I don't like the idea of taking a free and simple house, which you can sell, and myring it in a contract with another company (no less a startup!) so that when I want to sell, I need to explain the agreement I have with this other party to annex the land. I reckon it would devalue the house.
I think people would be better off borrowing the money and building their own. Where I live (not in US) you might spend say $100k or more building one of these, but without necessarily adding capital value to your house, so you'd break even on your first $100k of rent, after tax. So even building your own may not make sense. The many reason for building on is as a 'granny annex' or a place for your parents to live so you can help them out. Or a place for your kids to live when they move out.
Worse than that, the article states that you have to buy them out as part of a sale.
My house has an ADU and came with paying tenants. Zillow thinks my place is worth about $30K more than the average on my street... but I also have a pool (couple others do) and am the only one with a legit 5th bedroom, so I'm thinking the market value of that ADU is roughly nothing.
As another piece of anecdata, my previous home had a spacious and nicely finished detached garage in addition to a single-car attached. It values the same as other similarly sized homes in the subdivision without a detached garage. It definitely had value to me as a workshop/office/man-cave, but not-so-much the market at large.
Interesting. I sort of struggle to imagine anyone who wouldn't value an extra garage at anything - even if your need for it is just hypothetical or aspirational - or even just as cold storage space, which has not insignificant rental cost should you need it.
Well, I'm no expert, but for the vast majority of people a detached storage space probably isn't even on their shopping list. And for most who put some priority on storage space it will be fungible with an attached garage or full / partial basement, which are much more common. And it never comes down to these two homes are exactly equal but for the ADU.
Logically, an ADU absolutely should be worth something but I don't see it reflected in my limited experience buying two properties with ADUs, one of them income-producing. Might be different for a rental ADU somewhere highly constrained on housing, but my rent-to-home-value ratio is comparable to what's being discussed here, too.
Zillow estimates are not to be taken seriously in circumstances like that. The point would only be valid if the valuation came from a professional appraiser.
My house gained $100k after I bought the house and Zillow realized it was renovated. A few other house have sold (including Zillow buying one) in my neighborhood and my house is on the high side of the average price.
It makes me wonder why the estimate gained $100k in 60 days. Once Zillow bought a house of course everything went up.
A single Zillow estimate is not worth much, but for making a relative comparison of 18 neighboring homes on the same street it's not unreasonable.
Clicking around the ones that have changed hands recently enough for Zillow to have the full MLS data and photos, it's pretty clear that the transactional price differences come from the typical areas (# bedrooms, square footage, updates).
Although I appreciate some of the argumentative counterpoints, most of the time it's from people who underestimate how lazy human beings are, and that people are willing to pay for simple services
Exactly. The biggest mistake people can make is to assume that just because you would do it a different way....that automatically means everyone else would do the same. Not the case.
Obvious example is pretty much everything on amazon is marked up 25% compared to the next biggest competitor (gotta love the "free" prime shipping, right?) but people pay up because amazon will get you your stuff in 1-2 days while Ebay will take 5 days or longer. People will pay for convenience and they will pay a lot for it as well.
Not only convenience but also an amount of trust - IIRC Amazon isn't difficult at all wrt returns, whereas with ebay - as far as I remember it - it's all up to the buyer / seller to handle it.
Definitely appreciate that many will benefit from farming it out, so I think this company substantially expands the addressable market, but in support of DIY (as someone who was raised in the house my father built), building your own such modest project is very achievable, particularly if you farm out electrical and plumbing concerns. With respect to managing contractors, my understanding is that roughly daily supervision will do, which can be manageable even with full-time employment. You may have better ways of spending your time, but let's not use that as a basis for overly-narrowing our own concerns and capabilities.
Why do you have to supervise the work of the trades but not this startup? Why are they more trustworthy? If they are ... then you can probably get someone else who is trustworthy to do the job for straight money rather than owning part of your house.
If this startup did what they did but just arranged finance as a broker and acted as a letting agent I think it’d be a better deal. The issue I have is the splitting ownership and income. I don’t think that’s in anyone’s interest.
In one case you’re hiring the work yourself, in the other case you’re bringing on a partner who is sharing in the rewards. In the latter case the incentives are better aligned.
“Not to oversee workmen is to leave them your purse open.”
— Poor Richard’s Almanac
I've personally built a few of these granny units in the East Bay over a few summers. It is very DIY-able, but it is faaaaar from simple to do yourself. If you go the contrator route, you had better know the crew personally as supervision is not turn-key.
One example: The concrete pad.
You must know the size of the pad. Then, you have to take soil mesurements for moisture and compaction. If you do not do this, your pad WILL crack as the center's moisture and it's volume changes relative to the soil outside the garder. This is especially a concern in South Bay clay and loam soils. There are many many Levitt-town style houses that are experiencing pad issues. These issues cause the building to shift. Doors will not close, gaps appear in walls, etc. This can happen within 5 years of the pour. Rebar must be tied off at each interesction, otherwise the pad will shift even more so. The garder on the pad must be 24 inches deep. Depending on the size of the building and the load on the pad (which is estimated beforehand) you have to tie the building into the garder with steel hooks (min 0.5' diameter, at least 12' into the pad) due to earthquakes. Concrete's drying period is dependant on a lot of factors, but weather is a big one. Before further construction occurs, the drying must be completed correctly. Actually getting the equipment, tools, and personel to the site is another headache too.
Ok, got that very slimmed down list off the top of my head? Those are just some of the issues with the pad. Multiply that throughout the entire build and there are a lot of little problems to solve and they have very big effects in 5 years time.
So, if you decide to trust your contractor, you had better really trust your contractor. These issues are not simple and there are a LOT of corners that can be skimped on without you knowing.
There are existing companies that will manage a construction project.
Plus if you are doing this for the money you might want to shop around for a few quotes.
Send me the cheque’s is fine and I understand (I’ve used Adsense before!) but this affects the house you live in and for most people their biggest asset. so a bit of forward thinking is wise here.
Seattle has an innovative project called the Block project which puts a tiny home into a volunteer's back yard.
Candidates are homeless individuals who have been working with social workers for at least 6 months and are a good fit with the "landlord" which is the homeowner of the hosting site.
The Individual pays minimal rent to cover utilities (hopefully subsidized via the government and facilitated by social workers). The lease is for 5 years with the goal of helping the individual get back on their feet to a traditional housing situation. The project is from the Facing Homelessness organization. They have placed 4 or 5 individuals at this point.
Hi everyone, my name is Spencer and I’m one of the co-founders of Rent the Backyard.
Rent the Backyard was founded to help homeowners who want to earn extra income from their underused backyards but don’t want to spend a ton of time or money to make it happen. Rent the Backyard provides a turnkey solution — we handle all the logistics of putting a studio apartment in your backyard — helping you earn $10-$20k per year in rental income with as little loss of privacy for you as possible.
We’re focused on the Bay Area (particularly San Jose) to start. California has passed a lot of laws in recent years that make these “accessory dwelling units” or ADU easier to build because they believe these units can help play a role in solving the affordable housing crisis. 4,300 ADU were built last year in California and we’re hoping to help more homeowners access this new type of housing without needing to borrow money and become a part-time construction manager.
We’re building this business not only to help homeowners make more money from their underutilized space but also to help communities increase their supply of housing. We want to be sensitive to the communities we serve and as we build, we’re committed to listening to stakeholders and exceeding California’s requirements when it’s the right thing to do.
Excited to answer your questions here and by email: hi@rentthebackyard.com !
I'm from the UK so probably have limited understanding of the US housing regulations. But after reading your FAQ, I was left with the following questions. While I don't need to know the answers, they give an insight in to what went through my mind.
1. What happens if there are no tenants?
2. What laws/insurance/responsibility is now applicable as being the landlord?
3. How do you calculate the price of the house in a sale?
4. What happens if I go bankrupt?
5. What if I have a mortgage on my current property?
6. Who is technically the landlord, me or Rent the Backyard?
7. What about electricity, plumbing and sewage?
8. What about breakages to the property and general maintenance and upkeep?
9. Are they furnished or not, and if so, who furnishes it?
10. What are your fees to pay for the service and bills to make the difference between earnings and cost to the tennant?
I'm a bit concerned that we're still gonna build the same houses with no correct thermal isolation but big AC units, no electricity generation, no sonic isolation... and continue to house the poorest people in those houses which are also the most expensive to live in !
But maybe this is adressed in the week and half of construction, which would be a great feat !
I live in west sj with a lot that qualifies for backyard unit. This sounds like a good idea but it glances over too many details. What say does the home owner in the tenant screening process. What happens if I'm not happy with any of the tenants and the unit sits empty. What's going to happen if I decide to pull out of the contract...
Hey, great idea guys! I've spent a few summers in the East Bay building these units for folks and know a fair bit about the process.
A few questions:
Are you pouring pads?
How are you tying into the sewer and electrical lines?
Parking issues?
Especailly with South Bay soil/clay, how are you addressing lift and shrink?
There has been a fair few house fires in SF proper in the last few years, many are related to rentals that are over capacity. I've actually lost friends due to these issues. Not fun. Obvi, I really like your idea as it'll help with over crowding. But there is the HUGE issue of fire safety. How are you addressing that?
>without needing to borrow money and become a part-time construction manager.
I doubt this makes it worth it for most Bay Area homeowners. They could take out a loan, build an ADU, and keep 100% of the rental income, paying off the loan completely in a shorter timeframe. They can hire property managers as-needed.
What's your approach to the loss of urban wildlife habitat (let's face it, bees) and the reduction in carbon sequestration potential (let's face it, trees) through the conversion of backyards into property development?
I love anything that creates more housing in the bay, but these are 30-year contracts! I can't even imagine getting into a 30 year contract with a company that might not exist in 30 months. What happens when the start-up goes under, or gets acquired, etc? Is the loan made directly to a third party bank?
Hi there! You can always choose to buy us out of the contract whenever you want -- we just ask for people to pay for the equity they have yet to earn in the unit. We will need to eventually give custodial ownership to a larger entity (think big bank) in the medium term to mitigate the risk of our company going under for the homeowner, such that, if the worst-case scenario happened to our company, the homeowner continues to make rental income as usual.
100% agree. I was looking at buying a new home out here in Southern California. The new trend is "solar" on the homes....but the problem is that you don't own the solar when you buy the home. Instead you sign a contract with the solar panel owner and either buy the electricity from them or buy the panels outright....for an additional lump sum of 20k+. When you go to sell the home....you have to get the solar company involved and a bunch of other hassles. It is a bad idea to set it up like this.
anything that restricts or impedes what you can do with a home is a liability, not an asset. Up in SF, even partially tenant-occupied homes typically sell for a sizable discount.
(also doubt that ~10k/year is going to make waves in the target market -- Bay Area homeowners with a back yard big enough to make this viable.)
It could be very meaningful to older retired or semi-retired folks who have fully paid for their home and are looking for additional income but don't want to sell their house and leave their neighborhood. AirBnB used folks in that situation here in Vancouver to great effect when pushing for support for short term rentals in the local market.
A lot of people we've talked to have been in this exact situation. Older folks who have lived in their home for a long time and watched the cost of living rise while remaining on a fixed income from something like Social Security. Our hope with Rent the Backyard is to help people like this remain in their homes and have a higher quality of life.
Hi there - my name is Spencer and I'm one of the co-founders of Rent the Backyard.
It's worth noting that this is actually something the article wasn't great on. If your buyer is excited about continuing this agreement, we're happy to sign the unit over and even take a second position to a new mortgage so you don't ever need to pay anything.
The great thing about a backyard apartment is that it is a permanent improvement to your property and increases the value of the home but you have a great point. We aren't the best short term partner. If you don't plan on staying in your home for a long time, making substantial improvements to your property doesn't make sense. We're focused on helping homeowners be able to stay in their home as the cost of living rises. We're committed to doing the right thing and turning away prospective customers who don't fit this profile.
This sounds pretty cool - and would help a lot with buying a place (using the rented backyard ADU to offset the cost of the mortgage). I suspect the bank wouldn't care about this for mortgage qualifications, but it would be nice if they did.
Definitely a good use case! We make the borrower a bit more stable and creditworthy with a unit like this so that might be something for us to dig into in the long run
The part where you gain equity in the unit is a bit like a mortgage in that respect. This mortgage pays you though :) Also worth noting that you'll gain equity in the unit even if Rent the Backyard fails to find a tenant so you don't need to worry about the goalposts shifting.
People who can afford their home will not like watching their property values and quality of life decline because a neighbor “rented” its back yard.
Taking the Uber approach - ignoring laws - won’t work here, so this business is entirely at the mercy of permit laws. I find it astounding that some ideas get prominent backing.
Furthermore, home owners will discover that having people travel alongside their homes to reach the rented studios will be unpleasant and unsafe.
Will the tenant be allowed to come and go at any hour? Will the home owner know that the person creeping alongside their bedroom window at night is the tenant rather than a burglar?
Will the tenant be allowed to park in the homeowner’s driveway, or will they line the front curbs of the house with their car and any visitors’ cars?
Hi there - my name is Spencer and I'm one of the co-founders of Rent the Backyard.
We're very much focused not taking the Uber approach. We're working within the context of a set of laws California has passed over the last several years that establish and regulate what the state calls "accessory dwelling units" aka ADU. We're initially focused on building in cities like San Jose that have factored the sustainable and conscious development of ADU into their thoughts on how to combat the housing crisis they face.
We're really conscious of the impact we'll have on the neighborhoods we operate in and are committed to working with everyone involved to make the process of installation and ongoing housing have a minimal impact. Our studio apartments are almost completely built when they arrive in your backyard and require very minimal (a few weeks if not days) to bolt together and be ready to go. We're excited to see California have strong laws to protect neighbor's privacy and rights as well and will go beyond what is required by those laws when it's the right thing to do.
Hi Spencer. I applaud you for trying to formalize and refine that ADU process (for the goal of helping people find affordable housing).
The California market might be suitable for this, but that market is unique in many ways. I wonder how this can scale beyond CA (perhaps that market is big enough...).
Given the alternatives to unaffordable housing, I see the appeal. But as other commenters have noted, this need exists because of a very warped localized economic situation. The real problem may not be solved, but eventually there will be some shake out (such as vast numbers of people deciding it's not worth living there) that will help to normalize things. When that day comes, your business model will be less relevant.
Everyone is entitled to their opinion, but I must say it's very peculiar to me reading the reactions like this one.
> People who can afford their home will not like watching their property values and quality of life decline because a neighbor “rented” its back yard.
Why should neighbors get a say in your legal activities?
>Furthermore, home owners will discover that having people travel alongside their homes to reach the rented studios will be unpleasant and unsafe.
Unpleasant already seems like a stretch, depends on the tenant I suppose, but unsafe is really pushing it. Have you ever lived in an apartment or a multifamily home? It's really not that astounding that you could live in close proximity to another human without it impeding on your quality of life. You don't even share walls in the case of an ADU.
>Will the tenant be allowed to come and go at any hour?
I would certainly hope so, these are human beings not indentured servants
>Will the home owner know that the person creeping alongside their bedroom window at night is the tenant rather than a burglar?
I don't even know what to say. Isn't this the case for any existing neighbor?
>Will the tenant be allowed to park in the homeowner’s driveway, or will they line the front curbs of the house with their car and any visitors’ cars?
This is a fair concern. I imagine you would want this cleared up before signing to continue, probably depends on a case by case basis.
> Why should neighbors get a say in your legal activities?
This is one reason why there are different layers of rules on what a property owner can do - zoning laws, building codes, ordinances, community rules. Neighbors get a say because what you do on/with your property can significantly affect your neighbors. When one property owner does something that adversely affects a neighbor, that sometimes leads to conflicts which play out in courts or councils.
If you want examples of how neighbor disputes result in new rules, just do some searching for "neighbor dispute". You'll find some amusing, scary, and even baffling cases.
And with regards to living in close proximity to others, that is something that you know before you choose to live somewhere. It's not usually something that suddenly changes. You may have a quiet neighborhood with relative privacy. When your neighbor uses their back yard, it's perfectly reasonable. You know or quickly learn how many people live on each side of you, and you acclimate to the level of traffic/activity around you. And judging by your research and what you experienced during early viewings of the property, you decided whether you were comfortable with that level of activity. But now your neighbor(s) are adding ADUs, potentially doubling the number of people living around you (and correspondingly doubling the activity and traffic).
> I would certainly hope so, these are human beings not indentured servants
Do your neighbors normally walk between the houses to enter their own house via the back door? Probably not. Will the ADU renters be walking through their landlord's house to reach their ADU in the back? Probably not. And chances are, your house is fairly close to your neighbor's house.
Prior to the ADU situation, you probably didn't have much foot traffic, particularly late at night, alongside your house (between yours and your neighbor's houses. But now you have one or more people walking between the houses, by your bedroom window, as often and at whatever time as they want. You might have made a difference decision regarding buying your house if you had known this would be the case.
This is a bit similar to the hoopla when Waze first became popular. Occasionally a quiet neighborhood with small, low traffic roads would become a major thoroughfare because Waze routed people around large road traffic and through your neighborhood. Residents were quite disturbed.
Now think about property crime. It's very easy to steal or vandalize property, but it isn't a problem in many areas because the people living in those areas become familiar with their neighbors and people's patterns of behavior. And when someone notices something peculiar, they may contact a neighbor (or the police) to ensure that everything is ok.
Increase the population in the neighborhood (and especially add new traffic paths which specifically involve entering people's back yards), and you have greatly increased the difficulty of residents having a sense of what activity is normal and what is potentially criminal.
Yes you can return to the apartment or high occupancy argument, but areas of high occupancy have already adapted or built in behaviors to help prevent crime. Usually it involves more walls, less windows, more locks, more isolation. These aren't reasons why people typically buy a home with a yard.
I frankly don't care if people do this ADU thing or not. I'm just pointing out that it will be a change with significant impact that many people will not expect. This will change the character of neighborhoods from places where people settle and live to places landlords buy because of the rental opportunities. You'll have higher turnover of people in the neighborhood. It will essentially turn a traditional neighborhood into an apartment block with extra lawns. I promise you'll see groups with good financing buying up these homes to rent (and to rent the ADUs in the back) more than you'll see regular (non-landlord) people coming to enjoy the kind of life that apartments don't provide.
Maybe it's because I live on a street that literally has a row of single family homes on one end, and several large apartment buildings on the other, but I don't really see the arguments. You seem to have a lot of internalized assumptions about concepts like traditional neighborhoods vs apartment blocks and how that relates to quality of life. I doubt anything I could say will convince you otherwise, so I'll just say that I personally live in a place where apartments and single family homes are in close proximity, and it is still a quiet residential block, and immensely desirable too.
Accessory dwelling units are the thing that most municipalities are into now in order to meet affordable housing mandates. I guess this is a way to finance the construction and try to be the next airBnB. I wonder how it will work legally? I get the financing angle... but you’d have to attach to the primary mortgage (or a second one) I assume. Once the unit is built what’s to prevent the homeowner from reneging on the deal? How would it work if the homeowner wants to sell? Is the deal similar to how a solar lease works? An ADU will cost $150k basically and financing it shouldn’t be difficult but I can see the appeal for and end to end. I assume the homeowner is effectively on the hook for the financing and some minimum 50% term reduces the capital cost.
This is in line with the idea of Missing Middle housing. We used to have more rooms for rent, SROs, small houses etc. Then we largely zoned and regulated them out of existence. The ones we still have are often very old and grandfathered in.
We desperately need to solve the housing supply problem. Government not only can't solve it, it really shouldn't try. It should be looking to deregulate some and get out of the way.
I've studied this problem space for a lot of years. Government interference is part of the problem.
I don't want a nanny state that tries to provide for all your needs. I would like to see single payer healthcare, but for the housing sector, I would like to see government work on being less controlling and less interfering and let the private sector have maneuvering room to handle this.
I wish this company all the best and much success.
The price (50% plus an ownership stake in a structure on my property) seems absolutely insane. Does the ownership stake mean that I can't stop leasing the studio if I want to?
I think most people who really want to do this will work with a local contractor instead.
You can stop leasing whenever you want to, buy the company that spent a five digit sum of money on that thing in your backyard will want to get then money back first, which is unsurprising.
That doesn't surprise me, but the way a bank would do it is this: 1) loan you the capital to build the structure, 2) create a payment schedule, 3) try to collect on that payment if you miss it.
You could then declare bankruptcy if necessary, which means you'd keep the structure and have some sort of way out from under the debt.
If Rent the Backyard has an ownership stake in the structure, it sounds like they could continue leasing the unit even after you declared bankruptcy.
People definitely use traditional home equity loans to build ADUs but this can be quite risky. There are more full-stack providers (like one of our building partners https://node.eco/ who's headquartered in Washington State) which make the process a bit less nerve-wracking, but it's still a lot of time, effort, and risk.
I don't have a backyard, and nobody I know in my area that also makes six figures+ a year has one, either. This trend has been documented [0]. Granted, my cohort is all earlier in our careers. But with years of saving, much of it prioritized in 401k's, IRAs, and HSAs, I don't have enough left for a down payment on a single family residence.
Same here, and if I were able to afford a downpayment I would live in daily fear of an earthquake because I wouldn't be able to afford Earthquake insurance, and if I did I wouldn't have the 20% deductible in the bank. I'm convinced that most non-wealthy bay area homeowners are essentially betting their financial future on there being no earthquakes here until the house is greater than 50% paid off. Tenuous is a fitting word I think.
I think you're substantially correct that most people don't recognize the risk, but you've actually got the situation backwards:
The last thing you want to do in CA is own your house or have a mostly paid-off mortgage.
Earthquake insurance is crazy for all the reasons you mention (and more), but at the end of the day your non-recourse mortgage is your insurance: if your property is destroyed you can simply walk away.
Edit: I guess I should clarify that walking away from hundreds of thousands of dollars of "home equity" should hurt almost anyone. My point is simply that this protection is built into your mortgage, and is available on dramatically better terms than actual earthquake insurance, which in CA would likely be unable to pay out in the event of "the big one" anyway.
California building codes have been pretty strong for many years. Only older residences are likely to suffer catastrophic structural damage when "The Big One" hits.
Earthquake insurance is a terrible deal. Instead of paying insurance premiums, put the money toward earthquake safety retrofitting and saving an emergency fund. There will probably also be some state and federal disaster zone financial assistance.
When the upper incomes begin to see affordability issues, you have an unhealthy market. I like life with minimal use of a car. Urban areas areas are far friendlier to a car-free lifestyle. Also, homes in the surrounding suburbs aren't that much cheaper to meaningfully change the numbers. Another 5 years of savings should do it. So, 10 years to come up with just a 20% down payment. I'd rather not compromise my future by foregoing retirement contributions.
Yes and you can take a loan out of your 401k for a down payment. If the appreciation works in your favor, refinance and pay yourself back in a few years.
Absolutely nothing. There are two things that we provide that going directly to a builder can't get you:
1) No upfront costs. We pay for the entire unit without asking our homeowners to put any money down.
2) Turnkey solution. We do all of the building and rental management for the homeowner, allowing them to sit back and see rental income coming in.
This can be a huge success in South Africa. Backrooms are very popular in big townships and provide residence to more than half of townships' population. The good thing is that the laws already allow such kind of dwellings and you won't have to deal with NIMBYs. Best of luck.
It seems like the biggest innovation here would be bringing down the price of building a standalone studio apartment. These units probably cost cost $120k+ to build/install?
It would be neat if there was a (high quality) $50k kit homeowners could buy and assemble themselves, almost like IKEA furniture.
It would be neat if there was a (high quality) $50k kit homeowners could buy and assemble themselves, almost like IKEA furniture.
There was a New England company that sold complete kits for small houses with pier and beam foundations, designed to be constructed by two fit adults, including the fasteners! I think they went out of business in the 2000's.
All the companies doing this seem to be small/unsuccessful/brand new. Maybe there's some fundamental problem with the business or maybe no one has nailed it yet?
I can't speak to other kits -- some of the shipping container ones actually seem like they might work for some people (https://simpleterra.com/) but we looked into working with Amazon kits and it's really tough. The two main issues are on-site work and bringing the kit up to a livable standard.
On-site work is expensive -- think $50-80k depending on the site to secure a building permit, level the ground, and pour a foundation. There are some new types of low impact foundations (closer to $15k + $20-30k for permits) we've seen and are exploring but I don't know we could do that with a kit.
The main issue is with turning the kit into something livable. Kits are usually difficult (and loud) to assemble, the wood needs to be finished so it doesn't rot, they usually aren't designed to accommodate plumbing, gas, and electrical lines, and unless you want to spend hundreds of hours of your own time to learn those skills, you'll need to manage and hire 5-10 professionals which quickly eliminates the initial cost savings.
Hard to sell and get a mortgage on a homeowner built house. It’s doable with licensed subcontractors in some places. It would take a lot of political lobbying to get something like that approved and standardized.
What if an Amazon company started putting together such kits? Perhaps there would be a way this could be done for small margins, sort of as a no-loss-leader to generate more Amazon customers?
These kit homes definitely exist -- the big problem is that the site work is often 50%+ of the actual costs of installing the unit. We definitely intend on bringing down site costs as we make our units lower impact on the property on which we build.
The fact that there are many players may indicate that none are good enough to be dominant. I added the "high quality" qualifier because I kind of assumed existing kits are not great, based on some previous searching.
The article mentions recent state laws that overrode city prohibitions on multiple units: SB 1069 (2016) required cities to approve ADUs in backyards of all single-family houses and inside houses, and AB 494/SB 229 (2017) reduced parking requirements to 1 parking spot per ADU and made them more financially feasible (by limiting utility fees and allowing ADU rental). These are a big deal, especially on suburban 5,000+ sq. ft. lots where there is enough space for egress and parking.
As for your dog, no homeowner is required to construct an ADU, so an owner who wants to keep a big yard is allowed to do so. Other homeowners can make a different decision depending on their situation.
Using the entire yard just as a place for your dog to shit is poor utilization of space. And this type of poor utilization is a big reason there is a housing problem.
The solution to the tenant not needing to dodge dog turds is for you to clean up after your -_&#ing dog.
Hi there - my name is Spencer and I'm one of the co-founders of Rent the Backyard.
You're totally right about possible zoning restrictions in most places. The climate in California has really changed in the last two years to allow what the state calls "accessory dwelling units" or ADU (https://www.sfchronicle.com/bayarea/article/Are-accessory-dw...). These laws cover everything from parking, to setbacks, to privacy requirements. We'll go beyond what is required by those laws when it's the right thing to do.
These new laws have led to an explosion of building. 4300 of these units were permitted in California last year with 187 in the City of San Jose -- our main focus to start.
We love dogs too but this is definitely an issue. Ultimately, this is a product you'll have to decide works or doesn't work for you :)
Well, I think that the issue will be whether the dog works for the tenant.
Hypothetical situation: I don't have a dog. I build one of these. A tenant signs a lease. Then I get a dog. But the tenant is terrified of dogs. But they've signed a lease, and (because nobody thought it would be an issue) there's nothing in the lease about whether the owner can have a dog. Now the tenant is really stuck - essentially they are at the owner's mercy.
I don't know if your standard agreement covers this situation, but if not, it's something to think about...
In my country (not US) it is by law allowed for either side of the lease to terminate it under extraordinary circumstances.
This situation would certainly fall under that. Obviously, if the other party objects to the termination, you'd need to get some sort of medical verification for your condition.
This is definitely something to think about as we get closer to renting these units. Our expectation is for tenant and homeowner to be fair and reasonable and we're developing a framework for what that looks like.
Can someone more familiar with the Bay Area housing issues and this company’s approach to increasing housing explain or analyze this for a non-Bay Area audience? I ask because this currently is Bay Area only.
In the US, there is the concept of Accessory Dwelling Unit - essentially, you can build a small shed in your backyard with a much simpler process, including the paperwork, permit, etc.
If you are a homeowner, you can do that yourself - it means taking care of the permits, finding a construction company, etc, and putting money down, probably in the ballpark of 100-150k to do a good job.
After this, you can rent out your "apartment" / unit in your backyard. Or you can use it for your own purposes.
I would guess it's a fairly good investment, with returns of money invested in the 6-8 year range, at least in the current economic climate of the Bay area.
The "loan" part is tricky: any financial institution would want to put a "lien" on the property (essentially, you can't change ownership or sell the property until you remove the lien, which means until you have repaid the loan).
If you do this with "Rent the Backyard", or by yourself, it means your house can't be sold until you pay the loan.
It also means that potentially not all homeowners will be able to obtain a loan from a financial institution.
I examined this business model in depth in the past (while founder at fabrica.city), and decided it was not interesting. But I hope these guys prove me wrong and succeed.
Our financial model is different than a loan. We use the split from the profits of the unit to make back our money and secure that with a lien on the home. The great thing here is that this lien decreases each year over 30 years until it goes away and you own 100% of the unit and its proceeds.
The great thing about an ADU is that it appreciates the value of your home. We're focused on building long term partnerships with homeowners but if you decide to move before the lien decreases to 0 you can pass the contract to the next homeowner who can continue it to completion. Or you have the flexibility to buy out the contract. When this happens, the increase in value the ADU brings your home can often cancel out or make you money compared to if you didn't have the ADU.
You are right about the potential limits on taking further debt on a home with our agreement and that's a value call each customer will need to make: earn rental income from working with Rent the Backyard, or maximize the access I have to my home's equity.
I wish you all the best in your new business. I would be happy to see you succeed.
On the loan part, have you considered offering the ADU as an investment opportunity for private parties? E.g. someone has 100k in cash, can't afford a home, but can invest in the ADU being built by someone else. No loans = less cost, less friction.
Also, the ADU appreciates the value of the home, sure. I think you should find a way to size this appreciation for the home owner (it will be a lot in most cases); it will never be an exact number, but you can do an appraisal for 300-400$ for a few homes, and use the diff to show other clients that it makes a lot of sense to invest in it.
In fact, building an ADU is almost always a great investment. You give up on backyard space, in exchange for rentable real estate. Hard to beat.
We're interested in platforms like Fundrise but really focused on the initial sales process and proving this model with 10 units. The hope is this will make it easier to go to real estate investment platforms and other sites like it.
We have a lot of good info on appreciation in the emails we send to people who are interested in learning more about the product. As we've gone through the launch process, I think this is the thing we've fumbled most. We've been focused on the initial value prop, but the long tail is really valuable too. As we build the website and other public-facing content out, this will be something we prioritize.
We're really thankful for the Hacker News community pushing us hard on this and other points, and bearing with us as we focus on getting the messaging right :)
if having someone rent the equivalent of a garden shed is all legal in the US, then they only need a few 'fools' willing to forgo 50% of rent to get rich.
It is really quite cheap to build a shed (a few thousand in materials and it's really not that hard. construction companies are not cheap, but since people build sheds themselves all the time you would not really need them.
in most non-US jurisdictions, this would not be legal. a father of a friend did this and the govt kindly requested him to force out his tenant.
If you do this with "Rent the Backyard", or by yourself, it means your house can't be sold until you pay the loan.
You probably thought of this already, but I have to ask: What if "Rent the Backyard" is the lender? Couldn't they have a provision in the loan contract allowing the homeowner to move out? What if Rent the Backyard forms an entity with the homeowner, and sells the lot to the entity?
Hi there - my name is Spencer and I'm one of the co-founders of Rent the Backyard.
It's tricky (years and $$$) to become a mortgage lender but we have flexibility in our agreement for a homeowner to pass the agreement to a new owner (we'll even move our lien back to the second position so the new homeowner can get a mortgage)
Being a proper lender requires a lot of paperwork, compliance, and investments. I doubt they will do it from the start. Perhaps if they become wildly successful.
One of the core problems in San Francisco and environs is that there's little room to expand. (In earlier boom times there was a fair bit of land created via fill [1], but that's over now.) So basically, we have to increase density.
One way to do that is to tear down small places and build bigger ones. That's definitely happening, but it's fraught. One less complicated solution is what's know as the in-law, in that maybe it's the kind of place you'd build if you wanted space for your mother-in-law that wasn't in the main house. [2] I've seen a number of these in SF; a lot of lots are relatively long and narrow, so people built a house in front with a back yard behind. Later, they replace some of the back yard with a small apartment.
The Bay Area's the right place to start because in-laws (known officially as ADUs, have recently been made legal. [3] I don't expect this company to make a huge difference, but it definitely looks like a way for everybody involved to make a little money while expanding housing stock, so I'm all for it.
Zoning is very expensive and with lots of requirements (affordable housing) that has slowed increases in supply, further pressuring prices up.
One loophole is the ADU loophole. Basically, no rich town wanted to allow smaller or cheaper housing (existing owners want to preserve things as is) despite tons of lipservice.
State came in and now you can in many cases create an additional dwelling unit (not too big, one floor etc) in your property EVEN if each additional dwelling unit is supposed to have 6,000 square fee of lot size (R-1 zoning).
Tech boom + permits for new offices + obstructing permits for housing = most expensive city in the world.
There's lots of space for infill housing. There are MANY one and two story buildings within a stone's throw of a train line.
The people really suffering are the ones on the low end of the pay scale that either commute multiple hours of their day or spend half their income on rent.
> white "limousine liberal" regressive elitists disguised as crystal worshipping Leonard Cohen fans
That breaks the site guidelines against name-calling and ideological battle. We've asked you many times to stop using HN this way. If you can't or won't stop, we're going to have to ban you. Would you please be a good citizen here and control your impulses?
In the bay, rent is so high this makes no sense. Why would I give away 50% of rent for something that can pay off my investment in one to two years? Even with the headaches 50% is not worth it. 20% maybe.
Unfortunately, a fully-featured unit is really expensive. For a unit like the ones we build (full bathroom with shower, kitchenette, on a full foundation) you'd be hard-pressed to build a unit for less than $100k. This number assumes you're spending a whole lot of your time working on the project. People are building these units and we're excited to see the stock of housing rise in the Bay Area but most people won't make the jump to borrow the money on a home equity line of credit and become a part-time construction manager.
Can we have a (minimal as you want) financial plan?
I mean, let's say that the building (by a professional contractor, with architect/engineers/whomever professional assistance, with all permits, etc., i.e. "turnkey") is going to cost to a "normal" person US$ 120,000 (or if you prefer 20% more than your $100K (which sounds to me appropriate, probably something in the 50-60 sqm or 500-600 sqm net surface).
How much is the expected income (rent - taxes) per year?
US$ 20,000 per year or 1,600 US$/month?
How much is the rate of the mortgage if you "simply" borrow the money from a bank? (let's say a minimal down payment of 10,000 and thus a loan of 110,000)
It should be (roughly) anything between 500 and 600 US$/month for a 30 years mortgage (fixed rate), let's make it 7,000 US$/year.
Besides the downpaynent of 10,000, at fixed prices (which is likely NOT the trend for rents in an area where people resorts to living in ADU's) you get 1,600 US$/month, spending 600, i.e. a net of 1,000 per month, so first year you get nothing (to compensate the down payment) and for the remaining 29 years it makes US$ 377,000 (29x(20,000-7,000).
With your formula, it is 30x10,000=300,000.
But - IF the rents ar going to increase in these 30 years - the difference will soon become huge.
If there is demand for this, more power to them. However, I feel existential dread considering that demand for this exists (and is potentially growing).
Do NOT do this in SF! ANY building, including illegal in-law units and backyard buildings (ANYTHING occupied) is recognized by the city. A single-family home with any other unit is seen by the city as a multiple-unit building, and the backyard renter would have eviction protection. (In SF, “eviction protection” means leases never expire, only shift month to month). Do you want someone to move into a random shack in your yard and then have legal rights to remain there indefinitely?
It's a cool idea, for sure. Both for creating affordable housing, and for increasing the affordability of existing housing.
But as others note, there could be major complications at sale. Especially if the apartment doesn't increase the market value enough to cover the buy-out cost.
Wouldn't it be more straightforward to just build pads and hookups for trailers? Or even for RVs? That'd be much easier to untangle at sale. And it'd probably cost less.
Perhaps the startup could convert shipping containers to apartments. I've read about German ~gypsies that do that.
This has been happening lately in my area of Orange County, CA. There is an investor here who has been buying up single family residences with large backyards and then the investor puts these "granny flats" in the backyard to rent them out. The average buyer will simply see the property as a 3bed/2bath with a large backyard for 500k while an investor will see it as 3bed/2bath with a large backyard with opportunity for expansion....well worth more than 500k listed market value.
A couple of things to consider for the homeowner, increases in property taxes and insurance but also the taxable revenue from the rental and its impact on personal taxes you will have to pay. And then there is resale value for a property that is locked into multi year agreement.
>the taxable revenue from the rental and its impact on personal taxes
Progressive income taxation should make this moot. Also many expenses are likely tax-deductible. Combined with FHA terms, mortgage interest deduction, etc. and this is actually rather tax-advantaged over regular rentals
The way this works with ADUs is a blended approach. The existing home's tax status is protected by Prop 13 and the ADU as a structure is appraised. While adding an ADU adds considerable resale value to a home, tax assessors don't typically value them that highly. It's also worth noting the ADU also becomes protected under Prop 13 after the initial assessment (https://maxablespace.com/granny-flat-tax-implications/)
Shipping container offices are all the rage these days. Have you considered using them? I mean, if they're ok to work out of - legally and safely - then why not live in one? It would certainly cut down on the construction costs.
While many of them look pretty reasonable, longevity and sense of value are the main issues people have psychologically. Shipping containers often elicit worry about rust and decay which is not unreasonable by my understanding is that they have coatings and paint that can largely prevent this.
The bigger issue is the homeowner's sense of value. While any ADU should increase the value of the property it's on, a shipping container home may make the home a bit harder to sell.
Shipping container homes often come with a very technical installation. Since the entire unit is built, if access into the backyard is limited the unit needs to be lifted over the home (and all the power lines) by a massive and very expensive crane. An easier version of this installation by crane: https://www.youtube.com/watch?v=KDTLBbfKL3E
As we've thought about these problems, we've honed in on building beautiful largely prefabricated flat-packed units that are easy to get into the backyard and then bolt together kind of like Ikea furniture.
Do it, and innovate real estate investing too. Fix those crappy contracts and low liquidity markets. Make it easier to move capital into these markets. These units could solve so many problems
Growing up on the East Coast, I was confused when I first visited the Valley and learned about how expensive housing is. People that don't work for big tech companies can't afford to live here anymore and even workers just starting out at Google are spending >30% of their income on housing. I'm afraid of what that means.
I was actually being sarcastic, I think this is a really bad idea. Sorry man, I see that you're one of the cofounders, I just don't believe this is will help the situation at all. Fwiw I lived for several months in SF, in the tenderloin, stacked in a room usually with at least four, sometimes five other people.
If this isn't reflective of an abject failure of local/state government and public policy to plan and manage the needs of housing and population growth, I don't know what is.
Tech companies now employ people, feed people, transport people, educate people, and now they house people. Pretty soon we'll be voting for which tech company governs our society.
All the while gutless local city council members afraid of losing their jobs cower before homeowners, the landed gentry, the rudderless symbolic issues of anti-gentrification and anti-neighborhood change, at the expense of everyone who had the bad luck of being born later and not having gotten theirs yet.
If this isn't reflective of an abject failure of local/state government and public policy to plan and manage the needs of housing and population growth, I don't know what is.
It's not a failure of local/state government. It's an encompassing failure of society at large. We keep passing NIMBY laws. Society becomes ossified. There's no longer anywhere for the next generation to settle down.
Tech companies now feed people, transport people, educate people, house people. Pretty soon we'll be voting for which tech company governs our society.
Aren't we already voting with our dollars? In a way, it's like our society is becoming the one described in Snow Crash, just with Silicon Valley aesthetics, as opposed to the cyberpunk take on 1990's strip malls. The US government is losing credibility. Everything is privatized and up for sale or lease. Want a better jail cell? Offer the jail franchise your credit card for an upgrade!
"What's it gonna be, the Hoosegow or The Clink?" the first MetaCop says. From the way he is talking, he must be talking to the other MetaCop.
"The Hoosegow, please," Y.T. says.
...
The Hoosegow looks like a nice new one. Y.T. has seen hotels that were worse places to sleep. Its logo sign, a saguaro cactus with a black cowboy hat resting on top of it at a jaunty angle, is brand-new and clean.
THE HOOSEGOW
Premium incarceration and restraint services
We welcome busloads
>Tech companies now employ people, feed people, transport people, educate people, and now they house people. Pretty soon we'll be voting for which tech company governs our society.
We fought to get rid of this, man. People marched, rioted, and died for labor rights. It's sad that our current situation is so appalling that making your boss your landlord and mayor is seen as a reasonable thing to do.
That being said, this company is solving a real problem that will impact real people. For all our political gesturing in these comments, at least there is a recognized need for change and some people are trying to use the system to fix it.
>Tech companies now employ people, feed people, transport people, educate people, and now they house people. Pretty soon we'll be voting for which tech company governs our society.
This seems like a good deal to me. Anytime I have interacted with government I have interacted with decay and failure.
We don't see bankruptcy as quite inevitable as you do :) In all seriousness, as written somewhere else on this thread:
"We will need to eventually give custodial ownership to a larger entity (think big bank) in the medium term to mitigate the risk of our company going under for the homeowner, such that, if the worst-case scenario happened to our company, the homeowner continues to make rental income as usual."
Startups take a lot of risks, its in their nature, so bankruptcy is always a possibility. Maybe you have the best intentions, but you're not a big bank yet, and even those have gone bankrupt.
Sorry, I'm unclear what this means. Will the bank be taking over the relationship in place of Rent the Backyard? Will they buy the stake in return for 50% of rental income?
The idea is that there's a third party who formally holds the contract so there's minimal disruption for the homeowner if something happens to our company.
I think it is a great idea and I see a lot of potential. If any of you have tried any addition/remodeling in the bay area, you know the difficulties involved. It is hard to find reliable people at reasonable cost. This company is bringing scale advantage and that is the only way to make sense of any construction project in the bay area. A friend of mine checked with a few design-build firm for second floor addition. 400$ per square feet is the minimum price. Even to explore the project there is a huge cost upfront without any assurance of success. I think it is a great way for homeowners to get cashflow with minimal risk.
Question to the founder:
Do you see profitability in building or rental or both?
It would be leaving money on the table for the home owner to continue on the contract for 30years. Initially with 0 equity, the owner gets 50% of rent. at year 20, with 50% equity, the owner gets 50% of rent and at year 25 with say 70% equity, the owner still gets 50% rent. From home owners point of view, it is better to buy out sooner rather than later. It is also not hard to get home equity loans.
Thanks and all the best
Any moment now someone is going to come up with Uber, but for toilets. I can see it: it'll be called something like Petey Potty, the app will let you connect with Potty Providers and you'll get to use their toilet for a fee. The company will have an ostensible plan of making money by taking a cut off the Potty User fee, and charging a standard fee to Potty Providers. It will be wildly popular in dense urban areas and business districts where it's hard to find a public toilet and around kebab places and it will be hailed as a lifesaver for individuals with Krohn's disease who need to be able to access a toilet with very little warning. There will be an article in Wired and an outraged article in The Guardian (there will be outrage, no questions). The company will lose money for the first ten years of its existence, then it will be sold to Uber, probably, or possibly Yelp.
Oh and- there will be a review system on the app. With five little smiling turds rather than stars.
On Reddit when news came out that SF was building 1.2 million dollar ten-year toilets, at least one fellow offered his home toilet up for $100k / year. I suspect we may be closer to your reality than you think.
I think what’s interesting is that we’ve overbiased in our direction on standards and lots of people are better served by poorer standards for lower prices.
It’s sort of like outlawing the 7/11 in some place (or the dollar store like some cities are doing) in order to get people to eat healthy. But sometimes people can’t eat any better than what they can afford at the 7/11.
This is the comment you want to make on a board dedicated to startups?
If a startup can gain power and then lobby to change zoning laws, even if they do it in a self serving manner that locks out competition, it would be such a vast improvement it is hard to calculate.
The deadweight loss of zoning is huge.
This is a far more ambitious idea than Uber. I imagine it will fail as the majority of voters own and they vote to immiserate others so their property values remain inflated.
Your comment is gross. The sentiments within it are nothing but regressive, mocking sneers.
Hi there -- this is Brian from Rent the Backyard. What we are doing here is finding a synergy between homeowners and renters, allowing for people to profit off their unused backyards while increasing the housing stock. Airbnb started the trend of being able to monetize your home in the form of rental income and we see ourselves as an extension of that phenomenon. In our case, homeowners give up zero privacy to make meaningful extra income. We help existing homeowners stay in their homes amidst rising costs in the Bay Area.
Oh I don't mean to say it doesn't make sense, both in terms of personal finance and with regards to the housing market. Then again, so does letting people sell their own kidneys and livers for transplant.
>Rent the Backyard will give the homeowner an increasing share of equity in the apartment, until they own it completely after 30 years
What's the life expectancy of these backyard studio apartments? Somewhere around, oh, thirty years?
>Homeowners also can buy out the startup’s equity and take full ownership at any time (which they’ll need to do if they sell their home and move out).
I'm assuming there's some legal way to transfer the entire contract to another person, so you could sell your house and property along with your stake in the a-yard-ment and the new owner takes over where you left off. Having a renter will lessen the likelihood of having to sell for financial reasons but a good chunk of home sales are prompted by owner becoming unable to keep up the house or live alone in general, due to age or illness.
How's the agreement work with other stuff like use of the yard itself and other stuff that might be concerning like loud music, changes to the fencing setup, planting of flowers the renter is allergic to, etc? Not just for the homeowner, but for the renter. I can imagine many of the owners, having had to put very little work into this, really not giving a crap about their renter or her/his needs.
>What we are doing here is finding a synergy
C'mon man. Your picture doesn't feature nearly enough 80s power tie for you to talk like that.
We build units that are just as nice as your existing home. With proper upkeep, they'll last just as long too.
This was something the article didn't quite get right. You're able to pass this agreement on to a next of kin or new buyer. We'll even lower the priority of our lien to allow a mortgage to be issued.
You're right that one of our hopes is to enable people to stay in their homes amidst the rising cost of living. The income from this unit can be used to hire a caretaker or even enable the homeowner to downsize in place -- moving into the ADU and renting out the main home. In this scenario, the homeowner would just need to pay us half the market rent.
Finding a balance between renter and homeowner is a big concern of ours. The scale of the difficulty depends a lot of times on how much space there is on the lot. Most of the time we'll build as far from the main home as possible to help preserve privacy and independence but there's still a balance to find. We have an expectation for homeowners and renters alike to be reasonable and we don't want to need to enforce that with a contract but setting clear expectations and methods of recourse are important.
I think people would be better off borrowing the money and building their own. Where I live (not in US) you might spend say $100k or more building one of these, but without necessarily adding capital value to your house, so you'd break even on your first $100k of rent, after tax. So even building your own may not make sense. The many reason for building on is as a 'granny annex' or a place for your parents to live so you can help them out. Or a place for your kids to live when they move out.