CATEGORY: INVEST Real Estate

There have been many tiny home crazes in America since humans first began living with roofs overhead. Teepees to adobe huts to post-World War II Quonset huts, smaller was better. Now, if the Rent the Backyard company has its way, this part of the globe will once again be living small. In U.S. areas facing a chronic affordable housing shortage, these tiny houses could be the solution. They’re low cost, sustainable and even visually affordable. Oh, and Rent the Backyard would like to build a bunch for free in select backyards. Are Americans able to shift from the bigger is the best mindset? Here’s how the tiny home startup will try to shift attitudes –and the affordable rental equation.

The Rent the Backyard model

The San Francisco-based startup aims to solve the affordable housing shortage that is reaching crisis proportions in many areas, but it’s still looking to make a profit. Essentially, co-founders Spencer Burleigh and Brian Bakerman want to “build a studio apartment in your backyard and rent it out,” according to their listing in the innovative investment platform Crunchbase. “We pay for the apartment and split the rent with you.”

The service launched in July 2019 in the Bay Area. The target market is plagued by rental housing so expensive even its Google, Uber and Lyft tech workers earning six figures have a tough time affording a place. The startup assumes all the construction and rental management headaches. They don’t ask property owners for a down payment, either. They take care of all the red tape and construction headaches. In the landlord-driven market in the Bay Area, even splitting rent earned homeowners stand to earn $10,000 to $20,000 annually without any hands-on marketing or management. “The idea is to make housing more affordable for both owners and tenants by adding housing inventory on the lower end of the cost spectrum,” Bakerman told the Observer.

Both sides win big with tiny houses

Along with making small living affordable in an area where housing costs have run amok, the startup thinks it could benefit homeowners facing soaring costs themselves. The inflated housing market drives insurance and other costs through the roof for homeowners as well as renters. “We think our product could be great for people who have lived in their homes for a while and have seen home prices skyrocket – unlocking that value in the form of rental income could be great!” Bakerman wrote in a thread on Product Hunt. The Rent the Backyard business model also soothes homeowner worries over the loss of privacy. Along with doing all the tenant-seeking and rental agreements, the startup company has a minimally-invasive construction phase. They use modular components produced by another startup, Node, which builders can quickly assemble on site. How quickly? Some of the tiny homes take just a week and a half from contract to being move-in ready for tenants.

California’s affordable housing flop

In California, Rent the Backyard has a wide-open opportunity for growth. The state relaxed backyard unit building laws in 2017, making “accessory dwelling units,” or ADUs, less prohibitive. They reduced expensive utility fees, for example, and stopping demanding tiny home builders maintain a parking space just for the backyard home in spots where public transit is accessible. Even with all those concessions, there were just 1,598 ADU permits issued in the Bay Area in 2017. Experts estimate the area’s total need for ADUs at somewhere between 300,000 and 500,000. If Rent the Backyard can put a dent in the affordable housing deficit, everyone in the Bay Area wins. And then maybe it can expand or start franchise operations in other states, but only after they, too, create workable ADU construction laws.