Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
So my current rental is doing great. I am looking to building a 300-400sqft additional dwelling unit in the backyard. I called the city already in regards to this an waiting for them to call me back. We are going to discuss what their laws and regulations are as far as setbacks and zoning. I would like to know from my fellow BP'rs their insight on this project. Has anyone done this before? I am looking to Air BnB the unit. For the unit itself with will be something along the lines of:
Sleeps 4, one queen bed and another sofa bed, small kitchen and bathroom.
My backyard is pretty big, I want to divide the yard in half and build the unit on one side where it already has its own entrance to the side of the home. As far as my current tenants are concerned. I am yet to speak with them about it- any advice on this also would be great! I won't raise their rent and have not raised their rent in the 2 years they have been there.
And I plan on marketing the unit for $99 a night, the home is close to theme parks, malls, gyms, shopping and restaurants.
I look forward to the replies on here, thanks! in advance.
Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes
8y
It's funny that someone said "no one is doing this" because everyone is already doing this in Portland. So much so that hosts are dropping their rates in line with LTR rents just to attract business. At that rate, it makes more sense to do LTR.
Which brings me to the kitchen. I'm an architectural designer/landlord. I highly suggest designing/building this unit in the most flexible way possible. So even if you anticipate just needing a hot plate, leave a dedicated 24" cabinet and counter space with more counter space on each side so you can slide in a 24" range later. Even better would be to get the 240V wiring all set up and tucked away in a junction box.
When your market gets saturated with STRs, you'll still be able to rent your place as a LTR with minimal hassle and expense.
FWIW, I'm using an induction hot plate right now as my cooktop until my cooktop is installed. It's super inconvenient to only be able to cook with one pan at a time.
Lastly, unless the yard is specifically excluded from your current tenant's lease, doing a year long construction project and then losing half their yard will, at best, annoy your tenants. At worst, you could be breaking the agreement/landlord-tenant law. I HIGHLY encourage you to talk about your idea with your tenants and (if you want them to stay) let them at least feel like they have some input. You don't want your LTR tenants to resent your STR tenants, or to sabotage your business because they feel you treated them unfairly.
Southaven, MS · Member since 2017 · 19 posts · 8 votes
8y
I'm looking forward to someone's response on this because I have been thinking strongly about this strategy and there is very little info that I can find on it. It seems there is little response to the topic because nobody is doing it. I know there are some zoning to contend with but where possible I think this could be a goldmine. I'm actually looking for properties that is on land or a large yard for this very reason. I have had ADU terms as a keyword and this is the first hit I've had for it. I almost bought a house on 6 acres with a shop that was finished out as a second home but didn't know at the time if I could have two separate tenants living on one property. Have you done the numbers on the cost to build the unit?
Real Estate Agent · Camarillo, CA · Member since 2017 · 26 posts · 16 votes
8y
Bad news for Buena Park on this (which is common for probably a majority of cities). I took a look through the zoning code and owner occupancy is required in at least one of the units...
Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
8y
Joseph Pond yes this has been my plan since I purchased the property. I have done the numbers I’m looking anywhere between 40-65K. Honestly I can probably get it done for $40K, not including furnishings. So the plan is to do a HELOC with a expected ROI in 3-4 years. In the mean time my cash flow will pay for the increase in my mortgage due to the HELOC. If I can occupy 20 days out of the month that’s 2k not excluding cap ex. Besides $99 a night is a start and I might up it to $150 as some time goes on. Thanks to the location I should not have any problem occupying the place.
So on the conservative side of things if it goes 10 days out of the month that’s $12k a year, $36k in 3 years- so 3-4 year ROI conservatively and even quicker ROI with a 20 day occupancy. Hope this sheds some light. Feel free to ask away with anything else.
Real Estate Broker · Orange, CA · Member since 2015 · 79 posts · 86 votes
8y
Why do a short term rental? You are projecting $1000 per month if you get 10 days a month. You should have no problem renting the unit to a long term renter at $1000 per month. I know the 10 days target is conservative. But still. Short term rentals also come with a much larger headache for you, as you have to be hands on. Plus the additional expenses of furnishing a home and excess wear and tear. That’s a lot of extra hassle for little reward. And don’t forget how that constant turnover may piss off your front unit tenants.
Put a long term tenant in. Set it and forget it.
Just as a FYI, I have 3 AirBnB rentals that we have built ourselves that are 400sq/ft +/-. We own our own building company and have still yet to come in a whole lot under $200/sq/ft on the build and furnishing. Picture attached is of 414 sq/ft unit. All in down to the silverware was 85k, Bedroom with King Bed, full bath, sofa bed and full kitchen. Built ourselves with no GC fee included.
Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
8y
Kyle H.
That looks great! I would love to see interior pictures to get an idea of the layout. From what I have came across they got for anywhere between 70-110sqft. I guess I will just have to have people come out and give me quotes based on blue prints. Of course what they quote and what I actually spend are two different things, usually ends up being more. Never the less it’s still more profitable than buying another SFR. How is the cap ex for you on your units? A lot of upkeep and management?? Are the profits worth the short term rental vs long term tenant? Thanks!
Yes I have thought about both options. I will take the chance and test out AirBNB first to see how it works out for me, you miss 100% of shots you do not take right? but if AirBNB does not work out for me then sure I can use it as a long term rental. I will keep you posted on how things go. Thanks for the input!
Southaven, MS · Member since 2017 · 19 posts · 8 votes
8y
@Kyle H. awesome little unit there. Where did you build these 3 rentals do you buy a piece of property specifically for the build or on the same property as an existing rental?
@Varinder Kumar did you check your county to see if you have to have an owner occupant in one of the two properties? I really like this.
The smaller the square footage the higher the per foot cost. You still need all the stuff you would for a larger house, there is a common misconception that this size house will be cheap to build. Granted we used mid grade finishes and we could reduce the price but for a short term rental you want to keep things looking good. Our first one cost 90k and was 25k over what I thought we would be at when we started. After the 3rd I have it pretty dialed in now. I account for 200/ft furnished and hope to come in under.
In regards to a new build we have very little repair, I have a person who helps me co host and is point of contact for guests and we handle any maintanence requests. We have had only one damage request to Airbnb in 2 plus years with 5 properties.
There are obviously a lot more costs associated with STR's, but our 3 tiny houses all do between 25-32k gross/yr, so I would say for me personally they are worth the STR tenant.
Units are in Bryson City, NC. This unit and its fraternal twin are on a parcel overlooking the river close to our town, the property was purchased specifically for its STR value. We removed an existing mobile home and built the two homes and also have a Airstream rental with another partner on the site as well. Our other tiny home is on a property in the downtown area with some of our long term rentals.
Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
8y
@Kyle H. I'm finishing up a carriage house that cannot have a 'kitchen'. City defines a kitchen is a room with a stove. Easy enough, right?
My experience with my other couple Airbnbs is that kitchen is rarely or minimally used. I'm putting a bar sink, dorm sized fridge, hot plate, and microwave. There will only be 2 base cabinets. That's significantly less on appliances, cabinets and more room.
Do you feel you need the full featured kitchen where you are?
Investor · Bryson City, NC · Member since 2013 · 162 posts · 122 votes
8y
@Rick Baggenstoss That is a tough question, for these properties I would say we need a full kitchen, however in a more limited set up like you are describing I think you would be fine. Most of our guests eat out a few meals due to how close we are to town, but a fairly large number prepare one meal at the house. I think as long as you are up front with your listing and people know ahead of time what to expect that it shouldn't be a deterent at all for your property. For me personally as long as you had the items mentioned and I knew ahead that was what I had to work with it would be great.
Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
8y
UPDATE:
I am still in the process of proposing to the city what I want to build, which is a 300-350sqft studio with sleeping room, kitchen and bathroom. So far from what the planning division has told me the home itself is situated good. The unit can not be more than 30% of the primary home. And the unit plus the garage size and home size can not exceed more than 40% of the lot size, which in my case I’m good in that area also.
The other factors they are gong to check are infrastructure, is it near shopping, food, etc. which I am also near. And there needs to be a dedicated spot for parking which I have also. As far as setbacks are concerned they are still checking but their assuming the usual 5ft from the side neighbors and rear setbacks their checking on.
The city has not yet drafted out their own laws and regulations as the state will issue the law next month officially so based on what they’re put out the city will go accordingly to that. So a lot of gray area for now, maybe it can work to my advantage.
Also here is a link to ADU discussion a while back. Calif’s new granny unit law & ADU flips: is CA the next Portland? on the BiggerPockets forums.
Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes
8y
It's funny that someone said "no one is doing this" because everyone is already doing this in Portland. So much so that hosts are dropping their rates in line with LTR rents just to attract business. At that rate, it makes more sense to do LTR.
Which brings me to the kitchen. I'm an architectural designer/landlord. I highly suggest designing/building this unit in the most flexible way possible. So even if you anticipate just needing a hot plate, leave a dedicated 24" cabinet and counter space with more counter space on each side so you can slide in a 24" range later. Even better would be to get the 240V wiring all set up and tucked away in a junction box.
When your market gets saturated with STRs, you'll still be able to rent your place as a LTR with minimal hassle and expense.
FWIW, I'm using an induction hot plate right now as my cooktop until my cooktop is installed. It's super inconvenient to only be able to cook with one pan at a time.
Lastly, unless the yard is specifically excluded from your current tenant's lease, doing a year long construction project and then losing half their yard will, at best, annoy your tenants. At worst, you could be breaking the agreement/landlord-tenant law. I HIGHLY encourage you to talk about your idea with your tenants and (if you want them to stay) let them at least feel like they have some input. You don't want your LTR tenants to resent your STR tenants, or to sabotage your business because they feel you treated them unfairly.
Real Estate Agent · Portland, OR · Member since 2013 · 412 posts · 219 votes
8y
I love what @Account Closed said about planning for a future where STRs can easily be converted to LTR. You don’t need to look too far into the future or dig too hard to imagine legislation severely impacting these units.
Even more important, to me, is her points about not upsetting the existing tenants/violating leases. Their income is obviously more consistent and predictable and I wouldn't want to jeopardize those funds. I look at it like the ADU is gravy to their meatloaf. Don't drink the gravy if you don't have the meatloaf, you know?
Search Portland Air BnB and you’ll find plenty of examples of what to do, how to market, and what dangers to avoid when over-building/rehabbing.
Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
8y
@Account Closed
Thanks for the input. I am trying to find the most efficient way the space to be used. Of course i would like for it to look bigger than it is so i am considering a lot of natural light. I am going to go with a kitchen setup with a stove, so a gas line will be needed.
And i couldnt agree with you more in regards to the STR vs market saturation, thats another factor that is attracting about this concept is that i can use it as a LTR as well. Hopefully the higher profits from using this as STR will outweigh the maintenance costs etc.
Do you have any designs of sources for find designs and layouts from a birds eye perspective?? Id like to see different ways the space can configured.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
8y
Randy Chapman One unit must be owner occupied for an ADU addition? You kidding? Where’d you get that wrong info from?
Varinder Kumar You could save time and effort there’s a guide from LADBS or similar site that outlines ADU regulations, each city will be different but they can be 80% the same which will get you close or most answers that you want to ask the city. They would like to simply copy laws and adopt than re-invent the wheel.
My "wrong info" comes from the City of Buena Park Municipal Code. Chapter 19.348.010 Section B.13 which states:
"13. Ownership and Occupancy—Owner Occupancy Required. The primary residential dwelling shall be occupied as the primary residence of the owner of the lot and shall not be rented or leased as long as the second unit exists. If, thereafter, the owner occupies neither unit, the second unit shall automatically become a non-habitable space, shall not be used as a dwelling unit, and shall not be rented."
My "wrong info" comes from the City of Buena Park Municipal Code. Chapter 19.348.010 Section B.13 which states:
"13. Ownership and Occupancy—Owner Occupancy Required. The primary residential dwelling shall be occupied as the primary residence of the owner of the lot and shall not be rented or leased as long as the second unit exists. If, thereafter, the owner occupies neither unit, the second unit shall automatically become a non-habitable space, shall not be used as a dwelling unit, and shall not be rented."
Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
8y
Update:
I have submitted a rough idea to the city as to what i want to build. By glance they are saying it should NOT be a problem. How ever the city is yet to draft out their own regulations in accordance with the law since it is something that just past the beginning of this year. From what i remember they said the ADU cannot be more than 30% of the total lot size and more than 20% of the existing- dont quote me because i did not write it down when i was talking to them but i believe it was something along those lines.
So in a couple of months they should have their laws and regulations drafted out and i should be on my way. In the mean time i am doing my researching as to how to go about the best way of utilizing financing for this. I am considering a HELOC. Any other financial techniques or advise and input on this would be great. Thanks!
New to Real Estate · Lafayette, CO · Member since 2020 · 3 posts · 0 votes
5y
Hey Varinder, do you have an update for us?
I'm in the process of buying a property now that is in rough shape but has a massive backyard that supports an ADU. I was going to also take out a HELOC and build 680sqft 1bedroom with full kitchen/bath. My cost is looking at 160k from ground up.
I figure if I can rent it at 1% or more of the mortgage, I'm safe.