Carriage Houses & Granny Flats in Minneapolis

In the city of Minneapolis, the allowance of ADUs (accessory dwelling units) is a relatively new addition. It’s only as of 2014 that property owners have been allowed to construct granny flats (also known as carriage houses and mother-in-law apartments) of any kind.

However, before you get out the hammer and nails, it’s important that you know some of the rules the city of Minneapolis has put in place regarding granny flats. There are a few of great significance.

The Granny Flat Advantage

If you’re an investment property owner, adding a granny flat (or ADU) to your property could make a big impact on your bottom line. But is that impact good or bad? Is it worth it in the face of the laws, ordinances, and other challenges you’ll face?

We’ll take a look at everything in more detail and leave the decision-making to you. Keep in mind that ADUs are only allowed for one or two-family homes (at least in Minneapolis), so we’ll be focusing primarily on duplexes in this article.

The Financial Impact an ADU Can Have

By adding a carriage house to your duplex, you’ll almost undoubtedly end up with a completely different financial situation than the one you had before you constructed it.

An ADU can be a transformed attic or basement, a detached building in your yard, or even an addition that you put on. For most property owners, it’s easiest to add a unit in the basement or attic.

Doing this might cost you on the frontend as you invest in necessary elements like egress windows, insulation, and the like, but in the long run, you could easily recoup this investment if you play your cards right.

There are two great options for property owners once they’ve constructed an ADU.

The first option is to move into the granny flat yourself. If you’re an owner-occupier (which is necessary for building an ADU) then doing this will free up one of your primary units and you’ll be able to rent out both of them.

In a way, you’ll get to enjoy the full benefit of being an investor all while enjoying the benefits that come with being an owner-occupier as well.

Imagine the impact that essentially doubling your rental income could have on your bottom line. While most duplex owner-occupiers are able to cover most of a property’s mortgage payment with the rent from just one unit, true profitability usually comes from having both primary units contributing towards the bottom line.

Example #1: Living in an ADU

Let’s assume that you’re an owner-occupier of a duplex in south Minneapolis. Your duplex abides by the general investing guideline known as the 1% rule. You purchased the property for $250,000 and collect $1,300 in rent from one of the units and live on the other side – suspecting that you could collect $1,200 per month from renting out that unit.

In that scenario, here’s what your financial overview might look like.

Monthly Mortgage Payment (30-year Mortgage at 4.44% Interest): $1,294

Total Rental Income Per Month: $1,300

Estimated Cost of Repairs: $208

Estimated Cost of Utilities: $300

–

Total Deficit: $502

Deficit is a pretty severe word for someone who’s only paying about $502 for their living situation. Even if this was the end of our example, being an owner-occupier definitely looks advantageous.

However, consider now how this same scenario might look if you added an ADU and moved into it. Suddenly, you could rent out both units and your scenario would look more like this.

Monthly Mortgage Payment (30-year Mortgage at 4.44% Interest): $1,294

Total Rental Income Per Month: $2,500

Estimated Cost of Repairs: $208

Estimated Cost of Utilities (In One Unit): $300

–

Total Profit: $698

While these figures are only a rough estimation, you can see from this example how big of a difference living in a granny flat could make as a duplex owner.

That said, not every duplex owner wants to live in their accessory dwelling unit. For these people, there is an alternative. We alluded to this second option earlier, and it is this:

Instead of living in your property’s carriage house, you can live in one of the primary units and rent out this additional unit. You won’t generate as much rental income from this ADU as you would from a primary unit, but you’ll enjoy a boost to your bottom line all the same.

Example #2: Renting Out an ADU

Assume that your situation is the same as in example one – your original financial outlook looks like this.

Monthly Mortgage Payment (30-year Mortgage at 4.44% Interest): $1,294

Total Rental Income Per Month: $1,300

Estimated Cost of Repairs: $208

Estimated Cost of Utilities: $300

–

Total Deficit: $502

Now assume that you begin renting our your ADU. By nature, these units are typically smaller than primary units. It’s hard to estimate what you might be able to rent one out for since they differ wildly from each other. You usually won’t be able to rent them out for as much as a primary unit, but that’s only a general rule. Let’s assume that, in this situation, you convert an attic into an ADU and rent it out for $400 a month.

Suddenly, your deficit of $502 turns into a deficit of just $102 – that would be your entire cost of living in a $250,000 property.

Carriage House Ordinances

Now that we’ve taken a look at the advantages of utilizing an ADU, we have to look at some of the downside – ordinances, namely. There are a fair amount to consider and you’ll definitely want to know them all before assuming that you can utilize your carriage house in a way that actually breaks the law.

The first and most important thing to know is this – ADUs in Minneapolis are available to either one or two-family homes. In most cases, this means single family homes and duplexes.

The Owner-Occupier Requirement

The most hated part of the new ordinance allowing ADUs in Minneapolis is the owner-occupier requirement. The ordinance explicitly states that granny flats may only be constructed by owner-occupiers that intend to live within that unit or the property’s main unit.

Naturally, investors that could have a lot to gain by constructing carriage houses have found this requirement to be frustratingly restrictive.

Perhaps someday the city of Minneapolis will allow investors to build ADUs. For now, only owner-occupiers can do so.

Sizing Mandates

It’s beyond the scope of this article to get into all of the specifics about sizing requirements for granny flats in Minneapolis, but know that there are some very specific rules to consider before you start building.

All ADUs must be smaller in size than the primary unit on your lot, but outside of that, minimum and maximum square footage rules also apply.

For more on ADU sizing requirements, check out the ordinance from the city of Minneapolis.

Design Requirements

The most important granny flat design requirement is this – it must match the look of your primary structure. The materials are required to be the same, and they are to be durable as well.

There are other important rules about where decks and balconies can be built, what kind of stairways can be constructed, and more. If you need to know more about all of the design and construction requirements that are relevant when building an ADU, check out the Minneapolis city ordinance.

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