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Ramseys: Before making part of home a rental, check rules

No matter what you call the extra space -- mother-in-law apartment, nanny's quarter or Accessory Dwelling Unit (ADU) -- many homeowners have been confused about whether they could turn a portion of their home into a legal rental unit. However, since January 2014, changes in the Title 21 Land Use Ordinances allow more homeowners to designate part of their homes for rental. Here are four things to be aware of if you want to create an ADU.

First, the changes in ADU ordinance were for the following reasons:

• Provide homeowners extra income, companion or caregiver housing.

• Increase the housing base of affordable rentals for single tenants and couples.

• Increase property values due to potential rental income.

• Maintain compatibility within a neighborhood.

• Ensure units meet health and safety standards.

Second, regulations allow for three different types of ADUs:

• internal conversion of an existing home,

• an addition, or

• attachment to a detached garage.

There are different ADU requirements for Anchorage, Eagle River and Girdwood.

For Anchorage, ADUs must be a minimum of 300 square feet but no larger than 35 percent of the gross floor area of the primary residence, excluding the garage. For example, in a 2,000-square-foot home, between 300 and 700 square feet could be converted. For Eagle River, the maximum size varies depending on lot size. In Girdwood, an ADU can be 600 to 750 square feet, depending on lot size.

Exterior appearance is also important. The preferred separate entrance for an ADU is not street-facing. An addition or detached ADU must match the existing structure's appearance in style and character, while not exceeding the maximum lot coverage for existing zoning.

For larger lots, a detached ADU over a garage may be a better fit. In Anchorage, lots under 20,000 square feet can have an ADU if the garage abuts an alley. For lots of more than 20,000 square feet, an ADU cannot be more than 25 feet high, and the ADU must be 60 feet from the front lot line or at least 10 feet behind the front of the house. For Girdwood, the lot size must be at least 16,800 square feet for a detached ADU.

Third, there are a number of restrictions with ADUs:

• They are not permitted with a day care, bed and breakfast or residential care facility. However, in Girdwood, a one-bedroom ADU may be used with a B&B.

• The owner must live in either unit for at least six months of the year.

• The ADU maximum size and occupancy is two bedrooms and two people.

• Off-street parking must be available -- above what may already be required by zoning.

• In R1 and R1A zoning, only an ADU conversion is possible.

• The ADU must meet health and safety standards in building codes (electrical, mechanical, plumbing) for a two-family dwelling.

• Submit the necessary documents (see Municipality of Anchorage handout R.01 under the handout link at muni.org/bsd); a signed, recordable Owner-Occupancy affidavit, and the required administrative processing fee ($112.50) after a building permit is issued.

Homeowners may find the last two items the most daunting, so consult a professional to ensure documentation and code requirements are met.

Finally, here are other things to know if considering an ADU.

Subdivision covenants may not allow an ADU. The MOA does not check covenants before issuing ADU permits. So before starting the process, check whether your property covenants allow an ADU, and thereby avoid having a neighbor file a complaint or pursue other alternatives.

When an ADU is purchased, the recorded Owner-Occupancy affidavit will show on the preliminary title report, so it will not go unnoticed by the lender. In the beginning, ADU properties zoned R1 and R1A may cause confusion with lending institutions. Do they treat the property as a duplex since it must meet duplex building requirements? Do they include the potential income in qualifying the buyer for a loan? Will the appraiser include it in the appraisal valuation?

If it is treated as a duplex, lenders typically require a higher down payment and charge a higher interest rate than for a single-family home. If needed, the municipality can provide a pre-approval letter for a prospective buyer's financing documentation. Appraisers will also have difficulty establishing value until enough comparable units are sold, so providing the appraiser with rental history will help.

An ADU permit must be renewed within 30 days of ownership transfer to ensure the requirements above are met. To reapply afterward may require that all the documentation be resubmitted, not just the signed affidavit and permit fee.

The municipality may take enforcement action if a complaint is filed, the municipality discovers a non-permitted ADU, or an ADU has not maintained the items above. If the municipality issues a written citation or enforcement order, fines could be $300, with an additional $250 a day if the violation continues (plus costs and attorneys' fees if a suit is filed).

An ADU may cause the municipality to adjust property values and taxes. So, for more information on how an ADU may be taxed, contact the municipal property appraisal office at 343-6770. For more general information, call the municipal land use department at 343-8380.

Barbara and Clair Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in the Daily News. Their email address info@ramseyteam.com.


Barbara and Clair Ramsey
Housing