What to do with 1bed/1Bath apartment behind my house

Question

Hey folks! This is my first question on here. I purchased a property for myself and my children in Sept 2020 with no knowledge of any of this real estate investing. There is the main house that me and the kids live in and behind it, is a free standing, 1 bed, 1 bath apartment. It had a tenant when I moved into the house, that turned into a nightmare. He never paid rent or utilities and ended up committing suicide about 3 months into the ordeal.

I actually purchased the property from a friend who was an investor and he just wanted to retire. So his renter had been evicted, and the tenant in the smaller house was subleasing from the previous evicted tenant.

So needless to say, I'm extremely anxious as to what to do with this property. I hate to see it just sitting there, unoccupied and as I'm learning through the information here. Its literally a potential income source just going to waste.

I've even considered using it more as a vacation rental instead of long term. But I'm open to suggestions and ideas from those of you who are more experienced.

Sam Haack · Answer

Hey Chelsa, short term rentals could be a really cool opportunity for you in this ADU with lower risk that a long term tenant would take advantage of the covid-19 eviction bans. However, this does become another job for you. For some, its an awesome new side-hustle, but for others, it could be a huge pain in the butt if you're already super busy! Again on the plus side, it could be a cool learning opportunity for your kids to learn what house-hacking is all about and to take the stress off you to make your mortgage and other housing related payments. Weigh your lifestyle/time goals with your financial goals and make the best choice for you! Good luck!

Nadia O. · Answer

I agree with short term rentals will give you better return. Do be very selective in choosing your renters since you have children. Not everyone will try to destroy your property or throw crazy parties. In fact since you're living in the main home, 100% they will absolutely not throw a party lol...only a dummy will. Your best bet is advertising using airbnb or vrbo. This way you have double protections for damages & cancelations. Also will make your life easier in organizing any bookings. Only booked anyone with reviews...again you have children so you have to be very careful in choosing your future tenants

Boone Tyson · Answer

@Chelsa Connolly I will second what Account Closed stated. Top concern is your safety and that of your family. Depending on the layout of the backyard and the detached apartment, you may be able to partition the efficiency off with a privacy fence which might help both you and a potential tenant feel more secure. Also, if it has alley access, you may be able to have them park back there.I think you would probably make more money with a short-term rental, but I don't know what area you would be servicing and marketing to. I'm personally inclined to opt for a traditional lease with standard terms in place. This offers the benefit of stability, which is so important on your first investment because it will likely be a launching pad for your next one. A shaky foundation or bad experience, like you have had so far, will leave a bad taste in your mouth and may cause you to miss out on a great deal in the future. Just make sure you screen and vet the applicants pretty aggressively. I really think you can make this a win for yourself. If you are worried about not being able to evict someone who you don't like, do a month-to-month lease from the beginning and then if they quit paying, serve a 30 day notice to vacate based on the lease not being renewed for another month. My neck of the woods doesn't offer a moratorium or eviction protection for "holdover tenancy" or squatting in a property. Check your local laws or consult an attorney of course.Hope this helps!

Aj Parikh · Answer

Welcome to BP! If you are in an area which attracts short term rentals then I would definitely renovate it and make it an experience and put it up for rent. Otherwise, just get simple renovations and put it up for rent. Make sure you read up on managing rental properties and screen the tenant properly before putting them in house. Good luck

Boone Tyson · Answer

@Chelsa Connolly Good luck! Keep us posted on the progress and outcome. Excited to hear how it goes.

Jonathan Stone · Answer

@Chelsa ConnollyNot sure where you are located but I would agree that currently short term rentals offer some advantages especially with the current moratoriums on evictions. You could do vacation or as others do here, check the STR threads, rent to traveling healthcare professionals. Both offer more income and more work than traditional rental but limit the time you have with 1 tenant in your apartment.

Colleen F. · Answer

@Chelsa Connolly if you are in a vacation rental area you may find that short term rentals allow you to dip your feet in the water to see if renting in your backyard is for you. You would need to furnish the rental (extra expense), set an appropriate occupancy limit, setup up cleaning and turnover processes and decide on a venue to list it. You decide when it is rented and say you don't want renters one week because the kids are out of school just block it out. Also If you get a tenant for < 90 days you won't have to deal with evictions etc. Probably the next best thing is a medium term rental to a traveling worker. If you are on the fence about renting because of the location (your yard) a long term tenant is a bigger commitment and you need to screen thoroughly. You have more ability to screen out people as an owner occupant but you are committed to your choice for a year. you could do a month to month lease which might not be attractive to a long term renter, but never more then a year. Good luck

Chelsa Connolly · Answer

Thank you everyone for your advice. I really am going to look further into traveling professionals. My property is located central to three sizeable medical complexes that serve as regional medical for our area, East Texas. (3-5 min direct drive) While the main house and small house share parking and a driveway, they are located on a .75 acre lot. Fencing space between the two is absolutely reasonable while leaving both with some outside space without being cramped. I will likely speak with my insurance company tomorrow to see what they would want to protect both spaces.

Boone Tyson · Answer

I agree with both @Theresa Harris and @Nadia O.This is a great opportunity. Not something to be afraid of.

Theresa Harris · Answer

Look into demand for short term rentals as well as local laws. There is higher return, but they are more work especially if you want to be rated highly. They give you flexibility. Don't let the past cloud your actions. There are some horror stories, but you don't hear about the good tenants.