Your empty yard can fill your bank account.
It seems a little unusual, but you can make money from your backyard, by building a house on it and then renting it out. According to Rent the Backyard, a San Francisco-based organization that specializes in these arrangements, you can earn up to $12,000 a year with such a plan. The company, which focuses on the Bay Area, oversees all permits and housing construction, then splits the rental income with you.
Regardless of where you live, there are a variety of ways to make money by renting out a portion of your property. You can convert the space in the basement or attic into an apartment or build a separate room yourself. This guide will help you turn unused parts of your home or lot into a source of income.
Options for earning income from your property
Whichever way you choose to become a landlord, you’ll want to make sure you set aside enough money to pay income tax on rental income (check your local listings to find out how much you might charge). You’ll want to make sure you have a written rental agreement and run background or credit checks on your tenants. Check local laws, as well as related laws from your mortgage lender or homeowner’s association. You should check zoning laws to make sure the option you choose is allowed in your area.
Finally, ask your homeowners insurance company if you need to change your policy to cover renters. Coverage for any type of rental property is more expensive than home insurance.
Here’s what else you need to know:
Rent a room
Letting someone stay in a bedroom they’re not using is a quick way to generate rental income. Renting out a single room in your home is called extreme housebreaking — a variation on traditional housebreaking, which is living in one room and renting out rooms in a multi-family home.
Price: Little to none. As long as you have an extra bedroom, you’re good to go. But you can charge a higher rent by offering a furnished unit, says the owner, who runs a property education website and has rented out hundreds of bedrooms in investment properties. More “Depending on the level of tenants you want, this can range from low-end single beds, to queen- or king-size beds with luxury furnishings for high-paying tenants,” Biko says, adding that you can also include a flat-screen TV and other amenities. “It might be expensive, but you’ll attract better customers, and they’ll be more likely to stay at your place and in theirs.”
Advantages: Upfront costs are low.
Disadvantages: From living with roommates and sharing common spaces, you face all sorts of problems, from privacy issues to personality conflicts.
Rent space in your basement or above your garage
Some homes already have a self-contained suite – with a bathroom, small kitchen and separate entrance – attached to the property, but it’s also possible to renovate your home to create a home.
Price: According to HomeAdvisor, it costs an average of $21,600 for a basement renovation, including a bathroom. Construction costs vary depending on the size of the basement, existing plumbing, and whether you need to install a separate entrance.
Advantages: You have the advantages of renting a room without sharing a living space, and you can increase the value of your home when you sell. HomeAdvisor reports that homeowners who remodel their homes see a 70 percent return on investment when they sell their home two years later.
Cons: In addition to the high upfront renovation costs, you’ll be responsible for ongoing maintenance and upkeep of the space.
Build an additional living room
They go by many names — granny pod, backyard cottage, or carriage house — but the official catch-all for them is “accessory units,” or ADUs. While it is possible to have extensions attached to your main house, many people think of them as independent residences (this is the type of house rental that is built). They have a separate entrance and kitchen/bathroom but share your address.
Make sure you have the space to build an ADU on your property and that it is permitted by local zoning laws and your HOA. In recent years, there has been a trend toward relaxing regulations, particularly in densely populated areas where housing is scarce.
Price: According to data collected by home renovation loan company RenoFi, it costs between $160,000 and $300,000 to build a single-family detached home. This varies by region. For example, it costs more than $350,000 to build an ADU in the Bay Area.
Advantages: You can charge extra rent for a separate space that is part of your home. You also get more privacy.
Disadvantages: You will have to give up a portion of your yard and construction can be extensive, including connections to electrical, plumbing, and drainage systems. Plus, the care can be more expensive than you think.
Rent your land to a small house owner
Allowing someone else to bring their tiny house onto your property may seem like a no-brainer, but it can be more complicated than it seems. Typically, tiny homes on wheels are considered RVs and their occupants are considered campers and can stay in one location for 30 to 45 days in many municipalities, says Omaha real estate agent Andrew Helling. For a permanent setup, you may need to attach the house to a foundation on your property, depending on local zoning laws.
Price: It depends. According to data from HomeAdvisor, a simple concrete slab foundation costs an average of $7,000 to $20,000, depending on the size. You and the tenant should know who will pay for the cost of building the foundation and maintaining the house. Furthermore, while many smaller homes require utility hookups, the costs are minimal.
Advantages: You can get the income from the tenant without needing to build and maintain a new building.
Disadvantages: It is difficult to evict someone from their home if they stop paying rent. “There needs to be a strong legal agreement on who is responsible if something goes wrong,” Helling says. “You are associating something that is not you with your property. It is very important.”
Join the Airbnb community
Instead of having a tenant live on your property, you can let your home serve as a place to stay for travelers and short-term residents by listing a room or property on Airbnb. According to the company, the average host earns about $13,800 a year.
Price: If you’re renting out a room or property you’ve already booked on Airbnb, the startup costs can be incredibly cheap – basically the cost of cleaning supplies to set up the room. If you’re building or buying a property to list on Airbnb, it can cost a lot.
Advantages: There is a lower entry fee to list on Airbnb, and it offers more flexibility as you can choose when your listing is available. They also set a price that gives you a lot of control over the process.
Disadvantages: Additional insurance may be required to cover your listing. If you have a homeowners association, they may have restrictive rules that prevent you from listing a room or property on Airbnb. Likewise, some municipalities have laws that restrict Airbnb.
The bottom line is to get income from your property
As long as you have the space, you can bring in extra income by renting out a portion of your property. Before signing any lease agreements, it’s important to consider the pros and cons of each strategy, the potential costs involved, as well as zoning laws and homeowner association regulations.
You may also want to seek advice from a real estate attorney or property management company on how to become a landlord, establish a locked-in lease, and screen potential tenants. Don’t forget your homeowners insurance company, either: you may need to change your policy or get a new renters insurance policy to make sure it’s properly covered.