Added Value of a Rented Coach House to a Single-Family Home?

[Mariociri]

You have already stated that ADUs that can be rented are very rare in your area. Since developing a cap rate or GRM typically requires market data on similar properties. What data would you use?

It has been rented to the same couple for a number of years. When it has come available, it rents in a day.

 

[Mariociri]

Sounds like to me that nobody wants that headache, responsibility or liability. I bet the million dollar neighbors hate that house, never knowing what 'renter' will occupy the backyard shack.

Its existence stems from the bygone era of a servant's quarter. There are several in the immediate neighborhood and while no neighbors have complained, I agree that none would mourn the loss of any of them.

 

[J Grant]

I am selling a single-family home that includes with it a fully equipped coach home. It has separate utilities and a distinct address. It pays a very sizable rent and is a major motivating feature for all buyers. I read that a combined income and sales approach is acceptable when the subject property consists of the primary living unit and an income-producing ADU where income is a factor in the buyer’s decision-making process. My untrained approach as a RE agent would be to value the main home alone and add a coach home value based upon a Cap Rate calculation of the coach house value for the current rent.

Any thoughts on valuation?

The appraiser does not always decide the method. the lender can decide it, wrt does the loan get classified as an investment property or a residential owner-occupant property. for a residential owner-occupant loan, appraising it as a two-unit property, with one unit commanding income via a cap rate, would make it an investment property and possibly disqualify it for a loan as residential.

Your way to value it wrt a cap rate would not be typically be accepted for residential loan use. If appraised as a SFR with an ADU ( accessory dwelling unit ),it typically gets appraised for the contributory value in the sales approach of the second unit ( the coach house ). If the buyer is using the coach house for declared income to qualify for the loan, then the appraisal includes a rental survey

You're a broker so best course if you want to price it high because you think a buyer would pay X 4 for the income, is to advise your buyer to be ready to bring cash to the table, in case the valuation does not meet the sale price. As you know, some contracts have a clause for that. Or it might appraise for the SC price. Who knows, right? It sounds like a nice property.

 

[JTip]

There are some, but none that can legally be rented as this one can.

So what makes this house special, allowing it to solely enjoy income from it's legal existence?

 

[DTB]

So what makes this house special, allowing it to solely enjoy income from it's legal existence?

It's in Illinois, so assume they got a guy!

 

[Tom D]

this is like having an air b&b on your property. you didn't mention the value of your property. depending on that value, the ratio adjustment for the carriage house might not be high at all. i would certainly try a grm, or cape rate, to figure an adjustment, if i would make one. i say, would make one. you don't always need to make an adjustment, but you can consider that carriage house when reconciling the final value. i see problems if the buyer has a lender who has a low tolerance level for something that isn't typical for the area. if a home owner wants to add a carriage house, then that is a investment risk the owner is taking. lender's don't have to accept that condition.
i personally wouldn't accept doing it if there are no carriage comps. I already know the issues coming back to me after i send it in. it ain't worth the fee, or the potential existential appraisal threat.