Value-Add Idea: Tiny House in Backyard?

Question

Like many people, I'm intensely curious about the tiny house movement. I don't know about you but I can't get enough of those YouTube videos. Recently, I started to wonder whether adding a tiny house in the backyard of, say, a SFH or a duplex could be a unique value-add opportunity. Turns out some urban or suburban municipalities allow this but I've never seen it done in real life.

Does anyone have experience doing this? Do you think this a worthwhile strategy?

Does anyone have experience doing this?  Do you think this a worthwhile strategy?

Teri Feeney Styers · Answer

@Jason Meadows I've done several versions of ADUs and am currently building two tiny homes on one lot as a multi-family project.

Frank Hinck · Answer

@Jason Meadows

They’re legally called ADU Accessory Dwelling Units, and while it seems easy you can buy or build a tiny house and drop it there and rent it, you’ll need to go through the ADU permitting process (setbacks will be the issue), and the biggest expense of construction is getting water, sewer and power out to it.

Teri Feeney Styers · Answer

@Michael Barnhart both units have nice sized bathrooms with showers. Both units also have stack washer dryer areas. I flip - I don't rent - but I am assuming they will rent for what other 1 bedroom homes will rent for maybe a tad higher. The square footage is small (454 & 340) but they are brand new and have a good "flow". Older small houses often have funky designs and lack outlets, etc. These are current code, current colors and finishes, & RV parking (for the snowbird types). What you can't see the the gorgeous view - they face a lavender farm and the Grand Mesa. They are a total experiment; I've never done 100% new construction before; but I don't anticipate any problem selling them.

Stephen G. · Answer

Assume you mean a small, permanent structure (an ADU) not a tiny house on wheels. I've done a lot of research on this recently. In the right circumstances ADUs make a ton of sense, but in other cases there are issues. Permitting is a big one- many jurisdictions don't allow them, and some allow them only if the person living there is related to the occupants of the main house.

From a value-add point of view, the biggest problem is that the property value increase you'll generate by building one isn't likely to come close to the construction cost. Depending on the type of ADU, it might be 60%, plus or minus. The freestanding ones are the worst on this front- finished basement ADUs will come closer. The cashflow they generate can be great, but you need to be there for a while to take advantage of it. So they're a great option for people who plan to live on the same property for many years. A buy property-->build ADU--->sell property strategy isn't going to work.

There's a ton of info about them on this site:https://www.buildinganadu.com/

Jason Meadows · Answer

Great point Sandy. If it's in as bad shape as you say it's probably detracting from the value rather than adding to it. Best of luck with the project!

Barbie Steele · Answer

THOWs on the west coast can be pricey, but I've found a builder of Tiny Homes on Wheels that builds beautiful cottage type homes with a start price of $25,000. Delivery and set up to CA is in the $5500 range. The base price is a turn key home and is 8x16, small enough to fit in most backyards. These homes are ANSI certified, a requirement in some municipalities for THOWs to be used as ADUs.

Michael Barnhart · Answer

@Teri Feeney Styers you know your niche, good luck with your first construction!

Teri Feeney Styers · Answer

@Michael Barnhart I live in an excellent area for STR and have clients that do that - but landlording is not my game. I am a project person. In, out, pocket the profit and move on... just a better fit for me.

Michael Barnhart · Answer

@Teri Feeney Styers oh wow, that's really cool. I didn't realize that they came with all those amenities. I know you want to sell them but have you considered them as a STR? That's awesome you're doing your first new construction! I wish you all the best!

Jake Celler · Answer

States are passing laws around the US to make adu permitting easier.  Also, they are getting cheaper to build!

Considering construction of these ADUS don't vary much per location, Cash on Cash Returns are going to be higher on more expensive properties.

ADUs made from shipping containers: these things cost only 60-80k

https://smarthomesadu.com/

In California, you no longer need local discretionary approval...makes permitting wayyyy easier. Some other recent adds

http://www.modative.com/adu-blog/the-12-most-critical-2020-adu-rule-changes-for-california#:~:text=Larger%20ADUs&text=Starting%20in%202020%20you%20can,are%20also%20granted%20automatic%20approval.

Value-Add Idea: Tiny House in Backyard?

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