Buying property with a tiny home

[ysette9]

We are putting in an offer on a house that has a tiny home renting a pad in the back yard. The tiny home is owned by the people who rent the spot and they have a lease that ends later this month. They have indicated they would like to continue renting the spot.

We would have never chosen to put a tiny hole in the back yard but since it is there we are taking the approach of leaving it for now unless circumstances make it untenable. Ideally I’d don’t want the income because it cuts into future Roth conversion space but at $650/month it isn’t a ton of money either way. Does anyone have experience with anything similar? Anything we should be on the lookout for?

[MainstreamContrarian]

Putting aside that it’s essentially a ground lease (to an illegal use), you just need to decide whether you want the people as your tenants and vet them like any normal tenant.  $7800 a year is pretty nice, but do you need to provide utilities to them?  Any other costs?  Is the use hidden from view and screened from sound, or will it be a low-level nuisance to you or your neighbors?  Do they share your driveway, or park a car in the street that might upset the neighbors?  Has there been any previous complaints whether just directly from neighbors or to code enforcement?  Is the tiny house in good condition such that you know they will remove it when the lease is up? I ask because if it’s in bad shape you might end up with it when the lease is up - could be good or bad.  Do you have any plans to maybe build an ADU in the future?

If I wanted to keep them, then I would want to sign a month-to-month rental agreement with them for the land only. I would specify that you are not guaranteeing them that the use is legal but that you’re just renting them the land.  I would want a security deposit equal to one month.  I would also confirm in writing that they don’t have any long-term lease or option to extend or option to purchase.  That is pretty lawyerly, but it’s better just to get it in writing right now rather than it possibly popping up in the future.

I would not want to ask any of these questions of the seller or the tenant until *after* your offer was accepted so as to not give the sellers a reason to reject your offer.

[ysette9]

I’m not sure what you mean by ground use to an illegal use. These kinds of things are legal here as a way to encourage denser living in an area with a housing shortage.

My understanding is they pay their own utilities. The tiny home looks pretty new so I would presume it is in good condition. I don’t need the money and have no plans to get into the business of renting an ADU, however given that it is already there I don’t feel great about kicking someone out for now real reason. Hence my thought of letting them stay for now to see how it goes unless there is something else big we are missing.

We got a copy of their current lease. They have a one month security deposit, are responsible for their own utilities, snd are expected to keep the area around the house in good condition and return it in the same condition they found it whenever they leave.

This is new territory for me

[MainstreamContrarian]

In general, an ADU (accessory dwelling unit) is a permitted structure that has become increasingly easier to build in California from a regulatory standpoint.  An ADU is recognized by the building department, has a building permit, permanent foundation, and permanent connection to utilities.  It is thus considered “real property” and cannot be sold separate from the main house.  In contrast, in general a “tiny house” is a small mobile structure, not recognized as a land use by the building department, not permitted, not complying with codes, and not permanently connected to utilities. (Is there separate utility connections?)

When you say the renter would remove the tiny house then that makes me quite confident that it is a tiny house and not an ADU.  There is a bit of confusion over the technical differences so that’s why I was mentioning that I saw it as a ground lease of the space and that the tiny house was probably illegal.  And I’m not putting any judgment on it to say it’s illegal, just that it’s not permitted and of course the building department could tell you to remove it.

You do not want to ask the building department about a tiny house because it could invite scrutiny and a citation.  But, virtually no city is encouraging tiny houses to cure the housing shortage, that’s more of people promoting tiny houses saying such things.  One of the main problems is that tiny houses are not built to specific codes nor inspected so there are life safety issues (electricity, sewage, smoke & C02 detectors, dual fire exits, etc.).

In contrast, many cities are promoting permitted ADUs and are required to do so by state law.  There has been a boom in illegal rentals being converted to permitted ADUs, mostly in Los Angeles.  Tiny houses, for the most part, remain illegal when occupied long term.

Hopefully that’s food for thought and you can conduct further research if your offer is accepted.  Good luck!

[joenorm]

Some jurisdictions are fine with tiny homes being rented as long as they meet life safety standards.

[MaybeBabyMustache]

Part of the confusion may be that @ysette9 profile still says Bay Area, but she's actually in the Seattle area. I'm guessing the ADU regulations are pretty different between the two.

And, hi! No knowledge of any kind to share or add, unfortunately.

[ysette9]

Part of the confusion may be that @ysette9 profile still says Bay Area, but she's actually in the Seattle area. I'm guessing the ADU regulations are pretty different between the two.

And, hi! No knowledge of any kind to share or add, unfortunately.

ah, good catch. I suppose I should update that. I will always identify as a Bay Area-ite/en even if I live in the PNW. :)

[PMJL34]

Interesting scenario and I have many questions.

Assuming it's a tiny house on wheels....

How is this person paying for their own utilities? I don't see how this is possible. There is no address and therefore, cannot be their own water line or electric.

This person is paying $650/month. That is really low for either seattle or bay area. How big is the plot of land/area this person rents?

I don't see how, but is this rent controlled?

I would close and politely ask them to leave. $650 is way too low for the stress imo.

[ysette9]

They rent what is basically a long single-car driveway. You could probably park four cars on it single file. They are apparently paying for their own utilities though I don't know how that is metered. The address isn't broken out but there are three mailboxes out front - for the main house, the ADU basement unit, and the tiny house in the backyard. The lease agreement we got a copy of states to specify "back house" on mail.

It is possible it falls under the eviction moratorium that ends this month. No one we talked to was entirely clear whether that applied to renting land. In any case it ends before we are likely to take possession of the house. I remember walking by and seeing the house sitting on stilts. I didn't inspect carefully to verify that there are no wheels so I can't answer that with certainty.

[Cassie]

I would think you would want privacy in the backyard for entertaining and a place for your kids to play. Also sounds way too cheap for your area for rent.

[ysette9]

Update: re-read the lease again. It is shared utilities that they sorted out "equitably" with the prior tenants of the house. So we'll have to sort that one out. The lease also mentions requiring a "visually appealing cover for trailer tongue and wheels" so it is wheeled.

[lhamo]

I would convert it to a month-to-month lease and see how it goes/get to know them better.  Maybe they are great people who mostly keep to themselves/stay out of view and would be willing/able to help out with watching your kids from time to time, or with bigger projects around the house/yard.   Or maybe not.   But it won't take too long to figure out.  Month to month is a signal to them that they need to be on their best behavior to preserve this deal.

[PMJL34]

OP,

Are you under contract? None of this would scare me enough as long as you like the house.

It is what it is, this owner has a friend who they let park a tiny home on their lot for below market. The city does not recognize this address or home, no chance. As far as mailbox, I can put a new mailbox next to mine with a 1/2 address or #B or whatever and they will deliver it if someone sends mail, doesn't mean it's legit. As far as utilities, everything they use will most likely be in tier2 or the surcharge amount since the city water/electricity only registers one address. So have fun with that math. All that to say, the actual "rent" is most likely $500 or less. They probably use your wifi too :)

There's no guarantee that eviction memorandum ends on the 30th or that your city/county/state will hear any eviction matters right away or enforce them. So you'd have to get your expectations there more realistic.

Maybe this person has multiple other places they can go and it's no big deal and you can just ask them to move. Much ado about nothing. Or they are on fixed income and can go nowhere else and it becomes a big deal. Once under contract, you can have all these conversations. My goal would be having them leave by closing. Any lesser deal such as month to month is no guarantee because you are in a tenant friendly state. If this person is "protected (elderly, disabled, etc.)" then that's another big issue.

Also, in the big scheme of things (IMO), it's most likely not the end of the world if someone is using one of your end parking spot and some of your utilities for $650/month. Assuming this is a pleasant and kind person.

Keep us updated! 

 

[Cassie]

I just remembered that we bought a house with a renter years ago that was supposed to be gone by closing but wasn’t and it was a nightmare. When I recently bought my condo I wrote in the offer that the renter had to be gone by the walk through.

[bacchi]

I just remembered that we bought a house with a renter years ago that was supposed to be gone by closing but wasn’t and it was a nightmare. When I recently bought my condo I wrote in the offer that the renter had to be gone by the walk through.

@Sibley might have some wisdom about reluctant tenants and selling/buying a house.

[Sibley]

I just remembered that we bought a house with a renter years ago that was supposed to be gone by closing but wasn’t and it was a nightmare. When I recently bought my condo I wrote in the offer that the renter had to be gone by the walk through.

@Sibley might have some wisdom about reluctant tenants and selling/buying a house.

Oh god. Please don't remind me. I'm still scarred from that mess, and I wasn't even the landlord!

Link if you want it: https://forum.mrmoneymustache.com/real-estate-and-landlording/please-help-with-scripts-for-getting-a-tenant-to-move-out-peacefully/

[ysette9]

Oh lord, I remember reading part of that thread. It was bad.

The lease names two females with the same last name. We have been over to or driven by the property several times now and each time we saw no one outside and nothing of note going on outside the tiny home. No rubbish or anything. I’ll keep my fingers crossed for now and we will meet them and see where to go from there. I’ll keep you posted.