Bringing Sexy Back to House Hacking with In-Law Units

(credit: Lauren Davis)

If you’re fortunate enough to be living in one of the booming cities post-recession, such joy is quickly met with the reality of housing affordability. From Boston to Seattle or Denver to DC, millennial are finding it increasingly difficult to jump start adulthood. While we’ve outlined a myriad of house hacking tricks for new homeowners, the concept of the ADU (Accessory Dwelling Units) is making a comeback in many cities, including Boston.

What is ADU?

Many moons ago, particularly when zoning laws were more lax and cattles roamed the streets, families could easily modify structures to accommodate visiting guests and families. Today, these units are generally recognized as in-law units or ADUs. You can think of them as legal permits to create additional dwelling units on the existing premise of the property. Unlike your standard multi-family buildings, ADUs are permitted under specific circumstances defined by the local municipality.

Why ADU? A Changing Demographic Demands a Changing Zoning Code

One of the troubling issues with a rising economy is also inequality in the form of affordable housing. Boston is struggling with this issue (as are many other cities). Most economists would agree that this is often a supply and demand issue. We’re just not building units fast enough to meet the demands of our growing population. One area of our very archaic zoning code that has come under scrutiny is density caps across Eastern Massachusetts. In other words, many municipalities still require victorian era building requirements. ADUs are making a comeback because of this scrutiny. Single family McMansions lived by two empty nesters are not only poorly utilized but also imposes a financial burden on the homeowners. By allowing small residential homeowners to “carve” out livable areas of their existing property as a legally recognized separate unit, ADUs benefit our community in several ways:

1. Boost Housing Supply – This leverages existing housing stock with excess livable space to create additional units for the rental market. Essentially, increasing supply to help alleviate the pressure on rent growth.
2. Preserving Neighborhood Character – Most ADUs are permitted within the existing envelope of the structure (think attic, basement, etc.). This helps to add more livable space to the town without changing the exterior of the building, keeping the character of the neighborhood.
3. Support Small Homeowners Over Large Developers – Homeowners usually do not have the expertise or the funds to invest in a major redevelopment of their property. This is where the city’s archaic zoning requirement actually creates a high barrier to entry that only allows big developers to push through large projects. ADUs are generally less expensive to implement and keeps the wealth with the homeowners.

Restrictions: Things to consider.

So, before you get too excited about ADU, there are restrictions you should consider before you commit to a property:

1. Permitting is not always uniform: Not all towns and cities have the same affinity towards ADUs. Boston is recently experimenting with ADUs in JP, Mattapan, and Eastie. Arlington does not allow for any ADUs by right. Belmont only permits ADUs via a special appeal. Guidelines varies from town to town.
2. Most towns have a cap on the maximum number of ADUs that will be permitted either per year or in total.
3. Most municipalities will have restrictions against the total livable square footage of the ADU either as square footage (<900sqft) or as a maximum percentage of existing property (<33%).
4. There may be restrictions on the renter that may occupy the dwelling such that the tenant must be related to the primary owner.
5. Lastly – certain ADU status must be renewed periodically to certify that property is still owner-occupied.

Running The Numbers

Here’s a sample calculation to make sense out of an ADU hack.

1. Sample Deal:
   1. Neighborhood: Jamaica Plain
   2. Single family: 4 Bedrooms (or offices), 2 bathrooms, family room, living room over 2700 sqft.
   3. Price: $650K with 20% ($130k) downpayment
   4. $50k budget in ADU conversion – note this amount can fluctuate significantly depending on what’s needed (ex. New egress, separate meeting, new kitchen, etc.)
   5. With a conventional 30 year loan, your PITI (Principal, Interest, Tax, Insurance) hovers around $3,100 per month.
   6. You rent out the ADU for ~$2200 per month. You find a roommate to share your 2 bedroom unit for $1000/month. This adds up to $3200 monthly rental income.

To drive home the point, ADU hacking is not a novel concept and the term “in-law” unit was coined for a reason. Many young families struggle to find affordable housing options around the city. Many more are questioning how they can afford childcare. House hacking by way of ADU is one way you can earn extra income and/or also provide comfortable housing for your in-laws; a creative way to get ahead of this crazy hot market.