Open-Sourcing the Plans

This ADU process was informed by the notion of open-sourcing. I found great ideas online, learned from others, built upon those ideas, and shared my experience so that others could build upon my experience as they (hopefully) pursue building their own ADU. In this vein, my architect and I are now sharing the ADU plans and the associated SketchUp model. This material is owned by the architect, but we hope it will serve as a useful reference for others.

Here are the basic ADU plans and section drawings

Here is the full set of ADU permit drawings

And, here is the ADU SketchUp Model.

You can see fly-through animations that I put together before construction of the ADU from this SketchUp model. The ADU ended up looking very similar to the 3D model in real life, proving the model's value as a planning tool to envision how a space will look, function, and flow. Increasingly, architectural design will use 3D modeling tools. I've praised SketchUp in previous posts because it is free and relatively simple to use.

My architect drafted fifteen schematic design phases with me before we finally settled on this final plan. That back and forth process took a couple months. I was a picky client with lofty ideas. He was a talented perfectionist who appreciated the challenge of designing so much function in a relatively small space and riffing off of my energy design goals and particular design criterion.

The result of this drawn-out design process paid off. The space-efficient design makes the ADU highly functional, and the lofted nature of the 1st floor ceilings and cathedral ceilings throughout, make it feel very large. The ceilings are 9ft in the living room, and over 20ft in the grand room. The kitchen, dining area, and living space, are visually separated by the ceiling and paint colors, but most areas of the house have 25ft views.

This photo is taken from the dining area on the 1st floor, looking up past the 2nd floor catwalk, to the towering cathedral ceiling and hidden attic space along the east side of the ADU.

The south facing window bank gives a nice vantage of tree canopies on neighboring properties, creating an illusion of grandeur. The full light french doors open the space into the sizable back yard. Yes, even on a standard sized 50 x 100 lot (the standard sized lot in much of Portland), it's certainly possible to have a large house, a full-sized 800 sq ft ADU, and still have ample garden/landscaping space.

Bank of south facing windows and french door, visually connecting the interior space to the backyard

The ADU is 21ft wide and pushed up against the 5ft setback requirement for new buildings in Portland. This still left half of backyard for us to use for fire patio, an outdoor patio table set, a grassy area, plants, a covered awning with a chair swing, and more.

The deciduous canopy on the south side of the ADU was a major part of the design consideration.

Every ADU is different from the next. Since most ADUs currently are built by the current homeowners; they are custom-tailored to the homeowner's desired use. ADUs are often accented with custom craftsmanship that adds further textured interest to the small space. This level of detail results in quaint, intimate, and beautiful, customized structures. Beautiful structures will be cherished, and will be tended to by their owners over time. Unlike much conventional spec-housing stock, beautifully designed ADUs, executed under the watch of astute and financially-vested homeowners, are likely to last for generations, ultimately resulting in less residential construction landfill waste and less wasted energy.

Refinancing my Property with an ADU

Payback Rate--better than previously stated?

With my main house rented out, I have no living costs. In fact, the main house is generating a substantial monthly profit. Financially, the main house/ADU combination is working out far better than I initially expected.

Based on the assumption that renting the ADU would cost me $1,000/month, I had previously stated that the payback period for the ADU was 8 years (8 years x $12K/year=$96K). However, these initial calculations did not include the income that I am now generating from the main house each month. The main house is generating ~$1,000/month on top of the monthly PITI payments. In other words, the profit from the rental income from the main house will pay entirely for the cost of the ADU in eight years (8 years x $12K/year=$96K).

In four years, the main house will have generated $48K in profit (48 months x $1,000), and I will have saved $48K in ADU rent (48 months x $1,000). Therefor, it’s valid to say that the payback for the ADU is actually four years, not eight years.

You can figure out which payback rate calculation makes sense to you, but given that "living expenses" are typically "expenses" instead of "income", both payback rates are phenomenal. Rather than a “living expense”, my living situation provides a "living income". Consider that a renter paying $1K/month would spend $96K over the same eight years living in an equivalent space.

Each financial scenario will vary greatly for homeowners who build ADUs. Most will somehow finance the cost of construction. And, for most, the cost of financing an ADU will likely be less than a realistically achievable rent. Any difference between monthly finance payments and the rental income is good for the owner. The full financial benefit will come when the ADU is fully paid off.

Clarification about Total ADU Cost

In one of my ADU classes (the next class will be April 14th), a class participant astutely pointed out that I hadn’t included my personal labor in the ADU cost calculations. I spent $96K building the ADU (or $110/sq ft), but this cost does not include the value of the personal labor that I put into the ADU, which I’d estimate at ~$15K. So, it’s fair to say that the ADU really cost $110K, or $137/sq ft.

That said, it’s also fair to say that the ADU is actually 1,000 sq ft of conditioned, livable space, instead of the 800 sq ft counted by the City.

If we count the total cost of the ADU as $110K (instead of $96K), and the total space as 1,000 sq ft (instead of 800 sq ft), the cost is still in line with my initial calculation of $110/sq ft.

Distilling narratives from financial data like this reminds me of a funny phrase I read in a NY Times article recently: “All the data in the world can’t teach us how to sift through data”.

Mortgage Payments

Now that the ADU was built and permitted with the City, I also wanted to take advantage of the equity that I added to the property in building the ADU in terms of my mortgage payments. When I purchased the property in December of 2010 for $325K, I got a fantastic FHA loan in which I only had put down 3.5% of the principal costs--the loan was at a 4% interest rate--- historically, this is very good rate. My mortgage payments (including Principal, Interest, Taxes, Insurance --a.k.a. ‘PITI’) were ~$1,900/month for the main house and property.

With only 3.5% down (~$10K) for the initial property purchase in 2010 ($325K), I was required to pay mortgage insurance, which amounted to $233/month. If I refinanced with a conventional "80/20 loan", I’d be able to drop the mortgage insurance, saving $233 each month. To refinance the property though, I had to prove that I now had accrued '20%' equity in the property.

I needed to prove that the equity I’d added to the property by adding the ADU, was equal to 20% of the total loan amount. The property (the main house and ADU and their shared lot) needed to appraise at $398.75K (80% of $398K = $319K) in order to qualify to refinance with a conventional loan (without mortgage insurance).

Amazingly, interest rates in 2012 are even lower than they were in 2010, and I was able to get an interest rate lock to refinance the property at 3.875%. Since the housing crisis in 2008, loans are more difficut to secure than they used to be. A rate lock is only useful if one can prove that the property is a safe investment for the cautious lenders. This is probably a good thing---this means that one’s personal finances have to be in order, and that the property must be worth an amount to justify the amount that is being loaned by the bank to the homeowner.

The Appraisal - A Non-Trivial Matter

I was lucky to have Taylor Watkins as the home appraiser. Taylor was the co-author of a recent study entitled Understanding and Appraising Properties with ADUs. Based on the findings in this paper, Taylor used the ‘Income-Based Valuation’ appraisal method in addition to the ‘Cost to Build’ and ‘Sales Comparison’ methods to inform his ‘opinion of value’ for the property.

Using the ‘Income-Based Valuation’ method, Taylor determined that the house would rent for $2,100/month, and the ADU would rent for $700/month, totaling $2,800/month. When appraised as an income-generating property, using a ‘gross rent multiplier’ of 145, the total value of the property came out to $406K ($2,800 x 145=$406K).

Even though the appraiser determined that the ADU could rent for $1,000/month, he deducted 30% of that theoretical ADU rental value based on fact that the land is shared with the main house. This 30% discount calculation was one of the ADU appraisal methodologies discussed in Taylor and Martin’s recent study on the Appraisal of ADUs.

---In reality, both of these rental income estimates are less than the actual rental income. I have been able to rent the house as a vacation rental for $3K ($900/month more than the estimate) for the last several months and I suspect that I could rent out the ADU for closer to $1500 ($800/month more than the estimate). ---

Using the comparable sales method, Taylor determined that 'comparable properties' had sold for $400K. Using ‘Income-Based Valuation’, the comparable sales method, and the ‘Cost to Build’ method, Taylor then determined his ‘opinion of value’ for the property to be $400K.

Without the aid of the income based valuation, which is rarely used in single family home appraisals, the opinion of value would likely have been lower. This method is also discussed in their recent study.

With the appraisal coming in at $400K, my loan was approved, and I was able to secure it. Without the $233 mortgage insurance burden, my new 30 year, conventional mortgage payments (with interest and taxes) will be reduced by over $200/month, to $1,700/month.

And yes, for those still following me, this refinance actually reduces the payback period for the ADU down by 5 months (to 3 years 7 months)...but who’s counting?

Working with my great and talented mortgage lender, Heather McGarry, who has personal and professional experience with ADUs, we followed the guidance document below. I’d encourage anyone dealing with an appraisal of a property with an ADU to reference this guidance document.

Guide to Appraising ADUs


I’m attaching the actual appraisal here as well. I hope that referencing it, as a companion piece to the aforementioned study and Guide to Appraising ADUs shown above, will aid future homeowners, lenders, and appraisers, who are seeking to fairly appraise a property with an ADU.

Appraisal of Property with ADU

(update- 3/13/12: My mortgage adviser, Heather McGarry, has authored a piece about this same refinance transaction from her perspective on accessorydwellings.org)

An Artistic Guardrail

Since the inception of the design for the ADU, it was clear that the staircase and catwalk guardrail and handrail would be centrally visible from throughout the ADU. Though I did not want to attempt a creative rail during the construction, I knew that eventually, I did want to make the guardrail into the feature piece of the ADU.

The major section of steel guardrail for the catwalk hangs from a steel beam, on its way to being installed

I worked with Mike Suri from Suri Iron to do this guardrail fabrication and installation. Rather than create a metal rail from scratch, I wanted to reuse old metal and give it new life. I visited a couple local steel yards, and found remnant sections of solid steel from which industrial parts had been cut out (these are sometimes referred to as 'steel skeletons').

The steel yard was littered with a range of skeletons with circular, arced, and rectangular cutouts, but when I stumbled upon this enigmatic beauty, I immediately knew that this one would look magical.

2" thick, this 10' x 10' plate of steel weighed a couple thousand pounds before we cut a couple sections from it.

Working on the rail involved templating the existing staircase, working with the steel yard to cut the steel precisely to match our dimensions, transporting the rails to his workshop (no easy task when the individual pieces weigh up to 675 pounds), sanding the steel, fabricating and welding fastener tabs and fabricating other miscellaneous steel rods that we used to fill out the negative spaces where necessary. The steel cost $0.60/pound and the preparation work took Mike about 40 hours.

Here are some photographs of the process, from finding the steel, fabricating it, installing it, and then some artistic shots. 






The pieces of steel rail weigh, 675, 375, 350, and 120 pounds, respectively. An electric winch was used to hoist the steel sections into place. Setting up the winch correctly was an engineering feat in itself. Mike and his colleague spent hours talking through each step of the installation process before installation day. It showed-the installation went exactly as planned.



The rails look amazing and unique. It's fun to look up and think about where they came from. From every position throughout the house, their wild curvilinear shapes, rusty and imperfect finish, and their solidness, all add to the aesthetic of the ADU. Daylight and evening house lighting show off the artistic railing and reveal a range of curving contrasts against the colorful backdrop of the walls.

A series of images of the artistic handrail in different lighting conditions

 

New Energy Performance Incentive Available for New ADUs

In a previous post, I described an awesome building incentive that was made available for my ADU from the Energy Trust of Oregon (ETO). My ADU project was the first case in which an ADU was allowed into ETO's New Homes program because, unlike most ADUs, my ADU was going to be my primary residence (and the ADU was separately metered).

By following the building guidelines laid out by the ETO, which basically meant building to Northwest Energy Star standards, the ADU was eligible for an amount that was in part commensurate with the relatively tight and efficient building techniques that I used. The $1,750 rebate that I received was basically inversely proportional to my low energy performance score of 35. 

Anyhow, due to some forward thinking decision-making at ETO (incidentally, I've had great experiences with ETO's programs so far), they've altered their program to allow most new detached ADUs to be eligible for these New Home incentives (regardless of who is going to be living in the ADU). Previously, most ADUs had not been eligible because the ADU wasn't intended to be the homeowner's primary residence.

The great thing about this program is that it 1) results in a better building product for the homeowner and 2) can give money back to the builder/homeowner in the process. The 3rd party certification that is part of the certification process essentially guarantees that the project is meeting higher quality design and building standards. And if that reasoning isn't compelling enough, 3rd party home certifications have been shown to have a significant positive impact on resale value.

Here's the new rules of the program. Contact ETO if you have more questions about your eligibility for this incentive.

2012 Accessory Dwelling Unit                                                                                 

The New Homes program will pay incentives on Accessory Dwelling Units that fit into two categories: 1) ADU built at the same time as the main residence 2) ADU built after the main residence was constructed. Our definition of an ADU refers to a structure that is permitted as an accessory dwelling unit by the local jurisdiction and is intended to be used as living quarters i.e. bedroom, kitchen, and bathroom, plus has its own USPS mailing address.

Requirements for ADU incentives:

·         ADU must have its own USPS mailing address separate from main residence

·         ADU must receive an Energy Performance Score (full incentive available through EPS)

·         ADU must receive its own third party verification

·         ADU must be detached from the main residence

·         ADU must be intended to be used as a residence

·         Detached structure must be permitted as an ADU

             ·         Builder or owner builder must be a trade ally with New Homes program

Landscaping

I'm kicking around some ideas for the landscaping around the ADU and main house. Meanwhile, with heavy rains coming, I've felt compelled to build some solid pathways to allow for easy movement around the house and ADU.

My father, formerly a landscape architect, helped by putting together some simple drawings that I used to inform the shape of the pathways and patios. Using these schematics, I worked with several people to lay out a wood frame to hold in the gravel and pavers. We had to excavate some soil along the way.

Landscape plan around ADU

Here are four short videos that show the hardscape construction process. I ordered the landscape materials from several sources---Craigslist, Wood Waste Management, and Home Depot. The gravels, sand, pavers, and natural stone ran me $2,000, the labor I hired ran another $700 plus 25 worktrade hours. I spent probably 20 hours on the project myself.









Later that same week, I finished laying out the pathway on the house of the house. Now that the hardscape is complete, it's time to work out a planting plan. I am balancing out the the merits of grass, stone walls, art work, shrubbery, groundcover, walls, and various forms of vegetative cover. It's fun to flip through garden and landscape books to figure out what ideas make sense for the property. Hopefully, appropriate ideas that are practical and beautiful will come to mind.

Another ADU Class and a New ADU Website

I held the 2nd 'Building an Accessory Dwelling Unit on Your Property in Portland' class at the ADU last weekend. There were 11 participants, which was a great class size. I had fun and the participants did too.

I've just posted registration for a class on Saturday, January 21st. If you're thinking about building an ADU, considering attending. From the feedback forms, every participant in the two classes I've held have found the class to be very useful and have enjoyed it. I'm limiting future classes to 13 participants, as the smaller class works better at the ADU. Last class, we visited a couple ADUs that are being constructed and I plan to do that in the next class as well.

As readers of this blog, you may agree that another critical piece to learning information about ADUs is finding a place online where you can find out information about other ADUs. Till now, there has been no such central place on the world wide web. Given the vast scope of content on the web, this surprised me and a few others who work on ADU issues. So, we have decided to fill that void and are proud to announce it: http://accessorydwellings.org/

Accessorydwellings.org is intended to be the one stop shop for information about ADUs. On it, you can find information about ADUs that have been built, information about building one yourself, and references to other sources of information. The site is  authored and administered by Martin John Brown, Eli Spevak, and myself, all ADU aficionados in the Portland area. Each of us have built permitted ADUs, have a strong personal and professional interest in them, and have our own websites about our own ADUs. Collectively, we are joining forces and launching this new site as a mechanism to promote ADUs.

In association with this site, I've also set up an Accessory Dwelling Unit Yahoo Group where people can connect to share information about ADUs. If you're interested in sharing links, asking questions, and connecting with other homeowners or builders that work on ADUs, join this group: http://groups.yahoo.com/group/Accessory_Dwelling_Unit/

Now that I've had a couple months living and relaxing in the ADU, I'm going to complete a couple more projects that need to be finished before I can consider the ADU property fully complete. Currently, I am working on the landscaping around the main house and the ADU. In the next couple weeks, I'll post an update about the landscaping, particularly as it relates to the ADU design. And, there's a couple more artistic projects that I'll post about in the next two months.

This blog will remain an archive of my ADU project related information. However, with the launch of Accessorydwellings.org, I expect to post to this blog less often and to be more active in managing and posting to Accessorydwellings.org.

Data from Homeowners in Portland Who are Planning to Build ADUs

The first ADU class was fantastic and I want to thank the class for making it such a fun experience for me.

Next, I want to share some information derived from the class questionnaires. The questions were in large part to help me figure out what to teach, but I included some other questions that would help provide some insights into the minds of homeowners who are likely to build ADUs.

When asked "What is your motivation to build?", here are the responses. Respondents could check up to three choices.

The most common response for the "biggest barrier to building an ADU" from the respondents was cost/financing (which is not really a surprise). Incidentally, I'm proud to say that every respondent said that the class helped them figure out useful approaches to address their biggest personal barrier, which ranged from permits, cost, financing, lack of knowledge, "taking the leap", city rules, neighbors, to finding the right designer and builder. 

Every respondent said that they would use a general contractor instead of trying to general contract it themselves. This uniform response was probably due in part to the information that they learned in the class, but I was still surprised to see a consensus since I did not specifically advise people not to general contract it themselves. 

50% are planning detached new construction. 25% are planning conversion of an existing garage, and 25% are planning on attached new construction.

Over half of class participants were in the 40-50 age bracket.  The other ages ranged evenly in a bell curve from 20-70. 

Here's a picture of the class during the walk-through tour of the ADU.

Walk-through Tour of the ADU

And, here's the last slideshow from the class, which shows the ADU construction process, step by step. 

ADU Construction Process (in pictures)

View more presentations from Kol Peterson

For those who were unable to make the first class, I'm offering the ADU class again on Sunday, November 6th.