How to Plan Your Tiny Home Project

First, let us define what we mean by “backyard tiny home” because we are not talking about “tiny homes on wheels” that don’t come with a plan for last night’s dinner…

What’s the difference between this two tiny homes?

A backyard tiny home is a residential building code compliant structure often referred to as an Accessory Dwelling Unit (ADU), granny flat, backyard cottage, micro-cottage or even a casita in Southern California. The homes are typically smaller than the existing “big” home on the property, making them relatively tiny. Often they can be up to 900 SF, much bigger than the ~150SF homes seen on Tiny House Nation.

However, the biggest difference between what we build and the image you may have in your mind is that a backyard home must home comply with state building codes. This means it’s secured to a foundation, connected to utilities (sewer, water, electric), and is thoroughly insulated like a normal, standard house. (And, in fact, with the ADUs we build, it will probably be much better insulated than your current home.)

Interestingly, this does not mean that it can’t also be street legal. This will be the subject of another post.

Ok – Moving on to the purpose of this article. How does a homeowner plan and then build a backyard tiny home

Step One: How will you use the backyard tiny home?

Nobody starts a project like this without a good reason for doing it.. Here are a few of the more common uses:

Aging Parents:

The biggest increase in renters and single-member households are seniors, who are also known as somebody’s grandparents. These grandparents are using new zoning bylaws to build a separate home (aka, “detached ADU”) on their children’s properties to save money and be closer to their family. Until recently most of these dwelling units had to be attached to the existing home. That has changed, which makes this option more palatable. We’ve heard families call these homes close, but not too close.

Parents Helping Adult Children:

Given the high cost of housing, construction, and land many children cannot afford to live in the communities in which they grew up. Aging parents have begun downsizing into their backyards and selling their old “big” house to their children.

Caring For People With Disabilities:

There is a huge population of adults with a disability that could live independently if they stayed close to family. A backyard home creates the opportunity to give these persons their own space, the dignity of their own front door and keep their family close enough to provide love and care.

Veterans Housing Veterans:

There is an ENORMOUS opportunity to house pair Veteran homeowners with Veterans that are either homeless or having trouble finding a safe, comfortable place to live. Beyond housing, this approach to providing Veteran housing would create opportunities for mentorship and help Veterans integrate back into their communities.

Full-Time Office & Part-Time Guest House:

For those of us that work from home a backyard home can act as an office and guest house. When family or friends come to visit the office can be set up as a guest house. In most towns, it can even be used for Short Term Rentals, which create the opportunity to completely offset the cost of the space.

As a Rental Unit:

We are in a housing crisis and every backyard has the potential to help alleviate it and generate income for the property owner. Backyard homes can be built to rent to tenants and often produce a CAP rate over 10, which is virtually unheard of in today’s real residential estate market without excessive risk. If the homeowner is willing to rent the home to someone with a disability or senior, they may be eligible for $50,000 at 0% interest that does not need to be repaid until the home is sold.

Step Two: What Can You Build?

Homeowners should determine what they can build on their property before worrying too much about the cost and how to finance construction.

It is tempting for people to simply call their local planning department and ask “How can I build a backyard home?”

But it will serve you a great deal more to do some research on your own first, including taking a look at your town’s ADU regulations. This will allow you to prepare more specific questions and help you get the most out of your local planners’ expertise. Some examples of questions you might have are:

Could you show me where I can get more information about the rules for building an accessory dwelling unit on my property?
Just to confirm, if my ADU is <20’ tall can it still be placed directly on a side lot line?

There is also an enormous amount of information on our website (https://backyardadus.com), including links to the ADU rules of many towns. Read on to see an overview!

Step Four: Financing Options

First off– financing should not be a reason not to do a backyard home project. I (Chris Lee) have a background in Real Estate Financing and there are so many creative strategies to paying for a backyard home. I have also been blown away by how many publicly funded options are available in Massachusetts to help people with disabilities and seniors age in place.

Cash:

If you are consolidating households the proceeds from a home sale can be used to fund the construction of the new home.

Reverse Mortgage:

This option is available for seniors. It can be an extremely attractive option for cash strapped seniors that are trying to downsize. Funds from a reverse mortgage can be used to construct the backyard home, after which, the senior could rent out or even sell their old primary home to generate much-needed cash flow.

FHA “Home Style Renovation” Loan:

This is a construction loan that allows homeowners without excellent credit to do renovations on their properties and still get 30-year financings and the low-interest rates associated with mortgages.

Cash-Out Refinancing:

This is a traditional mortgage refinancing where the homeowner takes out a new mortgage on their home, resets the payment schedule and withdraws cash from their home’s equity. Depending on how much equity is in your home, your current interest and original loan balance, you could withdraw a significant amount of money without changing the mortgage payment.

Home Equity Line Of Credit:

This is a line of credit secured by your house to keep the interest rate more affordable. This option has a higher interest rate than home refinancing and shouldn’t be used to pay for the entire backyard home project.

Self Directed IRA:

An IRA can be used to invest in real estate. By setting up a self-directed IRA, a homeowner could potentially use funds from their IRA to build an ADU as an investment property. This option is somewhat experimental as it is a brand new concept and requires a third-party custodian to keep careful documentation about rental income and expense.

Article Credit-https://backyardadus.com/adu-blog/how-to-start-your-backyard-tiny-home-project