The reasons to build an accessory dwelling unit are almost as diverse as the units themselves. Maybe your home feels cramped now that you’re trying to work from home while your kids are homeschooling. Maybe you have parents or in-laws who are at that stage where they need a little help but aren’t ready (or you’re not ready) for an assisted facility. The same can be true of college students or adult children who need to save money or perhaps have encountered some career or financial obstacles.
Those are a few selfless reasons to build an accessory dwelling unit, but there can be solid financial incentives behind this approach as well. Namely, the opportunity to increase your home’s value or secure supplemental income if you rent out the dwelling.
Whatever your situation, there are many reasons to build an accessory dwelling unit. Here are the top four, in no particular order.
A separate structure that can be used as an office, small apartment, artist studio, pool house, home gym, or spare bedroom can provide tons of value to prospective buyers. The trends of multi-generational living, entrepreneurship, and side hustles were gaining steam before the pandemic. Since the pandemic? These activities are through the roof!
You’d be hard-pressed to find a buyer who doesn’t appreciate this separate space. Their use for it may vary, but most people are likely to see the value in a stand-alone space—and many will be willing to pay more for that value!
Plus, accessory dwelling units have become so popular that it’s easier than ever nowadays to order, build and install these structures. Some prefabricated models can be ordered right off the internet for as little as a few thousand dollars. Though some handiwork may be required for, say, plumbing or electrical, these accessory dwelling units are a low-cost investment that can yield big results for your home value.
Needing more room for extra family members or wanting some income to help with your mortgage are both fabulous reasons to build an accessory dwelling unit. Guests can live totally independently from the main house when these units are fully equipped with sleeping quarters, kitchenettes, and bathrooms. You’d simply need to provide an access route from the front of your property to the back and—voila—your new “tenant” is all set!
Depending on your city’s ordinances and laws, you may be able to rent this space by the year, month, week, or even night. This opens up a variety of income stream options for you based on your location and preferences. Prefer a stable, predictable income? A long-term renter may be right for you. Live near the beach or a major tourist attraction? You may be able to make more extra income by renting out your space on a nightly basis.
The possibilities are all yours, and they are all great reasons to build an accessory dwelling unit.
Some people don’t mind sharing a room, or a dwelling, with others. And sometimes that demographic doesn’t have a choice if it’s our children! Barring that situation, however, many people—both relatives and strangers—would prefer to have their own independent living quarters.
This sort of living situation can also be expensive, however. That’s especially true if you’re just starting out, live in a big city, or work in a pricey part of town. Micro-apartments as small as 200 square feet have become popular in the densest and priciest downtown areas, including San Francisco, New York, Seattle, and Los Angeles.
An ADU is suburbia’s answer to this problem. With modestly-sized units, your potential renter base won’t consist of children, pets, and a whole storage unit worth of stuff. Instead, they are likely to be occupied by individuals or couples who are either going to school or trying to advance their careers. Older individuals, including retirees and empty nesters, also appreciate the low maintenance and low prices of a stand-alone unit.
Whoever occupies your unit is up to you, so make sure their schedule and lifestyle fit in well with your own. When you do this and are able to achieve some rental income, the cost of an ADU practically pays for itself.
Didn’t see that one coming, did you? While these may not be your primary reasons to build an accessory dwelling unit, the fact is ADUs can help address the housing shortage and reduce the carbon footprint associated with building a new home.
It’s no secret that America is in a housing crisis, particularly when it comes to affordable housing. There simply aren’t enough units to address the problem relative to the number of people who need lower-priced housing. This is a complicated issue with no clear-cut solutions, but you can do your part by offering a livable space at a reasonable price.
You can also do your part for the environment when you build an accessory dwelling unit. That’s because ADUs use 40 percent less energy and use 60 percent fewer carbon emissions over their lifetime when compared to a medium-sized single-family home.
There are many reasons to build an accessory dwelling unit—and only you know whether your reasons warrant moving forward. In the meantime, you’ll want to check with your city or local municipality on any laws regarding ADUs and renters, particularly short-term renters. It’s also a good idea to chat with your tax professional to see if there are any tax implications associated with building or renting a unit.
Once you’re ready to bring your vision to life, APM is happy to help you devise a financial strategy that works for you. You can even leverage your home’s equity to create the accessory dwelling unit of your dreams!
Interest rates are one of the biggest factors that can influence your homebuying process. This little—or big—number can dictate how much house you can afford . . . and if you can afford to buy a house at all. With so much riding on this figure, it’s important to understand what determines interest rates.
Now, we know what you’re thinking: I know what determines interest rates. My credit score and the size of my down payment! And you would be correct on that, to some degree. While credit score and down payment are two factors that may impact the exact mortgage interest rate offered to you, there are larger interest rate factors at play that determine where these published rates will land day in and day out.
Though you may not know it, there are five surprising factors that can influence mortgage interest rates.
If there’s one thing the economy doesn’t like, it’s uncertainty. Uncertainty causes volatility in the stock market, which can impact mortgage interest rates. While a presidential election will predictably occur every four years, the notion that the leader of the free world may or may not change understandably brings a degree of uncertainty.
This uncertainty can lead to insecurity, which can manifest as a drop in the stock market. Investors tend to trade in stocks for the security of U.S. treasuries when insecurity rears its head, and that causes mortgage rates to drop. On the flipside, when the economy is doing well, the market is booming, and the general public feels confident in the world around them, mortgage interest rates tend to rise.
Though you may not be able to name all the surprising interest rate factors, we’re guessing you noticed that the COVID-19 pandemic had a direct effect on this year’s drop in rates. At face value, a global health crisis and the housing market may not appear to have a strong link. Your perception may change, however, when you consider that a virus with the strength to shut down businesses all over the world will undoubtedly have an effect on the global growth outlook.
We already know that uncertainty can play a role in what determines interest rates, so it’s no surprise, then, that an unfavorable U.S. or global growth outlook would cause interest rates to drop. Uncertainty remains as COVID-19 cases ebb and flow all over the world and outbreaks occur in specific hotspots. Things will likely remain uncertain until a vaccine is widely available and the general public feels confident that this pandemic and its corresponding restrictions will soon be firmly in our rearview mirrors.
A wildfire, a hurricane, and an earthquake seemingly have little to do with what determines interest rates, but as you’ve seen above, there are many sneaky connections between the two. Mortgage bankers operate all over the country, making it impossible to avoid all natural disasters. When one hits, it creates an economic burden on that community that ripples through the area’s GDP and businesses, causing a direct impact to employment, tourism and housing industries.
Aside from the loss of life and property, a natural disaster can impact the sale of homes, office operations, and even the suppliers of homebuilding materials. This can interrupt the normal mortgage pipeline. Sometimes, a mortgage lender may even have to freeze loans as they survey how much damage was done to their operations and to the homes that currently hold mortgages through the bank. A delay in funding can cost the mortgage banker money, while confirming the property status of funded loans can prohibit the mortgage banker from selling those loans. The resounding theme surrounding a natural disaster is—you guessed it—uncertainty. With natural disasters, the size and severity of the destruction tends to correlate with how far mortgage interest rates will drop.
War is an interesting factor when you consider what determines interest rates. On the one hand, it creates a ton of uncertainty. On the other hand, interest rates tend to rise in times of war. This is because war spending is financed through debt, which raises the country’s ratio of national debt to GDP. Mortgages, like other commodities, are based on supply and demand. When the demand for debt is high, mortgage interest rates increase.
Wartime spending can also place pressure on inflation as the cost of goods and services rises. This naturally leads to an increase in the cost of getting a mortgage, which is expressed as an interest rate increase.
Speaking of inflation, oil prices can have a direct impact on inflation when energy prices rise, thereby increasing the cost of fuel. An oversupply of oil takes the pressure off of inflation and, with dwindling demand, lowers the cost of these goods. Conversely, a reduction in oil production, an increase in manufacturing demand, and instability in oil-producing regions can cause a run on oil, causing prices to rise. What happens when oil prices rise? You guessed it, the possibility of rising interest rates.
Another byproduct of low oil prices is an investment in U.S. treasuries as investors turn their attention from oil-producing companies and countries to safer investment vehicles.
Source: https://www.apmortgage.com/blog/surprising-factors-that-influence-mortgage-interest-rates