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Getting a home with an accessory unit is great for relatives, college kids, au pairs, or as a way to generate rental income.

They go by many names: granny flat, casita, in-law suite, accessory unit, garden unit, garden suite, garage unit, rental unit, secondary unit, apartment unit, accessory dwelling unit, ADU. The concept is simple: Separate apartment with its own entrance and kitchen. People that buy homes with them usually do so for one of three reasons:
1) they have friends or relatives that visit frequently or for extended periods (e.g., the winter); or
2) they have a relative or employee (e.g., au pair, cook) who lives with the family and the unit provides some distance and independence; or
3) they wish to defray some of the cost of home ownership with rental income, but would prefer not to have boarders inside the home; or
4) they wish to place their at-home business in a separate location with a separate entrance. Examples might include a photographer's studio, a bookkeeper's office, or a family counselor, but, with telecommuting, the applications have expanded tremendously.

Sometimes, this extra home within a home is part of the house (e.g., an over-the-garage-unit) or at one end of a house with a separate entrance. Sometimes it is a separate building (e.g., the garden suite) and may even have its own garage. Here are some considerations and things to think about when looking for a property with one of these units. If you want to look at listings, click on the link in the left-hand column (login required) to see the listings.

Homes with accessory units are not particularly common, and the cost of such a home is typically higher than the cost of a similarly-sized home without an extra unit. The reason is simple: the home is more valuable because of its built-in ability to generate monthly revenue and/or it has addtional use value. This is especially true if the sale of the home would come with a long-time tenant who wishes to stay at the home because of the almost-guaranteed monthly income. The more "independent" the location and feel of the extra unit, the more the home will cost because an independent location makes it easier to rent. If it is a standalone accessory unit with its own garage and additional parking spaces, it offers a renter the opportunity to live in a residential neighborhood at a portion of the typical cost. In short, you will get what you pay for, and the more that you want, the more that you will have to pay.

City Zoning. Believe it or not, most municipalities favor accessory units that follow the rules (and there are rules) because they enhance the community's ability to provide affordable housing. Click here to see Encinitas accessory unit publication as an example. This means that if you buy a big enough lot, you can build your own accessory unit. The cities require that you meet the setback requirements, parking requirements, and, in the case of Encinitas, you are limited to 750 feet or 30% of the home's square footage, whichever is less. Encinitas also prohibits business use of the accessory building (i.e., the building may only be used as a dwelling).

Rent. Generalizations are impossible, except to recite the trite truisms that "it all depends on what you have" and "it depends on the market." Thus, if you market a standalone building with a two-car garage, you can charge more than if you have a studio apartment over the garage. Likewise, if your casita is located in Rancho Santa Fe, you can charge more than in neighboring Escondido. Setting a price can be tricky because there may not be a lot of comparables depending upon your location or the features. If you have a room with a separate entrance and kitchen, then you can expect to get a premium over what others are charging in the area for just a room. We will be glad to provide some guidance on where the market is for rentals in the area and what you might be able to get.

Garage conversions. Some newer homes have extended garages that can be easily converted into additional units and the builder usually offers it as part of an upgrade package. Sometimes you will see homes where the homeowner has converted part or all of the garage to additional living space. In many, if not most, converting the garage into living space can be illegal, and it is usually done so without permits. If you are looking at a home with this sort of unit, you need to think twice about buying the home and renting the "unit" because one phone call about the illegal unit to the city zoning department can shut down your operation and result in a demand by the local authorities that you convert it back to a garage.

Taxes. If you make rental income from the property, then such income is additional income and the IRS will expect that it is declared. That said, this type of income can be very difficult for the IRS to track, and many homeowners simply do not declare it. However, if you choose not to declare it and you get audited, you may be looking at an unpleasant situation. In the case of relatives, ask your accountant what you should do.

Here are some links to various municipality rules for accessory units:
Solana Beach
Encinitas
San Diego
Oceanside

Here are some other links of related material:
Maine article about accessory units for affordable housing
Massachusett's article on ADUs