Last Updated November 10, 2022
If you’re looking to move to Bend or buy real estate in Bend, there may be an item on your wishlist particular to our area: an ADU.
ADU stands for “accessory dwelling unit.” These are increasingly becoming a fixture of the Bend, Oregon real estate landscape, and there are a few good reasons why.
ADUs can be a great source of rental income, a good solution for multi-generational living, and a way to enhance the value of your property. But if you’re looking for a property with an ADU in Bend or thinking about building one, it’s good to consider a few different factors.
So, what’s an Accessory Dwelling Unit (ADU)?
The term, often abbreviated as ADU, is pretty clunky, but people also call them “granny flats.” In the case of a detached unit, they’re called “backyard cottages” or sometimes tiny homes.
We should note that strictly speaking, a tiny home wouldn’t measure more than 400 sq. feet. Detached ADUs can be up to twice that size, 800 sq ft.
In 2016, the City of Bend loosened regulations for ADUs and lowered application fees, while providing new incentives. Most significantly, the city removed the requirement for a conditional use permit and the resultant neighborhood meeting and approval process. This resulted in a flood of new applications, with close to 200 filed in 2017.
(Eugene, by contrast, is crawling at a turtle’s pace toward facilitating Accessory Dwelling Units. Read more about the state of ADUs in Eugene here.)
It’s no news that Bend has a tight housing market, particularly in the city center east and west of the Deschutes River. This is the area most popular with young professionals and college students. City planners hoped ADUs would increase the supply of rental housing, thereby opening up the market.
Homeowners can now build ADUs measuring up to 600 square feet on lots less than 6,000 square feet, or up to 800 square feet on larger lots. Homeowners still need to meet setback and other requirements.
Permits cost in the neighborhood of $1,000 (a significant decrease), while impact fees total close to $6,000. Contact the City of Bend Building Department for the most up-to-date information about fees and the permitting process.
What are the Benefits of Having an ADU on my Bend Property?
If you’re a homeowner, having an ADU on your property can mean one of several things. You can go the literal granny flat route, using the space to house and care for loved ones. If you regularly host guests, ADUs can provide a great space for that.
You can also rent the space. More and more Bend homeowners are turning to ADUs as a lucrative income stream. Compared to apartments, detached Bend ADUs command especially premium rates.
Nice ADUs in desirable Westside neighborhoods can fetch homeowners a particularly impressive sum. So, who’s renting them?
While we don’t have any statistics, it’s safe to say that ADUs appeal especially to millennials, who are feeling Bend’s housing squeeze more than most. This is especially true in the areas of town that appeal the most to a younger demographic.
ADUs cost much less to rent than a traditional home but provide a quite comparable lifestyle for people who don’t need as much space.
Even ADUs on less premium real estate can easily provide homeowners with a worthwhile return on their investment. ADUs also help ease the rental market squeeze we’re currently experiencing here in Bend, which means that both homeowners and their community win out.
If you’re in the market for a home in Bend, purchasing a property with an ADU and renting it out can make a significant dent in your net monthly payment.
Of course, you’ll likely need more money down since properties with an ADU will command a higher asking price. One more factor – the competition will probably be stiff, with all-cash investors likely in the mix.
Bend ADUs as a Short-Term Rental Income Stream
Of course, ADUs can also be a source of a potentially even more lucrative income stream: short-term rentals, AKA vacation rentals by owner (VRBOs) or AirBnBs.
The average nighly rental rate for a Bend AirBnB is $249 as of publication, with occupancy at close to 100% during the summer and above 60% in the winter. Do the math and the dollars-and-cents look very appealing, even if you need to hire a “flipping” service to clean between guests.
Bend’s permitting process for short-term rentals is fairly strict, though. With the exception of a few subdivisions and zoning categories, there must be at least 250 feet of separation between non-owner-occupied units. That includes ADUs, even if the owner occupies the main dwelling.
In other words, you won’t be able to obtain a short-term rental permit if there’s already another VRBO within 250 feet of your property. Your chances are especially slim in the tourist hotspots of Old Bend and River West.
If you’re purchasing a property with the intent to use it as a VRBO, extra due diligence is necessary. Even if there aren’t yet short-term rentals within 250 feet, the worst-case scenario is that a neighbor makes a successful application while you’re under contract.
Importantly, short-term rental permits are not transferable to new owners if they were obtained after 4/15/2015.
Properties with permits “grandfathered” before that date will command a premium on the market. New owners just need to make sure to apply for a Short Term Rental Operating License within 60 days of closing.
Also keep in mind that CC&Rs for individual subdivisions may prohibit short-term rentals outright or place severe restrictions on them. The bottom line is that you (and your agent) need to do your homework carefully.
What are the Potential Cons of Building a Bend ADU?
It shouldn’t come as a surprise, but the long and short of it is that ADUs are expensive. There are countless items that can impact your final price tag, but $200k is probably a reasonable baseline for a nice (but not spectacular) ADU in Bend.
Whether or not you’ll recoup your costs from a theoretical future sale is a tricky question.
As Bend’s market continues to appreciate at a rate faster than the increase in construction costs, a net profit becomes more possible. Recently, lumber prices have fallen back down to more reasonable levels, while prices in Bend continue to climb rapidly.
Still, it’s unlikely that building an ADU will provide a positive return on your investment if you’re simply planning to flip your property short-term.
While ADUs are starting to pop up all over Bend, they’re still far from commonplace. The price tag is the biggest reason why, but there are other factors to consider, like how an ADU might affect the usability of your main property and whether you’re in a location for you can maximize your potential income stream.
This has just been a very basic overview of the many issues involved with ADUs in Bend. We’re definitely available for a more detailed conversation about the specifics of your situation – contact our Bend office today!