Start with basic real estate investing principles . Buy a good property at the right price & watch your cash-flow. Once you have a solid foundation, you can start to finesse. I call it property hacking. In the same way that a smart person increases their chances of leasing your property with the right tenant hack, a good property hack can be worth a lot of money.
FYI, this article was written for the Zillow investor blog. Check them out for interesting tips and answers to timely real estate investing topics.
As the need for higher density continues, many municipalities are embracing Accessory Dwelling Units (ADU), often called granny units, or where I live in Santa Cruz, “the garden shed I rent to a student for $800/ month”. Often laws and requirements for ADUs are managed at the city level, so find out what it takes. Make sure that it applies because getting red tagged can be a real pain. In my city, you need a lot over 6,000 sq. ft. for an R1 zoned house, the right set backs, the unit can’t be over 600 sq. ft. and the unit cannot be rented separately from the main home if the owner is not using it as a primary residence. Every city has its own twist, so check it out if you have the space. AccessoryDwellings.org has a great wealth of advice.
The creation of some very inexpensive and absolutely beautiful prefab options has opened up the playing field for small stand alone units. I absolutely love this home in costa rica built from shipping containers for 40k (look 1/2 way down the article). You can see more details on the project on the architect’s site.
This gals seems STOKED to be renting a 90 sq. ft. “apartment”. Her place honestly fits into my wife’s closet. I’ll admit we have a pretty big closet, but my first though was that this is absurd. Then it occurred to me that I should see if any of my units had unused space that might be worth renting to the right person. If not for a person, then perhaps as storage.
Storage & Vehicle Parking
That led me to looking into the storage business. In SF, people pay hundreds of dollars a month for a place to park their car. Have units in a highly urban space where parking and storage is a premium? You might be under utilizing your space. Perhaps that 90sq. ft. closet might be worth some additional monthly income.
Zoning Hacks: Live / Work / Build
We’ve been seeing a genuine explosion in america of micro industrial businesses & remote employees. As more and more people mix work and home, the time is ripe to extract additional value from mixed use projects. It is so valuable that a local developer is investing in a major mixed industrial / commercial / residential neighborhood. This takes place in all kinds of property types. I grew up in the mall era. My friends and I used to joke that after all the time we spent at the mall, we should have just lived there. Don’t pigeon hole your properties based upon historical zoning. Get creative (and stay legal).
Just start by checking out the zoning on your lots. Yesterday I was surprised to discover that one of my single family homes is sitting on a multi-residential (R4) zoning. That opens up some interesting possibilities and I have a visit to the county planning department on my calendar.
Change Your Demographic
Cater to the homeless, it pays. And check out section 8 while you are at it. There are advantages to having the government foot the bill. Sometimes in greater revenue, sometimes in stability.
Commoditize or Rent Your Spare Land
There are all types of ways to pull income from unused land. They all have their own adventures and probably deserve a book or college course, but if you have the space, lets make it cash flow.
I’ve seen people get a 5-7 year lease for $500 a month for a cellular tower.
Have even more land? Consider farming solar or wind energy.
My parent have 20 acres in Washington State where they strategically grow high value trees. They would have trees anyways, all they did was pick them intentionally and then stop worrying about them. Good wood is worth quite a lot of money.
It turns out that many farmers don’t own their land, they lease. There are plenty of opportunities for crop share or even straight cash to let someone use a couple acres. I had a buddy who leased a handful of acres to an organic cut flower business from the corner of one of his lots. It is beautiful (albeit smelly) and he gets a % of the proceeds.
Short Term Rent Your Hobby
Love your sail boat, pop top camper, gigantor beer barrel or gypsy wagon? So will other people. And they will pay you to sleep in them. You can even turn a basement or a cave, into a vacation rental. It is not just for novelties. Sometimes you need a strategic month filled and perhaps a vacation rental might be better than a total vacancy.
You could even try a house swap and leverage a nice vacation somewhere.
Hacking is About Creativity
The point isn’t for me to educate you on methods you didn’t know about. Its to get you thinking about the unique aspects of your properties and the communities that surround them. What people problems could they solve above and beyond their current use? Let us get them to their highest and best use.