With the rising popularity of Airbnb and other peer-to-peer lodging websites, there are new opportunities to make your backyard studio pay for itself. A backyard accessory dwelling unit (ADU) or studio is the perfect short-term rental. A detached building allows for increased privacy for both hosts and guests, allows the homeowner to flexibly rent or use themselves as needed, and provides a new source of income. An income-producing Studio Shed can help new homeowners get on the housing ladder in expensive markets and is a gentle way to add rental units to a community alongside an owner-occupied residence.
Given these benefits, it’s no surprise that these structures have rapidly earned the attention of the nation over the past year and are gaining traction in the rental property market. We sat down with a few customers who have had success in renting out their Studio Sheds – have a read and contemplate how a rental unit could be the right way to add an income-producing asset to your own property!
How to Generate Income from Your ADU
For those that live in high-cost real estate markets or desirable tourist locations, building an ADU in your backyard can provide a substantial source of supplemental income while preserving your and your renter’s privacy. In fact, rental income received from listing your ADU as an Airbnb can cover the costs of your Studio Shed almost immediately if you opt to use one of our financing plans.
“My break-even point will be at about six years. However, the cash flow generated from rentals covers the mortgage and about one-half of my real estate taxes for the entire property. (Land, main house, and Studio Shed). So, in terms of cash-flow, I am now living without much cost,” says Studio Shed client, Stuart Fishman.
Stuart has maximized his Studio Shed return on investment (ROI) by repurposing his Summit Series ADU into a long-term private rental unit in Oakland, CA. He also utilizes Airbnb to fill in the weeks between long-term tenets, taking full advantage of the platform’s simple property management system. Check out Stuart’s Summit Series rental unit on Airbnb.
Stuart describes his Studio Shed as a "corporate rental," which means it is completely furnished and set up as a turn-key unit, ready for someone to work or study. He also noted that he’s noticed an interesting demographic emerge that he likes to call “expectant grandparents,” which are “those from other areas coming here for before, during, and after their kids have kids.”
With opportunities arising from young professionals looking to move into larger cities and Gen X wanting to be closer to their growing families, there’s never been a better time to break into the property rental market. On top of the rental income that you can achieve, ADUs also generally contribute about 25%-34% to your property’s assessed value, so when the time comes to move on from your current location, your ADU could reasonably boost your home’s resale value by 51%!
How to Generate Income from Your Studio
Like ADUs, single-room backyard studios also boost your home’s resale value significantly as our studios typically appraise for 1.5x their retail price. Backyard studios are increasingly desirable when it comes to listing your home on the market as they provide additional square footage outside the home that can be used for a variety of purposes – like a home office space, backyard gym, or of course, an Airbnb rental.
While ADUs are a great way to generate steady revenue from long-term renters, our smaller models like the Signature Series and Portland Series have also proven to be profitable on Airbnb through hosting tourists and weekend adventurers. We connected with another client of ours, Catherine MacNeal, who transformed her 12’x16’ Signature Series into a gorgeous island retreat on Lavender Hill Farm in Vashon, Washington.
Complete with a kitchenette, small bathroom, and sun deck, Catherine describes Betty’s Blue as uber-glamping, perfect for a couple’s getaway or cozy solo retreat. We sat down with Catherine to learn about her experience becoming an Airbnb host and the ROI she’s seen since installing her Studio Shed.
How did you decide that you wanted to become an Airbnb host?
I have owned Lavender Hill Farm since 2006. When the recession hit and I couldn’t find long term renters, I listed the farmhouse on Airbnb. That gave me the flexibility to spend more time at the farm in the off-season.
Is your Studio Shed the only Airbnb that you host, or do you manage multiple properties?
Betty’s Blue, my Studio Shed, is my second Airbnb, after the farmhouse. It was delivered in late 2019 and completed just as the pandemic started in 2020.
Did you build your Studio Shed with the intention of using it as an Airbnb or did that decision come later?
My original thought was to use the Studio Shed as my living quarters while renting the larger farmhouse. However, as bookings cancelled due to Covid, I got Betty’s Blue ready to rent on Airbnb. Because it’s small and easy to sanitize, it is perfect for singles or couples wanting a getaway.
How long do renters typically stay in your unit?
Renters typically stay 3-5 days.
Has the income you’ve received from renters made up for the cost of building your Studio Shed?
I am not at the break-even point yet, but it’s only been available since November 2020. I have high hopes of breaking even at the three-year mark. The Studio Shed itself (minus furnishings, kitchenette, incinerating toilet, deck, foundation, heating, and window treatments) should be paid for halfway through 2022.
Thank you, Catherine, for giving us a behind-the-scenes look at your time getting Betty’s Blue up and running as an Airbnb! Your Studio Shed looks absolutely stunning and the scenic views and colorful lavender field simply take our breath away.
Interested in hosting your own Airbnb? Design a Studio Shed with us!
At Studio Shed, we provide end-to-end design, manufacturing, and installation of ADUs and single-room studios with our Summit, Signature, and Portland Series. Whether you need a fully customized solution or are looking for a prefab, turnkey option, we're here to help. With Studio Shed there's no need to hire an architect or designer, simply visit our design center and create a 3D configuration of your dream ADU or studio! You can even take a virtual tour of our Summit Series model in our latest virtualization tool and view sample staged interiors – try it out here.