Driving around central Bend, Dweller CEO Patrick Quinton sees a lot of construction activity in backyards.

Accessory dwelling units, known as ADUs or granny flats, can produce rental income or provide private living quarters for an aging relative. Yet because of their cost and hurdles to obtaining financing, they remain unavailable to most homeowners, Quinton said.

“Only rich people are able to afford them,” Quinton said. “Vanity projects get built. The economics don’t make sense.”

Quinton started his company in Portland in 2017 to make ADUs affordable to average homeowners, and Dweller began doing business this month in Bend and Redmond. He hopes to see a few of the company’s prefabricated ADUs installed in Central Oregon by this fall.

Construction of backyard cottages and garage units took off after the city of Bend lowered fees and relaxed permitting requirements in 2016. In the first nine months of 2017, the city fielded 91 ADU permits. Current permit numbers were not available Thursday.

Quinton said the activity has been concentrated in the center of Bend, usually on property served by an alley. But he thinks there’s an opportunity to install more units on the east side, as well as in central Redmond. Built by Champion Homes in Idaho, the 450-square-foot units start at $130,000, he said. That price includes permitting, but not system development charges, which are fees charged by the city and park district to cover the cost of infrastructure, he said.

Residential general contractor Hank Hill, owner of Bend Craftsman Co., said the cost of building an ADU quickly climbs out of reach for most potential clients. “It becomes a $150,000 to $200,000 project,” he said.

Homeowners don’t realize the cost of permitting and planning, or that they might be required to make property improvements, Hill said. On top of that, construction costs have skyrocketed because there’s so much demand across the board, he said.

Dweller set itself apart at its inception by offering property owners a different way to finance ADUs. The company would enter a ground lease with the owner, finance and install the ADU, and then share a minority portion of the rental income. The property owner can buy the ADU from Dweller later.

Quinton said Dweller has a waiting list of Portland property owners who want a ground lease, but the program is on hold to ensure Dweller has enough capital to honor the existing agreements.

Typical ADU financing requires homeowners to obtain a line of credit or refinance their existing home, Quinton said. With mortgage interest rates rising from historic lows, refinancing has not been an attractive option for homeowners, he said.

“Part of the problem we’re trying to solve is the lack of financing,” Quinton said.

As the company begins to do business in Central Oregon, it has arranged with Consolidated Community Credit Union to provide second mortgages based on the value of the ADU itself.

Dweller has also begun to study potential building sites and how to meet the Bend and Redmond building codes, as well as neighborhood covenants.

Lack of parking space could turn out to be the biggest hurdle for suburban Bend, Quinton said. “Part of what we’re offering as part of our business model is we figure that out,” he said. “We can quickly triage properties and not force the homeowners to learn the zoning code.”

— Reporter: 541-617-7860, kmclaughlin@bendbulletin.com