Why Building A Granny Flat In Your Back Yard Makes Big Money
It is getting hard to find properties in Minneapolis that will either offer a great ROI from a rental perspective or have the ability to build a lot of equity. The reason for this is two fold right now. First prices are rising very quickly. Lots of demand and not a lot of supply has been putting pressure on prices in south Minneapolis for years and I don't see this ending in the next 12 months. Second, there is not a lot of inventory available for sale. Right now in the Nokomis and Longfellow communities we only have a one months supply of homes available for sale. That is extremely low.
However, if you are looking to make some great rental income and build equity in your single family purchase I would do one thing. I would build a granny flat. A granny flat is basically a small house in your backyard. It is like this garage. This garage is 24 by 26, which is very big for a garage, but if you converted it into a small house it would be a perfect size for a young couple or single person. I would raise the pitch on the roof so I could put a bedrooms up there, I would install four windows so I had light on all four sides. Then on the main floor I would have an open kitchen, bathroom, living, dining room area and I would keep the garage door. The garage door would have windows on it and I would design the main level so I could open up the door and park a car in there if I wanted to.
I estimate that it would cost about $60,000 to build a granny flat, it would add $300 to your monthly mortgage payment, but then you could rent it out for $1200 and make $900 a month. So your fist year income is over $10,000. Your down payment would only be $3,000 on a $60,000 mortgage so you would triple your cash investment in only one year. Honestly, I think this is going to be more common and I think it is a great way to build equity in your property.