Rent the Backyard (YC S19) wants to build a studio apartment in your yard

Although I appreciate some of the argumentative counterpoints, most of the time it's from people who underestimate how lazy human beings are, and that people are willing to pay for simple services

Plus if you are doing this for the money you might want to shop around for a few quotes.

Send me the cheque’s is fine and I understand (I’ve used Adsense before!) but this affects the house you live in and for most people their biggest asset. so a bit of forward thinking is wise here.

anything that restricts or impedes what you can do with a home is a liability, not an asset. Up in SF, even partially tenant-occupied homes typically sell for a sizable discount.

(also doubt that ~10k/year is going to make waves in the target market -- Bay Area homeowners with a back yard big enough to make this viable.)

It's worth noting that this is actually something the article wasn't great on. If your buyer is excited about continuing this agreement, we're happy to sign the unit over and even take a second position to a new mortgage so you don't ever need to pay anything.

The great thing about a backyard apartment is that it is a permanent improvement to your property and increases the value of the home but you have a great point. We aren't the best short term partner. If you don't plan on staying in your home for a long time, making substantial improvements to your property doesn't make sense. We're focused on helping homeowners be able to stay in their home as the cost of living rises. We're committed to doing the right thing and turning away prospective customers who don't fit this profile.

The California market might be suitable for this, but that market is unique in many ways. I wonder how this can scale beyond CA (perhaps that market is big enough...).

Given the alternatives to unaffordable housing, I see the appeal. But as other commenters have noted, this need exists because of a very warped localized economic situation. The real problem may not be solved, but eventually there will be some shake out (such as vast numbers of people deciding it's not worth living there) that will help to normalize things. When that day comes, your business model will be less relevant.

Cheers and good luck.

This is one reason why there are different layers of rules on what a property owner can do - zoning laws, building codes, ordinances, community rules. Neighbors get a say because what you do on/with your property can significantly affect your neighbors. When one property owner does something that adversely affects a neighbor, that sometimes leads to conflicts which play out in courts or councils.

If you want examples of how neighbor disputes result in new rules, just do some searching for "neighbor dispute". You'll find some amusing, scary, and even baffling cases.

And with regards to living in close proximity to others, that is something that you know before you choose to live somewhere. It's not usually something that suddenly changes. You may have a quiet neighborhood with relative privacy. When your neighbor uses their back yard, it's perfectly reasonable. You know or quickly learn how many people live on each side of you, and you acclimate to the level of traffic/activity around you. And judging by your research and what you experienced during early viewings of the property, you decided whether you were comfortable with that level of activity. But now your neighbor(s) are adding ADUs, potentially doubling the number of people living around you (and correspondingly doubling the activity and traffic).

> I would certainly hope so, these are human beings not indentured servants

Do your neighbors normally walk between the houses to enter their own house via the back door? Probably not. Will the ADU renters be walking through their landlord's house to reach their ADU in the back? Probably not. And chances are, your house is fairly close to your neighbor's house.

Prior to the ADU situation, you probably didn't have much foot traffic, particularly late at night, alongside your house (between yours and your neighbor's houses. But now you have one or more people walking between the houses, by your bedroom window, as often and at whatever time as they want. You might have made a difference decision regarding buying your house if you had known this would be the case.

This is a bit similar to the hoopla when Waze first became popular. Occasionally a quiet neighborhood with small, low traffic roads would become a major thoroughfare because Waze routed people around large road traffic and through your neighborhood. Residents were quite disturbed.

Now think about property crime. It's very easy to steal or vandalize property, but it isn't a problem in many areas because the people living in those areas become familiar with their neighbors and people's patterns of behavior. And when someone notices something peculiar, they may contact a neighbor (or the police) to ensure that everything is ok.

Increase the population in the neighborhood (and especially add new traffic paths which specifically involve entering people's back yards), and you have greatly increased the difficulty of residents having a sense of what activity is normal and what is potentially criminal.

Yes you can return to the apartment or high occupancy argument, but areas of high occupancy have already adapted or built in behaviors to help prevent crime. Usually it involves more walls, less windows, more locks, more isolation. These aren't reasons why people typically buy a home with a yard.

I frankly don't care if people do this ADU thing or not. I'm just pointing out that it will be a change with significant impact that many people will not expect. This will change the character of neighborhoods from places where people settle and live to places landlords buy because of the rental opportunities. You'll have higher turnover of people in the neighborhood. It will essentially turn a traditional neighborhood into an apartment block with extra lawns. I promise you'll see groups with good financing buying up these homes to rent (and to rent the ADUs in the back) more than you'll see regular (non-landlord) people coming to enjoy the kind of life that apartments don't provide.

You could then declare bankruptcy if necessary, which means you'd keep the structure and have some sort of way out from under the debt.

If Rent the Backyard has an ownership stake in the structure, it sounds like they could continue leasing the unit even after you declared bankruptcy.

The last thing you want to do in CA is own your house or have a mostly paid-off mortgage.

Earthquake insurance is crazy for all the reasons you mention (and more), but at the end of the day your non-recourse mortgage is your insurance: if your property is destroyed you can simply walk away.

Edit: I guess I should clarify that walking away from hundreds of thousands of dollars of "home equity" should hurt almost anyone. My point is simply that this protection is built into your mortgage, and is available on dramatically better terms than actual earthquake insurance, which in CA would likely be unable to pay out in the event of "the big one" anyway.

Earthquake insurance is a terrible deal. Instead of paying insurance premiums, put the money toward earthquake safety retrofitting and saving an emergency fund. There will probably also be some state and federal disaster zone financial assistance.

What's the best kit home in the U.S.?

Hypothetical situation: I don't have a dog. I build one of these. A tenant signs a lease. Then I get a dog. But the tenant is terrified of dogs. But they've signed a lease, and (because nobody thought it would be an issue) there's nothing in the lease about whether the owner can have a dog. Now the tenant is really stuck - essentially they are at the owner's mercy.

I don't know if your standard agreement covers this situation, but if not, it's something to think about...

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?

@simonebrunozzi -- great summation of the ADU climate in the US. In California, the government has become even more receptive to ADU in the last few years (https://www.sfchronicle.com/bayarea/article/Are-accessory-dw...)

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.

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.

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.

Can we have a (minimal as you want) financial plan?

I mean, let's say that the building (by a professional contractor, with architect/engineers/whomever professional assistance, with all permits, etc., i.e. "turnkey") is going to cost to a "normal" person US$ 120,000 (or if you prefer 20% more than your $100K (which sounds to me appropriate, probably something in the 50-60 sqm or 500-600 sqm net surface).

Example of such an ADU:

https://crossconstruction.com/wp-content/uploads/2019/03/Des...

How much is the expected income (rent - taxes) per year? US$ 20,000 per year or 1,600 US$/month?

How much is the rate of the mortgage if you "simply" borrow the money from a bank? (let's say a minimal down payment of 10,000 and thus a loan of 110,000)

It should be (roughly) anything between 500 and 600 US$/month for a 30 years mortgage (fixed rate), let's make it 7,000 US$/year.

Besides the downpaynent of 10,000, at fixed prices (which is likely NOT the trend for rents in an area where people resorts to living in ADU's) you get 1,600 US$/month, spending 600, i.e. a net of 1,000 per month, so first year you get nothing (to compensate the down payment) and for the remaining 29 years it makes US$ 377,000 (29x(20,000-7,000).

With your formula, it is 30x10,000=300,000.

But - IF the rents ar going to increase in these 30 years - the difference will soon become huge.

Why not?

Prop 13 protects the homeowners from higher taxes if the property appreciates, but as far as I know that doesn’t cover renovations.

Otherwise you could buy a beat up $1M, year it down and still pay the same taxes.

While many of them look pretty reasonable, longevity and sense of value are the main issues people have psychologically. Shipping containers often elicit worry about rust and decay which is not unreasonable by my understanding is that they have coatings and paint that can largely prevent this.

The bigger issue is the homeowner's sense of value. While any ADU should increase the value of the property it's on, a shipping container home may make the home a bit harder to sell.

Shipping container homes often come with a very technical installation. Since the entire unit is built, if access into the backyard is limited the unit needs to be lifted over the home (and all the power lines) by a massive and very expensive crane. An easier version of this installation by crane: https://www.youtube.com/watch?v=KDTLBbfKL3E

As we've thought about these problems, we've honed in on building beautiful largely prefabricated flat-packed units that are easy to get into the backyard and then bolt together kind of like Ikea furniture.

Startups take a lot of risks, its in their nature, so bankruptcy is always a possibility. Maybe you have the best intentions, but you're not a big bank yet, and even those have gone bankrupt.

>Rent the Backyard will give the homeowner an increasing share of equity in the apartment, until they own it completely after 30 years

What's the life expectancy of these backyard studio apartments? Somewhere around, oh, thirty years?

>Homeowners also can buy out the startup’s equity and take full ownership at any time (which they’ll need to do if they sell their home and move out).

I'm assuming there's some legal way to transfer the entire contract to another person, so you could sell your house and property along with your stake in the a-yard-ment and the new owner takes over where you left off. Having a renter will lessen the likelihood of having to sell for financial reasons but a good chunk of home sales are prompted by owner becoming unable to keep up the house or live alone in general, due to age or illness.

How's the agreement work with other stuff like use of the yard itself and other stuff that might be concerning like loud music, changes to the fencing setup, planting of flowers the renter is allergic to, etc? Not just for the homeowner, but for the renter. I can imagine many of the owners, having had to put very little work into this, really not giving a crap about their renter or her/his needs.

>What we are doing here is finding a synergy

C'mon man. Your picture doesn't feature nearly enough 80s power tie for you to talk like that.