Want to earn an extra $1,700 per month?
Rent the Backyard, a San Francisco-based startup says it can help — by building a studio apartment in your backyard that you can rent out. The company, which is currently working with homeowners in the Bay Area for now, will handle all the permitting and construction, then split the rent revenue with you, according to a recent TechCrunch article.
Regardless of where you live, though, there are ways to make money renting out a portion of your property. You could convert a basement or attic space into an apartment or build a detached unit yourself.
Jennifer Beer, 64, a mediation professor, has rented out the master bedroom in her Lansdowne, Pennsylvania, home to more than a half dozen tenants over the past 20 years, for stays ranging from a few weeks to eight years.
Beer says the income has helped her offset the cost of property taxes and utilities, although there are some drawbacks to sharing her space, including agreements about who handles the housework and maintenance.
“Living with someone is nice and interesting, but it’s also a strain,” Beer says. “You don’t have your life to yourself, so you’re gaining something, but you’re also giving something up.”
Options for making an income from your property
No matter how you choose to rent out your home, you’ll want to make sure you’re setting aside enough cash to pay income taxes on the rental income. You’ll want to make sure you have a written rental agreement and perform a background or credit check on your tenants. Check out local laws, as well as any relevant rules from your mortgage lender or homeowners’ association.
Search local listings for rentals in your area to get a sense of the rent that you might be able to earn. Here’s what else you need to know:
Rent out a room
Letting someone stay in an existing bedroom that you’re not using is the quickest way to start earning rental income.
Cost: Little to none. As long as you have an extra bedroom, you’re ready to go. But you can charge higher rent by offering a furnished room, says Bill Biko, who runs a landlord education website and has rented out hundreds of bedrooms in investment homes. “Depending on the level of tenants you’re looking for, this could range from a low-end single bed, to queen- or king-sized beds with nicer furniture for higher-paying tenants,” Biko says, adding that you can include a flat-screen TV and other amenities. “It can get costly, but you’ll attract better clients, and they may stay out of your space and in theirs more often.”
Pros: Upfront costs are minimal.
Cons: You’ll face all the issues that come along with living with a roommate and sharing common areas, from privacy concerns to personality conflicts.
Rent out space in your basement or above your garage
Some homes might already have an existing suite — with a bathroom, a small kitchen and separate entrance — attached to the property, but it’s also possible to renovate your home to create one.
Cost: It costs an average of $71,000 for a basement remodel, including a bathroom, according to a study by Remodeling Magazine. Construction costs will vary depending on the size of the basement, whether there is existing plumbing, and whether you need to install a separate entrance.
Pros: You’ll have the benefits of renting out a room, without having to share living space, and you could boost the value of your home when you sell. Homeowners who remodeled their basements saw a 70 percent return on investment when selling their home after two years, the Remodeling Magazine report found.
Cons: In addition to the hefty upfront renovation costs, you’ll be responsible for the ongoing maintenance and upkeep of the space.
Build a detached accessory dwelling unit
You can call it a she-shed, a granny pod, a backyard cottage or simply a studio apartment, but most zoning codes refer to these detached structures as “accessory dwelling units.” You’ll need to have the space to build one on your property and make sure that they’re allowed by local zoning laws, although there has been a trend toward relaxing many of these laws in recent years, particularly in dense areas experiencing housing shortages.
Cost: A detached accessory dwelling unit costs $25,000 to $150,000 (and up) to build, according to a recent survey by the National Association of Home Builders.
Pros: You can charge more rent for a detached space than one that’s part of your home. You’ll also enjoy more privacy.
Cons: You’ll have to give up part of your yard, and construction can be extensive, including connections to electricity, plumbing and sewage systems. Plus, the upkeep might be more expensive than you think.
Rent your land to a tiny-home owner
Letting someone else bring their tiny home onto your property may seem like a no-brainer, but it could be more complicated than it seems. Typically, tiny homes on wheels are considered RVs, and their occupants are considered campers, and can only stay in one place for 30 to 45 days in many municipalities, says Andrew Helling, a licensed real estate agent in Omaha. For a more permanent arrangement, you might need to attach the house to a foundation on your property, depending on local zoning laws.
Cost: It depends. A simple concrete slab foundation costs an average of $4,500 to $12,000, depending on the size, according to a report from HomeAdvisor. You and the tenant need to work out who pays for the cost of building the foundation and securing the house. Beyond that, the costs are minimal, although many tiny houses require utility hookups.
Pros: You can get the revenue of having a tiny house tenant without the costs of constructing and maintaining a new building.
Cons: It’s harder to evict someone from a house that they own if they stop paying rent. “There needs to be a solid legal agreement as to who’s responsible for what if something goes wrong,” Helling says. “They’re attaching something to your property that you don’t own. That’s a big consideration.”
As long as you have the space, you can bring in extra income by renting out part of your property. It’s important to consider the pros and cons of each strategy, along with the potential costs, as well as zoning laws and homeowners association rules, before signing any lease agreements.
You might also want to seek the advice of a real estate attorney or property management company for guidance on how to become a landlord, drawing up an ironclad lease agreement and screening potential tenants.