Turning Your Modern Dwelling Into an Income Property

Danny Decker

Written By: Danny Decker

December 13, 2018

We get a lot of praise for the look and design of the studios we build. From the repurposed wood and shipping container to the state of the art smart home technologies, everything is considered down to the last detail. But, here’s the thing. An Additional Dwelling Unit (ADU) of this caliber is more than just a commodity, it’s an investment, and any good investment needs to show a reasonable return.

Renting out your Modern Dwelling can be an easy, lucrative, way to offset the cost of your ADU. Whether you’re interested in long-term leases, or short-term renting through sites like AirBnb, covering the cost of a new Modern Dwelling unit is made possible thanks to an affordable price point and variety of uses.


Additional Dwelling Units, Everywhere You Look

Major cities across the country are experiencing rising rents and fewer affordable housing options, much of which is due to land usage and how cities were originally developed. Cities like Portland, Seattle, Los Angeles were developed for single-family homes with car storage and large backyards. It was a great model, and led to the development of beautiful neighborhoods, but has led to density issues that have impacted the current housing crisis.

If you live in a high-cost real estate market then adding an Additional Dwelling Unit to your property can be a great way to earn additional passive income. It can also increase the value of your home. In fact, many cities are pushing for homeowners to do this, offering subsidies and easier licensing procedures. They’re doing this because ADUs and tiny houses are one of the few ways to increase density in these high demand areas.


Short-Term vs Long-Term Rentals

Once you’ve decided on adding an ADU to your property, there are two basic routes you can take to generate income. You can look for long-term rentals that last for 30 days or more, or you can look at short-term rental opportunities like AirBnB and VRBO. Each option has its own benefits, and choosing the right one will depend on your financial picture and personal bandwidth.


Long-Term Rentals

A long-term rental has a lease time of at least one month, and can usually be expected to last six months to a year. If you choose to use your Modern Dwelling as a long-term rental unit you’ll also take on standard landlord responsibilities, like maintenance. But, for a compact and efficient space like the True STUDIO, duties will mostly just include collecting rent and facilitating utilities. In competitive markets, long-term rentals can expect to fetch $800-$1200 a month, depending on location.

On the subject of utilities, this could be a major selling point for both short term and long term renters. The True STUDIO’s off-the-grid options allow for renters to significantly cut down on utility costs. An incinerator toilet option frees owners from the need for a sewer connection, and solar panel options provide enough power to run the entire home.


Short-Term Rentals

Short-term rentals on the other hand, require a little more involvement from the owner. If you’re making use of sites like AirBnB or VRBO, you’ll be taking on the responsibilities of a host. If you’ve never used these services, being a host can include some of the following.

  • Facilitating booking and scheduling.
  • Assisting guests with arrivals and departures.
  • Speaking with guests about the home and neighborhood.
  • Cleaning the home and linens between guests.
  • Following licensing guidelines for your city.

While they’re not the most demanding chores, they are important aspects of being a good host and will affect your rating on the websites. A good rating will help keep your listing booked year round, which is important if you’re depending on steady cash flow from the rental.

The added responsibility of short-term rentals also come with a higher return. A new ADU can be rented for up to $100 a night and be occupied for upwards of 80% of the year. At those rates, you could average up to $2400 a month using AirBnb, and over $28,000 over the course of a year. Not bad for what amounts to hosting folks in your backyard.


Big Picture: Paying Off Your Modern Dwelling

There are two basic possibilities for generating income from a new Modern Dwelling, but is it possible to use that income to pay off your ADU in a reasonable amount of time? The answer is a definitive yes.

With a starting cost of just $55,000, Modern Dwellings are an extremely cost-effective style of Additional Dwelling Unit. We are able to keep costs low thanks to the minimal foundation required, as well as the ability to exist without sewer and infrastructure expansion. These costs can quickly balloon other ADU projects.

With such a low point of entry, your Modern Dwelling ADU could be paid off in less than two years of short-term rentals, depending on your financing. Longer leases show a slower rate of return but can also pay for themselves over the long term thanks to a durable, low maintenance design. Beyond rental income, an ADU also increases the value of your property as a whole, offsetting the cost over the long term.

Investing in your property is smart. Real estate has consistently shown positive long-term returns, and in urban markets, demand is higher than ever. If you have the opportunity, a Modern Dwelling is not only a smart investment but a beautiful addition to your property as well.