Backyard Tiny Home for AirBnB

Hey Everyone!

So I’m thinking of building an ADU (accessory dwelling unit) which is basically a tiny home in my backyard and putting it on AirBnB. I live in LA, it’s a nice neighborhood and I have hosted a couple of people before, but this would basically allow me to have a space available any time to rent out.

I have been talking with an architect and in a couple of days we put down some nice designs and 3D models. I want to make the space have a really modern and comfortable feel. I also want to make it very environmentally friendly (solar powered, compost toilet, etc). Although it’s quite small (200 sq ft), it’s very minimalist in design and on the renderings it looks pretty cozy. I honestly feel that I wouldn’t mind moving out of my current house and living in it myself, if I wasn’t sharing the household with other family members.

But, I did wanted to get some opinions on this project, since I have seen some very cool micro-homes on AirBnB before. Has anybody here actually done something like this? How successful was it? How did the tenants enjoy the space?

I was also wondering, financially speaking, how viable is this as an investment (assuming that the demand is there since it’s decent location in LA) on AirBnB? Have people here actually invested in building things specifically to rent on AirBnB?

Any feedback from you guys and gals is much appreciated! Thanks!

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Take a look here:


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So I used Everbooked for pricing and they give neat comps. Turns out, studios and micro dwellings actually bring in as much revenue as 1bd / 1 ba homes! I think such units are perfect for AirBnb because they’re trendy and somewhat gimmicky–not in a bad way, but more in the sense that everyone wants to try out microdwellings but few want to actually live in them long term. I.e., great to rent on AirBnB. Because our city passed an AirBnB law allowing for a range of short term rentals we have all sorts of bizarre setups like container ship homes, inside of planes, etc. Kudos to those that live in them long term though, and I have nothing but respect for micro dwellers.

I’m sure you already know this, but be careful on the permit process. Many counties have to authorize electric hookups, water meters, etc. I’m not sure about CA but I’m strongly thinking this is the case there.

Where I rent (my username makes it obvious) most historic homes have such carriage houses that are grandfathered in. So, Air is full of such dwellings if you want to look around. The stylish ones perform exceptionally well. We have one such shed that’s about 300 sq ft and like you, we want to do a conversion soon. Good luck with yours! Do it up right and it’ll be a big money maker.

Edit to add: we are allocating about 30k for our conversion. But as I see it, cute microdwellings can get 1k a month easily on Air. So, even allocating 100k towards the project makes it well worth it. That’s my personal benchmarker, anyway… 1k in rent for every 100k spent (and 1.5k rent per 150k, so on).

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Ummmm not sure about your maths there. I wouldn’t be spending $100k on a carriage house that doesn’t add that value to the sale of the overall property. You need to factor in:
-income tax
-property tax
-Capiral Gains tax on sale, on the increased value of rental portion of your home, with the carriage house & inside rooms this could be a lot!
-mortgage costs

It’s not just spend $100k get $1k a month

Regardless, I love tiny houses, I’d love to live in one in the south of France one day cest la vie

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I would not do it unless you can also rent longer term if Air is outlawed in your community or otherwise tanks. Also, only if it adds big value (covering its costs) to your overall property value. Also be sure you can get insurance, and look at all the tax implications. Income & Property.
I am not confident about Airs long term viability.

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So, I HAVE done the math (ps: replies that start with ‘umm’ sound condescending in 80% of the cases). 1k for every 100k is a sloppy value but a lowball one in this case.

First, 1k a month is already conservative–the greater likelihood is 1.2-1.4k if Everbooked averages are to be believed. Secondly, even if expenses are a ridiculously conservative 40% that shaves me down to 7.2, that yields a CAP (capitalization) rate of 7.2% which is pretty good. The fact that a carriage house should cost half that price means the CAP is more like 14.4%: phenomenal. Especially in a market with near 0% interest rates on general savings accounts. Stocks, meh. Not anywhere near 14%, anyway. And since I’m using an expense rate of 40% this easily covers things like taxes. This investment pays itself off in about 7 years (assuming no debt)–awesome.

As to the resale value, sure–it won’t add 100k because one wouldn’t put in 100k but closer to 50k (which again is a high estimate of its cost). I will tell you now that I’d easily spend 50k more for a house with said feature (reason: see CAP above). So, not only do I think it’s a rare remodel where you get every penny you put back in and THEN some, unlike say a kitchen, but I think it’s a feature that would appreciate nicely alongside rental yields. I’d reverse math it to see what I’d re-estimate as the value of my home, and put it in line with what duplexes are getting in the market. If the average CAP rate being fetched is say, 8% for what fetches a gross of $700-900 per month post expenses, I’m gonna tack on 67k-86k to the value of my home. Investors will respect this price if you have the numbers to back it up (i.e., revenue). I see this play out in my market, anyway. Capital gains… meh, easy ways to mitigate or avoid the tax entirely (legally, of course).

I honestly can’t think of an investment that yields more than a tiny home, unless one is a Buffet-like day trader.

I’ve thought about doing this a lot!

It doesn’t really make sense for me in my situation, and now the city I’m in has made it illegal to do short term rentals in ‘accessory buildings’ and I would assume that includes super awesome tiny houses.

I also can’t think of an investment that’s more likely to be outlawed or limited (90 days a year, for example) More risk, more reward.

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Very good point. Our city just passed a host-friendly law dubbed ‘The AirBnB law’ but I recognize that can evaporate with a new state governor. Hopefully since they negotiated with Air to remit city occupancy taxes on our behalf the state will realize the revenues are great.

That said, if a guest house is dolled up well enough it can still be rented long-term for $700 in my market and likely much more in a pricy place like OP’s California. That’s still a great return on investment.

Yeah, my husband and I have toyed with building a tiny house on our property. We have a 2 acre lot and considering the low cost of a tiny house it could really bring in some revenue. But our neighborhood is not zoned for multi-family occupancy, which is the only reason we can Air our MIL apartment. The garage/MIL apartment was built prior to zoning so they made an exception for STR in my area. But I doubt we’d be able to get the permits to build a Tiny house no matter how convincing we were. One would look really cute in my backyard too.

@Sarah_Warren . Build the tiny home, put some kids and your classroom in there, and rent out their rooms in your house. :slight_smile:

Awesome idea! A little school house in the backyard would look so cute. I could set it next to the chicken coop and barn-shaped shed I want to put up for goats. Now to convince my husband :wink:

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Sloppy Math . I didn’t see this discussed and thought I’d add my 2 cents worth . Basic math says that if you rent out the unit at $150.00 per night for an average rental for two guests and slightly higher on weekends and special events , being booked for 25 nights a month @150.00 = $3,750 per month
so even in an entire year if you are booked for a total of 6 months over a calendar year , your income is approx $ 22,500.00
Not a bad amount for a small investment . Now you can add or subtract fees taxes etc, but its still a nice little side income .
I have seen plenty of Micro Homes and Units , the best ones that I would build have an elevated loft style bedroom set up , with small stairs up to the lofted area and not the ladder types . If you could do an area in the unit that has an elevated portion where if you do a loft style bedroom with a ceiling height that you can stand up fully in , you have opened up the floor space below for more useable sq ft space . There is even a Euro Hotel that is using this concept for all of its rooms . All of the rooms are approx 200-250sq ft with the bedroom lofted or Murphy style or as a pull out from an elevated platform . There is a full Kitchen , Dinging table/desk and sofa section in the room in addition to a full size bathroom . Good luck with the project , if done right you can have a great income .

In some places, if you have this as a mobile home like a railway car that can be moved to another location or a gypsy style caravan on wheels or even an old wooden boat you can fall into a different category of dwelling. This may be worth looking into as you can skirt around different zoning restrictions by having a temporary or mobile home on your property. Later if you wanted to you could just sell it on.

I am mostly writing to recommend that you do not put a composting toilet for guests. Medications and foreign material can throw off the balance of the system which then becomes a very unpleasant thing to remedy. Just advising that you research this thoroughly before installing. I did a lot of research and found it would not be viable for guest use but there may be something better on the market now…

You may look at a bio system which will turn all waste water into acceptable water to irrigate your garden. I believe this system is a bit more hardy but still requires some care not to kill the good bacteria that are breaking everything down.

Good luck with the project!

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I have a tiny home I rent out on airbnb, and I have my own web site too (tinyhousetoronto).

I wish airbnb had a search filter for house vs apartment. I think the tiny house niche is great and I wish I could capitalize on it more through airbnb.

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I stand corrected. We are looking into an eco camping set up now so started doing further research and found this https://incinolet.com for a green toilet. Uses electricity 240V but no water. I think it is around about $2,000 - $2500 on eBay and $4,000 RRP. Made in USA so you may have access to better pricing! Hope that helps.

I have a toilet like this in my cabin. Never had a problem.

http://www.separett.com

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Thanks Moniek. Good to know - I think we will give one a try. Appreciate the feedback! Lisa

We stayed at a good friend’s cottage and she has a composting toilet. Great except she had to fiddle with it quite a bit. I think there could be a lot of issues with inexperienced guests.