Should I Build a Granny Flat in Sacramento?

In late 2019, the California state government passed The California Granny Flat Law (SB 1069, SB 229), along with Assembly Bills 2299, 2406, and 494. These bills are aimed at not only allowing but encouraging the addition of new units in homeowner’s backyards — secondary properties that are commonly called granny flats. Often used to house a mother-in-law, home from college child, or a friend in need of temporary housing, these units can also be a reliable source of rental income for a homeowner.

Is building a granny flat in Sacramento a good investment? Do you qualify to build one on your property? Let’s talk all things accessory dwelling units (ADUs) to help you make your decision. You can also find out more information from Sacramento County.

Granny Flat Basics in California

First things first: consider if you’re prepared to abide by the laws for building an ADU on your property. You don’t want to run afoul of the permits requirements, etc. and find out you’re getting fined by the city. Before you build a granny flat in your backyard, keep in mind that the unit must:

  • Not be intended for independent sale (you can rent it out, but the granny flat must be sold as a part of your primary residence)
  • Be on a property that is zoned for residential use (you can’t build a granny flat behind your laundromat business)
  • Be either attached to or on the same lot as the existing dwelling (put the flat in your yard, and make sure it doesn’t extend onto the neighbor’s/city property)
  • Not exceed a square footage of 1,200 feet (sorry, no building an epic three-story rental out back)
  • Be approved via a building permit (don’t start constructing until you have a city-approved permit)

When a Granny Flat is a Good Investment

OK, so the state tells you you’re allowed to build a unit on your property and you have the perfect 1 bedroom / 1 bath blueprint in mind. That doesn’t mean the secondary unit will be financially worth it. Here’s a quick checklist to see if a granny flat could yield a positive return.

  1. You plan to own your home long-term. The next owner may not want or need a granny flat, so you can’t necessarily count on the costs of building a granny flat adding equal value to your property value. At least if it’s not a proven cash flow. A granny flat is best for people who want to stay in their home for the long haul and use the unit as reliable rental income. That helps ensure the unit will pay for itself.
  2. You have the equity or cash to build the unit. Since your granny flat will pay you back month after month in the form of tenant rent — as opposed to a one-time cash windfall — you probably don’t want to go into a ton of debt to build it. Ideally, you can get a super low interest home equity loan or cash-out refinance from your primary residence to cover the costs. Keep in mind you’ll also need to pay to get electricity, water, etc. to the unit and maintain those systems. Have an emergency fund on hand.
  3. Your neighborhood has a low vacancy rate. Look around. Are others nearby in Sacramento having a hard time renting out their homes/apartments/granny flats? A granny flat is a better investment if you’re confident you can have it filled all the time. You’ll also need to spend time advertising the unit, interviewing potential tenants, and running background checks. If these commitments don’t interest you, you may not end up renting it out and it will sit there waiting for house guests.

A granny flat can be a good investment for your Sacramento property, but only in certain circumstances. If you’re in your home for the long haul and have the space — your renter could become a reliable source of income! For questions about selling a home that has a granny flat, give us a call! We can come out and assess the value of your property and we may be able to buy it from you as fast as one week!

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