Turn my primary into an DADU STR or Downpayment on a new property

[Nick Littleton]

Hey all,

Looking for general advice. My wife and I are currently living in our primary house, and we have been trying to think of creative ways on how to house hack our primary to lower our DTI and scale faster. We probably would have house hacked before buying a primary residence, but that was before we started educating ourselves with real estate investing. Short Term Rentals are allowed where I live, as well as DADUs. My thought process is to cut out a piece of our property (we have 10 acres) that is surrounded by trees but close enough to the house to run power/plumbing and build a DADU/tiny home with 2 bedrooms to rent out on AirBnb/VRBO.

However, this would cut deeply into our reserves and our "investing" savings that we have created, and would take some time to gain that back. The whole idea would be to use our cash to build it (ideally little to 0 leveraging), and turn our primary into a cash flowing house hack/STR.

I love this train of thought, not the lack of money, but the idea of lowering our DTI to be able to qualify for more/larger loans and scale faster. However - I also think I could achieve this by just utilizing the same amount of money as a down payment, ideally shooting for 4-5 bedroom house (more beds more heads), buying another property that I could run as a STR, and now we have an additional appreciating asset. I am torn - and I don't know what direction to go. Looking for advice from people out there who are more experienced that I am. Thank you all in advance.

Nick

[Michael Haas]

@Nick Littleton my wife @Jess Haas & I lived in a Tiny House for years, and now rent Tiny Homes on wheels, Yurts, and other unique accommodations on Airbnb. HouseHacking and Glamping / Landhacking are two of the most profitable and low cash investment beginner strategies in WA, so I like where your head is at!

A few years ago I would have said to buy a second property - with interest rates around 3-4% and appreciation roaring above 10% yearly buying more real estate almost always we more profitable than optimizing the real estate you already owned. That has changed though - we're not expecting as significant appreciation for the next few years, and interest rates are above 6%, so I don't think you lose as much by waiting to buy property #2 now. Yurts and A-Frames are some of the most cost effective structures to put up, and around here it is pretty common to skirt around the permitting issue by building them under 198 square feet (no permit required for outbuildings). The septic, water, and power hookups would still require permits, but depending on your risk tolerance and the size/privacy/location of your lot this is something that is often skipped as well. Without permits a Yurt can be built and outfitted for $40,000 (or less if you do the work yourself!) and can rent for $3,000 a month on Airbnb to break-even in a year or two. Those are good numbers, and with a 10 acre lot like yours you could repeat that process with multiple Yurts or other Alternate dwellings.

Tiny Houses are more expensive - when we had our first one designed and built in 2013 it was just $39,000, but that was before they became popular and everything became expensive. The same builder is now charging about $105,000. The break even point is a little longer for $105,000, but still a good investment option if you have the capital and don't want to put in any sweat equity - the best part of tiny houses is they can be built off-site and rolled right onto your lot, which is great in rural areas where finding contractors is difficult.

DM me if you'd like to talk more about the weird and wonky (but highly profitable) side of real estate investing :). Cheers & best of luck!