Thanks to a complex mix of factors, Oregon has seen home prices and rental rates skyrocket over the past few years. In 2019, Business Insider ranked Oregon as the eighth most expensive state in the country to buy a home, thanks to a median listing price of nearly $390,000. To make matters worse, almost 70% of the Portland-metro area is zoned for single-family housing. That makes it difficult for builders to add the high-density housing necessary to bring down rental rates.
These challenges have led both city and state governments to seek new solutions in an attempt to address the affordable housing shortage. Late last year, Oregon passed a first-of-its-kind statewide rent-control law. This legislation came on the heels of a previous ordinance the City of Portland passed to protect renters. While the effectiveness of these measures is not yet evident, one recent change has many Portlanders thinking about becoming investment owners for the very first time.
What is an ADU?
An additional dwelling unit (ADU) — also known as a granny-flat or mother-in-law apartment — is a smaller, secondary dwelling unit created on a lot with an existing home. An ADU could come in the form of a converted garage or basement, or as a second free-standing structure on a current lot. Because these units typically run between 400-1,000 square feet, they offer lower rental rates and are more affordable for many renters.
The City of Portland saw ADU structures as a unique opportunity to add more housing units in the metro area. And in an attempt to encourage homeowners to build ADUs, they made a series of changes to city ordinances to make the construction process more straightforward. The results were immediate. From 2014 to 2015, ADU permit applications in Portland nearly doubled. Between 2016 and 2018, applications have leveled out to around 600 per year. Today, there are now more than 2,900 completed ADU units in Portland.
Things to Consider When Renting Your ADU
Some homeowners use their ADUs to house family members or visiting friends. Others list their ADUs on short-term rental sites like Airbnb. However, many ADU owners are searching for long-term tenants who will help deliver a return on their investment. If you’re considering building an ADU on your property, here are a few things to consider:
Understand Local Ordinances
While Portland has made efforts to simplify the ADU building process, property owners can’t merely build any structure on their property. Fortunately, the city has collected all their ADU information in one place. It’s important to note that this process could be very different depending on your ADU plan.
In some cases, existing space would make it impossible to construct a free-standing ADU. Also, the construction of some older homes makes it cost-prohibitive to convert existing areas like a basement or garage into ADUs while satisfying current city ordinances. To help property owners through this decision-making process, Portland created an online Accessory Dwelling Unit Program Guide.
Assess Your Financial Picture
The cost of building a free-standing ADU can be high. For example, Kol Peterson, who operates an ADU-dedicated website, estimates that a “400-square-foot, detached ADU has an average development cost of $170,000.” But as his website notes, “ADU prices are all over the map.” Some property owners can afford to pay for these building costs out-of-pocket. Most, however, must finance these improvements. As a result, property owners should carefully assess whether the potential return justifies the additional construction cost.
It’s also important to remember that an additional living structure will increase your property value — along with your property taxes. Before making your decision, consult trustworthy tax experts, real estate brokers, mortgage brokers, and contractors. Once you have the full picture, your decision will be much easier to make.
Remember, You’ll be a Landlord
While ADUs come with a tremendous upside, they also come with responsibilities. If you’re planning on renting your ADU out over the long-term, you’ll have the same duties as any landlord. That means following all federal, state, and local housing laws. You’ll also need to market your unit, screen potential tenants, draft and sign lease documents, and handle all repair and maintenance requests. You’ll also have to handle eviction procedures if something goes wrong with your tenant. These tasks are just too onerous for many property owners. And, as a result, most people don’t dip their toes into investment property ownership because they believe it’s too much of a hassle.
Rent Portland Homes by Darla Andrew Can Help
Fortunately, there’s help for Portland ADU owners. Rent Portland Homes by Darla Andrew is Portland’s best property management company. Our team offers full-service property management to owners throughout the Portland metro area. Those services include marketing your property and screening applicants to find the perfect tenant. We also handle all repair requests and conduct annual inspections to spot maintenance issues before they become problems. Property owners that work with Rent Portland homes by Darla Andrew experience fewer hassles and see more profit than owners who self-manage.
If you’d like to learn how we can help you rent out your ADU, contact us today. For a free rental analysis, simply fill out the form on our website. Or, you can call or text Darla directly at (503) 515-3170. An ADU could be the perfect way to maximize your property’s financial return. Rent Portland Homes by Darla Andrew can help you make your investment pay off over the long term.