. The young man asked a few questions about my intent before confiding that it’s great having his grandparents’ house so close by. Once he had approved of my bike and my mission, he headed off on his own bike to meet up with a friend so the two boys could cruise the lazy, graveled roads of his NE Portland neighborhood. It wasn’t hard to see why Bob & Julie had decided to build their new home on this particular site. Bob confirmed my speculations, telling me that he and his wife decided to move to the Aisworth Collective when his daughter and son-in-law purchased property there. They liked the community feel of the neighborhood, and when the lot across the street became available, it seemed the perfect place to build a thoughtful and efficient home.

separate entrance to ADU

a separate entrance and a firewall provide privacy for owners and renters

Inspired by the Sabin Green project by Orange Splot, the Grangers considered building a four-plex since they were interested in creating greater density on the large lot than a single-family house would provide. When the four-plex plan proved more complicated than they were anticipating Bob and Julie opted for a modified version of Green Hammer‘s Leapfrog design. They worked with Stephen Aiguier of Green Hammer, Eli Spevak of Orange Splot, and Mark Lakeman and Patrick Donaldson of Communitecture to design a 1900 square foot two-bedroom home with an attached 550 square foot Accessory Dwelling Unit over the garage. They decided to rent the ADU to generate revenue to help pay for the cost of constructing their home.

Green Hammer broke ground in July of 2008 and the Grangers moved in June of 2009.

ADU-sleeping

a doorway is framed into the back wall of the sleeping nook so that the house and ADU can be combined in the future if desired

The LEED Platinum house was built with sustainable materials (most of them locally-sourced) and energy efficient systems and appliances (including photovoltaic panels, a hydronic radiant floor system, and an air-to-air heat pump).  The two mature walnut trees that came down to make room for the 6,000 gallon cistern were reclaimed for woodwork inside the house. “We kept the walnut on site,” Bob says, “just in a little different configuration.” The plan was forward-thinking, including consideration of aging-in-place. The Grangers even decided to frame in a doorway in the wall between the main house and the Accessory Dwelling Unit. The doorway is currently sheetrocked over and finished, but if there’s ever a desire to combine the ADU with the rest of the house the remodel will be simple. Since the wall is a firewall the Grangers report that they have acoustical privacy from their renters.

ADU-living

the living room is bright and comfortable

Although they’d never owned rental property before the Grangers have enjoyed a friendly rapport with all three sets of tenants and they feel the ADU was a great investment. “It’s a very cost effective and environmentally-friendly way to add housing capacity,” Bob explained, “but you have to be prepared to manage it appropriately.” Bob noted that when building a multi-unit project it’s important to keep a few things in mind. First, designing for multiple units requires additional planning for both construction and legal paperwork. Second, it’s necessary to pay careful attention to risk management and safety issues. Third, management of the rental requires ongoing attention as well as documentation of the revenue stream, not just for tax purposes but also for any future refinancing of the property. Although the initial appraisal didn’t take the ADU into account, the unit has added value to the house. Bob says, “If you’re building an ADU for rental purposes consider all the elements of renting so you can minimize costs and take advantage of benefits. Think of the whole value of the project. We bought a house and a rental property. The actual incremental cost of adding the ADU was not much more.”

Granger ADU-dining-kitchen

the kitchen provides plenty of space to cook and entertain

The Grangers enjoy owning two properties and renting one out. They appreciate the tremendous amount of flexibility of deciding which unit to call home at any given time. They have considered the possibility of living abroad in Europe part time and renting out the main house, keeping the ADU as their homebase when they’re stateside.

For now it seems the Grangers are enjoying their new home and putting down roots in the neighborhood. On my way out, Bob showed me the veggies and chickens on the plot of land next door that the Grangers rent to an urban farmer. “Any last words of wisdom for people thinking about ADUs?”, I asked Bob in the sideways afternoon light. “The thing is to use the space you have appropriately,” Bob says. “In Portland urban farming and infill housing are good strategies.”

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Refinancing an ADU – a mortgage broker’s perspective

As a mortgage broker in the Portland area for almost 8 years, I’ve learned “the harder I work, the luckier I get” is really true. In this instance hard work & a little bit of luck combined to culminate in the best possible execution of this tricky proposition.

When I met Kol prior to doing the Purchase money financing in 2010 for his home in NE Portland, I knew it was going to be a fun ride. He had a tremendous amount of vision for the property & I was happy to run scenario after scenario to see where everything penciled out & to make sure the investment would pay off. I always ran everything conservatively, just to be sure, and now he is enjoying the fruits of all that labor….in such a short period of time, relatively.

In 2010 he wanted to conserve as much capital as possible so he could stay liquid for the initial build of the ADU & use his cash reserves for construction costs. So, we utilized the low down payment/low interest rate FHA loan for the purchase money loan. Yes, we had Mortgage Insurance (MI), but at the time, the MI rates were fairly low, so they still penciled out over the Conventional MI at the same Loan To Value (LTV).

Down the road we knew we would be refinancing the property at some point, but given the softening of the market over the last 3 years, we just weren’t sure when that would be. That was ok because Kol could always just wait the 5 year MI retention period, have the property appraised, have the MI removed if it appraised at 78% LTV & still be at an incredible 4% interest rate, without refinancing.

When Kol approached me in January of 2012, interested in looking at the numbers for refinancing I have to admit I was slightly pessimistic about it just on the valuation of the property alone. I knew it would be tight & it would all come down to the appraisal. But it would so be worth it if we could attain that magic number of value for 80% LTV & conventional financing with no MI because he would save 3 years of MI payments (roughly $7K).

The fact was Kol had put some around $100K (give or take depending on owner labor, etc) to the property & had purchased it for $325K in 2010. During that period of time, however, the market in NE Portland in some areas has seen 5-10% decline in value. If we could even maximize the dollar for dollar cost of the construction (which wasn’t a sure thing) at $425K & conservatively say there was 5% decline in value for each of those two years, that put us at $382,500. We needed $398,750 to make it work & pay all of Kol’s costs to close. We were banking on the income use valuation of the Accessory Dwelling Unit (ADU) & the document Taylor Watkins & Martin John Brown authored, which gives higher relative value to an ADU because of it’s income generation potential. Kol’s project certainly is a sterling example of that potential, so we were hopeful.

I ran some initial figures by a few realtors, an appraiser & through a few search engines & I still knew it would be close. I told Kol I was willing to put in the work to get the appraisal in at value if he was willing to risk the cost of the appraisal. He was, so off we went & we never looked back.

At Green Mortgage Northwest, my branch manager Dakota Gale, LEED certified professional, has trained a few appraisers about valuations of green & eco-sensitive properties. This transaction was a perfect test bed for the green appraisal valuation system Dakota has set up. Here’s what we CAN do for green properties at Green Mortgage Northwest:

  • We can’t request a specific appraiser. We CAN request a “green-educated” appraiser, which I’ve added to the roster (there are ~5 of them, including Taylor Watkins)
  • We can also request that the appraiser calls Taylor Watkins to get the latest information on the valuation of ADU’s as a way to correctly influence the appraisal. We can also request that the appraiser reviews the report that Taylor put together (how in-depth they go, we can’t influence…)
  • No guarantees whatsoever on this, and the borrower may be out the cost of his appraisal at the end of the day.

So that’s what I did. When I ordered the appraisal, I specifically requested a green educated appraiser. I also attached a few guides (see below) for the appraiser’s convenience & some back history on the project. I also let the appraiser know that we could finance the property as a duplex or as a Single Family Residence (SFR) w/ADU, whichever yielded highest & best use of the property/value. Here’s the guidance related to appraising properties with permitted ADUs:

• The guide references this post entitled “Appraising properties with accessory dwelling units: a preview of new methods and findings“.

• Lastly, the appraisers should know that this is a legal, permitted, habitable, accessory dwelling as defined by the City of Portland Bureau of Development Services. Here is a link to Portland maps site showing that ADU has a certificate of occupancy.

From an Underwriting standpoint, the guidance I received from my Underwriting team prior to submission of the file was spot on. I was advised they would look at it as an ADU or in-law unit & it must be legally constructed and zoned. Further, in these cases the appraiser needs to make the case for why they did what they did.

And he did.

Because we were able to narrow our pool of appraisers to those with “green education” we received a fair & accurate appraisal which was acceptable to underwriting guidelines & flew through the approval process.

The property appraised at value because the appraiser used the income approach as well as identifying it for what it actually is: a Single Family Residence (SFR) with an Accessory Dwelling Unit (ADU). NOT a Duplex. Not only did this save Kol money on his closing costs (multifamily financing is a bit more expensive), but it also gave a larger pool of comparables to choose from.

This refinance took a lot of skill, and some luck.

This refinance took both skill and luck.

Brilliant. We closed this transaction today & I’m thrilled that all our hard work paid off. More importantly, it will continue to pay off for the foreseeable future! His savings in the short & long term is immense & this is really why I truly love what I do & continue to do it through all the market challenges we face everyday.

Win!

(editor’s note: to read more about this same refinance from the homeowner’s perspective, see Kol’s post on this topic)

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My tiny house after 5 years: things I would have done differently

I’ve written here about how well my tiny house is working out — I converted my detached 1.5-car garage to a little “accessory dwelling unit” and have mostly rented it out to my mother in law since then, though it’s occasionally served as an office, guest house, party house, knitting book photoshoot headquarters, and kid’s sleepover palace.  It’s very flexible and useful having a 2nd dwelling on your property, as even the dog recognized:

photo of dog on blanket

photo by Michael Crouser for book Knitalong, used by permission

That picture was taken back when the place was new.  Now it’s been in use for 5 years, and though I think the project was a great decision, with the benefit of hindsight there are a few design choices I wish I had gone a different way on.  If you want to read about all the features of the place that are working, see this post or the site with all the details.

Storage space.   My project was a garage conversion, so we consumed the storage space we had available in the garage.  Though we didn’t need to store a car, we still needed some space to store our bikes and yard tools.  Currently they are scattered in sheltered places around the main house, with some of the more valuable things like bikes in the basement of the main house, but it’s really not ideal.    In a better world, I would probably have sacrificed a little interior space to use part of the footprint of the garage to create a storage closet accessible from OUTSIDE.

The uninsulated concrete floor.  I think this is my biggest regret.  Concrete was definitely the right material for the floor.  In little houses materials need to be very durable and you don’t want a lot of rugs and stuff to trip on.  Concrete takes abuse, looks good (see the picture of the dog, above), and is really easy to clean up.  However, we just layed our concrete right over the original concrete floor of the garage, which was in direct contact with the ground.  That makes the floor pleasantly cool in summer, but unpleasantly cool in other seasons.   The rest of the place is very well insulated, so it’s not too bad, but it keeps the comfort on the ground floor from being absolutely perfect.  At the time we built the place, insulating under concrete was considered rather exotic, and I had a lot of other stuff to worry about, so I didn’t get in to it, but I really should have.  Kol Peterson’s ADU has an insulated concrete floor and I’m jealous.

Skylight size, type, and placement.  Skylights can do so many things in small spaces, and in this 440-sf house we used three: two 3×3 foot skylights in the main area and loft (shown below), and one 2×2 one in the bathroom.

view from the back of the loft in Martin's ADU

photo by Martin John Brown, used by permission

The skylights provide natural light without compromising privacy, add nice ventilation (a sense of air moving in the house in most seasons), and also give a bit more headroom in the loft.  In fact one of the best small-house modification tricks I can think of is using a skylight to provide extra headroom when coming to the top of the stairs.   When the skylight is placed perfectly, you can get that extra 6 or 10 inches you really need for your head, without adding a whole dormer.   I wasn’t really aware of this trick when we built the place, so the top-of-stair skylight isn’t placed quite perfectly.  In hindsight I would have used even bigger skylights: perhaps 4×4 models, to increase the headroom effect.   I also would have gotten at least one “roof window” type of skylight, which actually open big enough to serve as an emergency exit, and can have exterior shades– which serve as a really effective way of reducing heat in the summer.

photo of velux roof windows

photo from pinoles.com

All in all, this is pretty much all I can think of.   3 regrets out of five years  of use — I’d say that’s pretty good.   Hope these tips helps you with your own project!

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A Sister-In-Law House

Walt's ADU

Walt's Sister-in-Law House

Walt Quade has a knack for figuring out a work-around. The design and construction of his own ADU provided several opportunities to hone this skill. When he and his wife started looking for a plot of land on which to build their home, he skipped the property listings and directly contacted several neighbors. Walt had been building for years but was increasingly disenchanted with large homes on large lots. He knew he wanted to live in a modest home with a nice sense of community. So when he received four responses from neighbors interested in selling, he selected the property that would enable him to build two additional homes: one for himself and his spouse and one for his sister-in-law. Click for a slideshow of images.

Walt's ADU - Back

Walt's ADU - Back

Walt wishes that accessory dwellings were easier for the average person to design, build, and permit. A self-proclaimed Do-It-Himselfer, Continue reading

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Shawn’s Live-Work Accessory Dwelling

Living Room

Living Room

Shawn Busse bought a 950 square foot ranch house on a long, skinny lot with the intention of building an accessory dwelling unit behind it. His plan was to live in the ADU and rent out the front house. He has managed to fulfill that goal, but it has been a challenging process. He agreed to share his story here so that others can benefit from what he has learned along the way.

Bathroom

Bathroom

There are a few home and garage-based businesses in Shawn’s neighborhood, and Shawn started his business in his own home, so he understood first-hand the benefits of well-designed live-work space. The fixed cost of leasing commercial space can be fatal for a small business, especially in tough financial times. When people are short on capital, live-work spaces provide opportunities for creative businesses such as graphic design, small-scale fabrication, and architecture to get off the ground or to downsize gracefully. Shawn recognized that a live-work space like his could be an asset to primarily residential neighborhoods.In 2007 Continue reading

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Reflections on Six Years in “temporary housing”: a mobile detached bedroom

From 2003 to 2009, I lived in a tiny home on wheels located in Iowa City. I built the home with Jay Shafer, proprietor of Tumbleweed Tiny House Company.

The Mobile Hermitage, pictured at right, was constructed on a 10′ x 7′ trailer frame. Part of my motivation in living extremely small was to engage in lifestyle activism.

The home was designed to share shower, bathroom, laundry and other facilities with a larger community house. In this respect, the home was more like a detached bedroom than a complete home.

According to the local housing code, the house fell into a category of dwellings referred to as temporary housing because it was on wheels like an RV. Continue reading

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A research and action agenda for Accessory Dwelling Units and their advocates

I spent a lot of 2011 learning about Accessory Dwelling Units (also known as in-law units, granny flats, backyard cottages, etc).  Beat that in terms of geekiness!  (Okay, I bow to anyone involved in Viking re-enactment societies.)

Now that my project on methods to appraise properties with ADUs is done and off to the journal for review, I wanted to follow up with a few thoughts on where to go next.  Should proponents of sensible housing (such as ADUs) work most on activism, or research?

photo by Pete Boyd (Creative Commons)

If one accepts all the potential benefits of ADUs as real, then the most productive thing Continue reading

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