I bought a pre-built tiny house that now pays my mortgage. Here's how I set up the rental in my yard and for only an $18,000 down payment.
Steph Douglas
- Steph Douglass owns 29 rental units and is the co-founder of an Austin real estate brokerage.
- She bought and rents out a tiny house in her yard to pay for her mortgage.
- Douglass says you need less wealth than you think to start investing in real estate.
This as-told-to essay is based on a conversation with Steph Douglass, owner of 29 rental units and co-founder of Open House Austin. It has been edited for length and clarity.
I bought my first house in 2013 in Austin, Texas when I was just 24-years-old. I didn't think I would ever buy another one, but now I own 29 rental units.
When I bought my first house, I was teaching fourth-grade math and didn't have a very high income — I started at $43,000 and ended my 7-year-career at about $57,000 a year.
So I decided to rent out part of my house to a roommate, and I've used real estate to generate income for myself ever since.
For example, the tiny house in my yard completely pays the mortgage for the home my fiance and I live in.
Steph Douglass
After I bought my first home, I rented out part of it to a roommate. Then, once I moved out and bought a second home, I rented it out long-term. But even in my second home, I rented out a room as an Airbnb.
Eventually, I got really sick of sharing my space. I had to sacrifice a lot of my privacy and I was tired of it.
That's when I transitioned to tiny houses, they were the best way for me to make money without having to sacrifice my own space.
People often overlook their yards, but there is valuable rental space back there.
My first tiny house was a converted detached garage already in my yard. But make sure to check that you live in a zone where you're permitted to have a rental in your yard. You can check that at "your city.gov" like Austin.gov.
Getting my garage ready to be rented took up a lot of time and resources. I found that buying finished tiny houses was a much better option.
Steph Douglass
My tiny house was $89,000 and fully finished inside
I bought a pre-built, fully finished tiny house from a local place called Creative Living Solutions for about $89,000 which included delivery and tie-down fees (which secure the tiny house in place).
It was a pretty easy process. I walked around a lot and was able to see the different layouts of the tiny houses. These places need a lot of space so you can find similar stores in rural areas.
I put 20% down, so about $18,000. Saving $18,000 is no small feat, but I think many people could do it if they saved up for a few years like I did.
Then I took out an RV loan for the remaining 80%. An RV loan is about as hard to get as a car loan. You still need to qualify, and your interest rate is based on your qualifications. Our interest rate is 7%.
Steph Douglass
We pay property taxes on the whole property (it's on the back end of a property with a built house on it, which we would pay for anyway). We also paid 6.25% RV tax upon purchase like you would with a car purchase. Utilities are around $125 amount on average for electric, water, sewage and trash total.
The tiny house came with almost everything — countertops, a fridge, and a microwave. The only things we had to get done were plumbing and electrical. So we added RV hookups to the back of our lot, behind our house, and hooked up the tiny home. We also skirted the tiny house, to cover the cinder blocks and wheels. We decided to add an expansive deck as well. All of these extras cost us about $10,000 more which we took from our savings.
After delivery, the tiny house was ready to be rented within 10 days.
I was worried people wouldn't be interested in renting it, but the bookings came pouring in
We rent it short term and I would say it stays booked 80 to 99% of the time. About 90% of our renters come from Airbnb, but we also use Booking.com and VRBO.
Steph Douglass
Here are some of my best tips for making money off your tiny home
- Be fair and flexible with your pricing
Some people don't want to budge on their prices and lose renters because of it. My tiny house goes anywhere from $79 a night up to $200 a night based on demand. I came up with my pricing by trial and error and use an unofficial formula instead.
If it's not booked 5 days in advance, I'll drop the price $10 a night. If the next day it's still not booked, I'll drop the price by another $10.
Every time you change the price, the algorithm bumps you up in the search. So not only will you attract more people with a lower price, but more people will also see your listing.
- Change the title of your online listing frequently
Changing the title of your rental every so often also bumps it up in the algorithm. We like to call our tiny house "The Cottage" but sometimes we will change how we describe the location or decor to keep things fresh.
Steph Douglass
- Make it cute, but don't break the bank
Having cute furniture goes a long way. But most of our furniture is from secondhand stores or Goodwill. I recommend going to a few different stores over a 5 day period and you'll find all you need for really cheap.
I like to stay neutral on big pieces like couches and comforters. But then spice it up with throw pillows and things that are easily replaceable as trends change. Also, people love plants — even fake ones.
- A management company is totally worth it
I use a management company and they handle the cleaning and coordinating with renters. The company also helps you get your property ready by finding furniture. It's the only way to really make my rental units generate passive income.
Before we hired the company, my fiance and I were tag-teaming all the work and it was really like a part-time job. But now we get to be almost totally hands-off. I don't have to worry about guests or any issues — it's all taken care of. I maybe spend 2 hours a month on the rentals and that's just to make sure the invoices are paid and such.
We pay 30% in management fees. — I pay 20% property management fees and 10% cleaning fees, so it totals 30%. Cleaning fees depend on how many separate bookings I get per month, and the 20% management fee is based on the booking totals. It can fluctuate month by month quite a bit.
My mom actually works at the management company I use, but I recommend using a management company that specializes in short-term rentals. It's not cheap to use one, but to me, it's totally worth it because I barely have to do any real work.
You can get into the real estate game earlier than you think
On average, the tiny house grosses $3,500 a month. And then once I pay the management fees, my mortgage, and the tiny house mortgage I'm basically breaking even. But I get to live in my house mortgage-free, which is huge, and it makes me feel really awesome and powerful to not have a giant payment to worry about.
Steph Douglass
A lot of people think that there is this huge barrier to entry into real estate. But the government wants you to buy a home for the first time and incentivizes it in certain cases. So you can put as little as 3% or 5% down — and that's really not that much.
If the median price of a home is $500,000, then 3% of that is about $15,000. And then you need to account for closing costs at about $10,000. So I would say you need to have $25,000 to get started.
Partnering with others is another way to make home-buying more affordable. I've partnered with my fiance, my mom, and my sisters. Instead of just asking people for money, I've gone 50/50 on houses so we all benefit.
From there, you can rent it to a roommate, turn it into an Airbnb, or rent out lawn space so people can park their RVs. Then, take what you would have spent on rent and use it to buy another house.
There are just so many ways you can be creative and I cannot emphasize enough the power that comes with eliminating your mortgage payment or your rent. And I can use that money to buy more properties.
Contributer : Business Insider https://ift.tt/8Pw7xrL
Reviewed by mimisabreena
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Monday, December 19, 2022
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