The Tiny House That Pays For Itself

I don’t have to tell you that people LOVE tiny houses!  There are countess TV shows that follow people around as they cruise for a new home under 400 square feet.  Whether on wheels or a solid foundation, everyone is in awe of how people can actually live with less.  But could living with less actually give you more?

Six months after finishing my tiny house project, I have made back 18% of my initial expenses and will fully recoup the investment in another 20 months.  After that, I will pocket roughly $27k per year for as long as I want to continue to do what I’m doing.  So, what is it exactly, that I’m doing?

About a year ago, my husband has a bright idea to turn our exterior double car garage into a living space.  It’s called an Additional Dwelling Unit or ADU in Portland.  It’s also called a granny flat or mother in-law suite.  Technically speaking, it’s a living space on your property less than 30% of the square footage of your primary residence or less than 400 square feet.  To get it legally considered to be living space, it must comply with local ordinances for safety and security (which I will detail in a later post,) and pass city inspections.  After that, you have a few options.

Move into the tiny house and rent our the main property
This is something that people are doing all over Portland as a way to pay down their mortgage.  Let’s say your mortgage is $1000 per month for a 3 bedroom, 2 bath house.  You build a small unit in the back and move into it.  You could rent the house for $1400-$1700 and double down on your mortgage payments.

Use it in addition to your house
Let’s say you have a 2 bedroom, 1 bath house (like me) and need more space.  Maybe you want your out-of-state parents to use it half the year.  Maybe you want a place for your grown children to live and stop bothering you.  Maybe your ex-husband wants to be close to your children.  An ADU is absolutely great for that!

Rent it out
You can rent short-term (less than 30 days) or long-term (30 days or more.)  You can rent it furnished or empty.  How much you can get for this space all depends on the location, amenities, and included options.  If you are considering short term renting, consult your local city ordinances.  Portland, like most metropolitan areas, requires licensing for short term rentals.  The license is not difficult to get as long as you live in the main house and the ADU has already passed the previous city inspections.

We chose to furnish our ADU, use it for out of state friends and family, and rent it.  We use Airbnb for short term rentals.  They comply with all city ordinances and collect the city tax for us.  It’s safe to use and we’ve had really amazing experiences so far.  We also just signed a lease for a 6-month renter who is contracted with his company in our area.  We have been getting between $2000 (for slow season) and $3000 (for busy season) per month.

Now, I know what you’re thinking… sign me up!  You should consider the implications first.  It’s important to estimate the initial investment cost, which could be anywhere from $30,000 – $120,000.  We spent a little less than $70,000 after furnishings and surprise costs (don’t forget to budget for surprise costs, you will definitely have some.)  We were lucky enough to not have to finance our project, but you should also consider any interest payments into your total budget and payoff amount.  Also think about the intrusiveness of strangers hanging out in your yard constantly.  This hasn’t bothered us, as we are avid travelers and love meeting new people.  Our cats really enjoy having new people to rub up on, too.  But if you have pets that don’t like strangers, or if you like to garden naked, this may not be the best option for you.

There are ongoing costs associated with short term rentals.  Expect at least a 30% increase in electricity and water costs.  You may also have to increase your internet bandwidth to provide a stronger wifi.  Add toilet paper, paper towels, and trash bags.  Add coffee, tea, fruit, and pastries.  Add constantly purchasing sheets because they somehow keep fraying/staining/pilling.  Add ongoing maintenance.  Minus some of your time, maybe more than some.  Does the final number make it worth it for you?  For me, the answer is a resounding YES!

I would be remise to not mention that the investment in renovating your property is immediate equity in the future sale price of your home.  This is an investment in your home that has almost a 100% return on investment.  In Australia, houses without ADUs (or as they call them bachelor houses) have a hard time selling as most Aussies do not consider it a sound investment.

Want to know more?  I’ll post about my experience and some helpful hints to plan and prep for a long road ahead.  I’ve also got plenty of tips to help you be a better host.  Click the Follow button to stay updated.

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