Your empty backyard could fill your bank account.
It sounds a bit unconventional, but you can generate income from your garden by building a house there and then renting out the residence. According to Rent the Backyard, a San Francisco-based company that specializes in these arrangements, you could earn up to $12,000 per year with such a plan. The company, which focuses on the Bay Area, handles all the permits and construction of the single-family dwelling, then splits the rent revenue with you.
No matter where you live, there are several ways to make money by renting out part of your property. You can convert a basement or attic into an apartment or build a single unit yourself. This guide will help you turn the parts of your home or land you don’t use into a source of income.
Options for earning income from your property
No matter how you choose to become a landlord, you’ll want to make sure you’re setting aside enough money to pay taxes on rental income (research local listings in your area to get an idea of how much you might charge) . You’ll want to make sure you have a written rental agreement and do a background or credit check on your tenants. Check local laws, as well as any relevant rules from your mortgage lender or homeowners association. You should also check zoning laws to make sure the option you choose is permitted in your area.
Finally, ask your home insurance company if you need to change your policy to cover a tenant. Covering any type of rental property is more expensive than insuring a house you live in.
Here’s what else you need to know:
Rent a room
Letting someone stay in an existing room you aren’t using is the fastest way to start earning rental income. Renting out a single room in your house is called extreme house hacking – a variation of traditional house hacking, which involves renting out units of a multi-family house while also living in one of the units.
Cost: Little or none at all. As long as you have an extra bedroom, you’re good to go. But you can charge more rent by offering a furnished room, says Bill Biko, who runs a landlord education website and has rented hundreds of rooms in investment homes. “Depending on the level of renters you’re looking for, this can range from a low-end single bed to queen or king-size beds with nicer furniture for higher-paying renters,” Biko says, adding that you can include a flat screen TV and other amenities. “It can be expensive, but you’ll attract better customers, and they may stay out of your space and into theirs more often.”
Advantages: Initial costs are minimal.
The inconvenients: You’ll face all the issues of colocation and sharing common spaces, from privacy issues to personality conflicts.
Rent space in your basement or above your garage
Some homes may already have an existing self-contained suite – with a bathroom, small kitchen and separate entrance – attached to the property, but it is also possible to renovate your home to create one.
Cost: It costs an average of $21,600 for a basement remodel, including a bathroom, according to HomeAdvisor. Construction costs will vary depending on the size of the basement, if there is existing plumbing, and if you need to install a separate entrance.
Advantages: You will have the advantages of renting a room, without having to share the living space, and you will be able to increase the value of your house when it sells. Homeowners who have remodeled their basements have seen a 70% return on investment when selling their home after two years, HomeAdvisor found.
Cons: In addition to high upfront renovation costs, you’ll be responsible for ongoing upkeep and upkeep of the space.
Build a secondary suite
They go by many names – a granny pod, a backyard cottage or a carriage shed – but the official catch-all for them is “accessory dwelling units” or ADUs. Although they may be extensions attached to your main house, most people think of them as single dwellings (this is the type that Rent the Backyard builds). They have separate entrances and kitchen/bathroom facilities but share your address.
You will need to have the space to build an ADU on your property and make sure they are permitted by local zoning laws and your HOA. In recent years, we have observed a trend towards the relaxation of regulations, particularly in densely populated areas with a housing shortage.
Cost: A detached secondary suite costs $160,000 to $300,000 to build, according to data collected by home improvement lending company RenoFi. However, this varies by region. It may cost more than $350,000 to build an ADU in the Bay Area, for example.
Advantages: You can charge more rent for a detached space than for one that is part of your home. You will also enjoy more privacy.
The inconvenients: You will have to give up part of your yard and the construction can be time consuming, including connections to electrical, plumbing and sewage systems. Plus, maintenance can be more expensive than you think.
Lease your land to a tiny home owner
Letting someone else bring their tiny house onto your property might seem like a no-brainer, but it could be trickier than it looks. Typically, Tiny Houses on Wheels are considered RVs and their occupants are considered campers and can only stay in one place for 30-45 days in many municipalities, says Andrew Helling, a licensed real estate agent. in Omaha. For a more permanent arrangement, you may need to tie the house to a foundation on your property, depending on local zoning laws.
Cost: It depends. A simple concrete slab foundation costs on average between $7,000 and $20,000, by size, according to data from HomeAdvisor. You and the tenant should determine who pays for the cost of building the foundation and securing the home. Beyond that, costs are minimal, although many tiny homes require utility hookups.
Advantages: You can get a tenant’s income without the construction and maintenance costs of a new building.
The inconvenients: It is more difficult to evict someone from a house they own if they stop paying their rent. “There needs to be a solid legal agreement about who is responsible for what if something goes wrong,” Helling says. “They attach something to your property that you don’t own. This is a big consideration.
Join the Airbnb community
Rather than going through the process of getting a tenant to live on your property, you can let your home serve as a place to stay for travelers and short-term residents by listing a room or property on Airbnb. According to the company, the average host earns around $13,800 per year.
Cost: If you’re renting a room or a property you already own on Airbnb, the start-up cost can be incredibly cheap — basically the cost of cleaning supplies to prep the room. If you’re building or buying a property to list on Airbnb, it could cost a lot more.
Advantages: There’s a low entry cost to listing on Airbnb, and it offers more flexibility as you can choose when your listing is available. You also set the pricing, which gives you a lot of control over the process.
The inconvenients: Additional insurance may be required to cover your listing. If you have a homeowners association, it may have restrictive rules that prevent you from listing a room or property on Airbnb. Similarly, some municipalities have rules restricting Airbnbs.
Conclusion on income from your property
As long as you have the space, you can bring in extra income by renting out part of your property. It’s important to consider the pros and cons of each strategy, as well as potential costs, as well as zoning laws and homeowners association rules, before signing any rental agreement.
You can also seek advice from a real estate lawyer or property management company on how to become a landlord, draft a foolproof tenancy agreement, and screen potential tenants. Don’t forget your home insurance company, either: you may need to change your policy, or even buy a new homeowner’s insurance policy, to make sure you’re properly covered.