Can someone more familiar with the Bay Area housing issues and this company’s approach to increasing housing explain or analyze this for a non-Bay Area audience? I ask because this currently is Bay Area only.
In the US, there is the concept of Accessory Dwelling Unit - essentially, you can build a small shed in your backyard with a much simpler process, including the paperwork, permit, etc.
If you are a homeowner, you can do that yourself - it means taking care of the permits, finding a construction company, etc, and putting money down, probably in the ballpark of 100-150k to do a good job.
After this, you can rent out your "apartment" / unit in your backyard. Or you can use it for your own purposes.
I would guess it's a fairly good investment, with returns of money invested in the 6-8 year range, at least in the current economic climate of the Bay area.
The "loan" part is tricky: any financial institution would want to put a "lien" on the property (essentially, you can't change ownership or sell the property until you remove the lien, which means until you have repaid the loan).
If you do this with "Rent the Backyard", or by yourself, it means your house can't be sold until you pay the loan.
It also means that potentially not all homeowners will be able to obtain a loan from a financial institution.
I examined this business model in depth in the past (while founder at fabrica.city), and decided it was not interesting. But I hope these guys prove me wrong and succeed.
Our financial model is different than a loan. We use the split from the profits of the unit to make back our money and secure that with a lien on the home. The great thing here is that this lien decreases each year over 30 years until it goes away and you own 100% of the unit and its proceeds.
The great thing about an ADU is that it appreciates the value of your home. We're focused on building long term partnerships with homeowners but if you decide to move before the lien decreases to 0 you can pass the contract to the next homeowner who can continue it to completion. Or you have the flexibility to buy out the contract. When this happens, the increase in value the ADU brings your home can often cancel out or make you money compared to if you didn't have the ADU.
You are right about the potential limits on taking further debt on a home with our agreement and that's a value call each customer will need to make: earn rental income from working with Rent the Backyard, or maximize the access I have to my home's equity.
I wish you all the best in your new business. I would be happy to see you succeed.
On the loan part, have you considered offering the ADU as an investment opportunity for private parties? E.g. someone has 100k in cash, can't afford a home, but can invest in the ADU being built by someone else. No loans = less cost, less friction.
Also, the ADU appreciates the value of the home, sure. I think you should find a way to size this appreciation for the home owner (it will be a lot in most cases); it will never be an exact number, but you can do an appraisal for 300-400$ for a few homes, and use the diff to show other clients that it makes a lot of sense to invest in it.
In fact, building an ADU is almost always a great investment. You give up on backyard space, in exchange for rentable real estate. Hard to beat.
We're interested in platforms like Fundrise but really focused on the initial sales process and proving this model with 10 units. The hope is this will make it easier to go to real estate investment platforms and other sites like it.
We have a lot of good info on appreciation in the emails we send to people who are interested in learning more about the product. As we've gone through the launch process, I think this is the thing we've fumbled most. We've been focused on the initial value prop, but the long tail is really valuable too. As we build the website and other public-facing content out, this will be something we prioritize.
We're really thankful for the Hacker News community pushing us hard on this and other points, and bearing with us as we focus on getting the messaging right :)
if having someone rent the equivalent of a garden shed is all legal in the US, then they only need a few 'fools' willing to forgo 50% of rent to get rich.
It is really quite cheap to build a shed (a few thousand in materials and it's really not that hard. construction companies are not cheap, but since people build sheds themselves all the time you would not really need them.
in most non-US jurisdictions, this would not be legal. a father of a friend did this and the govt kindly requested him to force out his tenant.
If you do this with "Rent the Backyard", or by yourself, it means your house can't be sold until you pay the loan.
You probably thought of this already, but I have to ask: What if "Rent the Backyard" is the lender? Couldn't they have a provision in the loan contract allowing the homeowner to move out? What if Rent the Backyard forms an entity with the homeowner, and sells the lot to the entity?
Hi there - my name is Spencer and I'm one of the co-founders of Rent the Backyard.
It's tricky (years and $$$) to become a mortgage lender but we have flexibility in our agreement for a homeowner to pass the agreement to a new owner (we'll even move our lien back to the second position so the new homeowner can get a mortgage)
Being a proper lender requires a lot of paperwork, compliance, and investments. I doubt they will do it from the start. Perhaps if they become wildly successful.
One of the core problems in San Francisco and environs is that there's little room to expand. (In earlier boom times there was a fair bit of land created via fill [1], but that's over now.) So basically, we have to increase density.
One way to do that is to tear down small places and build bigger ones. That's definitely happening, but it's fraught. One less complicated solution is what's know as the in-law, in that maybe it's the kind of place you'd build if you wanted space for your mother-in-law that wasn't in the main house. [2] I've seen a number of these in SF; a lot of lots are relatively long and narrow, so people built a house in front with a back yard behind. Later, they replace some of the back yard with a small apartment.
The Bay Area's the right place to start because in-laws (known officially as ADUs, have recently been made legal. [3] I don't expect this company to make a huge difference, but it definitely looks like a way for everybody involved to make a little money while expanding housing stock, so I'm all for it.
Zoning is very expensive and with lots of requirements (affordable housing) that has slowed increases in supply, further pressuring prices up.
One loophole is the ADU loophole. Basically, no rich town wanted to allow smaller or cheaper housing (existing owners want to preserve things as is) despite tons of lipservice.
State came in and now you can in many cases create an additional dwelling unit (not too big, one floor etc) in your property EVEN if each additional dwelling unit is supposed to have 6,000 square fee of lot size (R-1 zoning).
Tech boom + permits for new offices + obstructing permits for housing = most expensive city in the world.
There's lots of space for infill housing. There are MANY one and two story buildings within a stone's throw of a train line.
The people really suffering are the ones on the low end of the pay scale that either commute multiple hours of their day or spend half their income on rent.
> white "limousine liberal" regressive elitists disguised as crystal worshipping Leonard Cohen fans
That breaks the site guidelines against name-calling and ideological battle. We've asked you many times to stop using HN this way. If you can't or won't stop, we're going to have to ban you. Would you please be a good citizen here and control your impulses?
