How close do you live to your aging parents? A mile? An hour’s drive? A three-hour flight? Now, imagine there comes a day when they can no longer handle things on their own and you need to help them on a daily basis and either care for them yourself or closely oversee caregivers you hire.
The commute, even a short one, could upend your life in order to help them. For many middle-aged couples, neither is it an attractive proposition to move Mom or Dad into your house. Understood.
That’s where an accessory dwelling unit (ADU) — also known as a mother-in-law apartment, backyard cottage, built-out-basement, etc. — comes in. ADUs are rapidly growing as many cities in modern America confront a housing shortage. My colleague Dee Gill has written about the economics of building and operating an ADU as a rental property or Airbnb: https://www.rate.com/research/news/garage-basement-profitable-rental
And she lays out the permitting and construction options for ADUs in a separate article:
https://www.rate.com/research/news/add-backyard-single-family-home
Here, we size up the ADU in its more traditional role: multigenerational housing. First, back to caregiving. The bulk of it remains the domain of women. But these days, most women work and many are single. So devoting yourself to caregiving, in addition to its physical and emotional cost, comes with an enormous financial penalty. Women who leave the workforce to become caregivers suffer an estimated lifetime cost of more than $320,000 in wages and foregone Social Security benefits. Anything that makes the caregiver role less onerous — like having Mom in an ADU — is worth considering.
I’ve covered more on the financial cost of becoming a caregiver in an earlier article: https://www.rate.com/research/news/navigate-expense-caregiver
Given increased life expectancies, there will be record numbers of elderly getting ever older. Yes, boomers want to “age in place,” but if that place is far from the offspring who will take care of an aging parent, that might not be realistic. Now, assisted living and other senior living arrangements may be less palatable to families given the excruciating experience of COVID-19 outbreaks.
An ADU can be a detached unit plunked down in the yard, attached to the home, or a conversion of a basement or garage. Zoning regulations typically restrict them to 1,000 square feet or less. It could be the best of two worlds: Everyone gets their privacy. But there’s no maintaining two separate residences, no brutal commute between them.
Freddie Mac estimates that between 2009 and 2019, the number of first-time listings of homes for sale that advertised an ADU grew at an annualized rate of 8.6%. It estimates the percentage of listings with an ADU has grown from 1.6% in 2000 to 6.8% last year.
California has new regulations in place this year that will make it much easier for homeowners to build ADUs, overcoming years of zoning and NIMBY (not in my backyard) concerns. By one estimate, as many as 380,000 single family homes in Los Angeles may now qualify to construct an ADU on their lot.
The cost for a detached unit can be north of $200,000. Converting a garage will typically run less. In high-cost Los Angeles, a recent estimate for converting a garage was around $120,000 or so. (Basements, with their stairs, are probably not best for the elderly.)
Before you dismiss the idea as too expensive, think through the possibilities. If your parent currently owns a home, would the gain at sale finance the ADU or a big chunk of it? If not, a fixed-rate home equity loan or a home equity line of credit are both financing options. In terms of repayment, don’t be shy talking through with a parent what part of their monthly income (Social Security, other savings, etc.) they can contribute to the household. It just might be what you need to pay back a loan.
It can also be helpful to consider what expenses you might be able to avoid, or at least shorten the time they are needed if you move family close. If your parent stays in their own home and eventually needs care, that is going to cost plenty. The current average monthly cost according to a national survey is around $4,000 or so for a home health aide or residence at an assisted living facility. (You can find typical costs in your state with a web search of “Genworth Cost of Care.”) That’s $50,000 for one year. Granted, just because you have an ADU doesn’t mean there will be no need to hire help for your parent. But when you might need to start adding care, and the amount of care needed might be less if you are close by and not worrying if your parent is OK on their own.
Even if you end up shouldering much of the construction cost, that peace of mind can be worth far more. And its value will outlive a parent. Maybe it eventually becomes a transition pad for still-launching adult kids. Or a rental that generates valuable income as you head into retirement. And ultimately, at some point, it’s likely to be a desirable feature when you are ready to sell.
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