Like most people in the financial independence community, I am always on the lookout for ways to turbo charge my journey to financial independence! I’ve been tracking my expenses since the beginning of 2017, and I am keenly aware that my mortgage on my home is by far my largest expense. I illustrated various ways to keep housing costs low in another blog post. [link here]. Most of these ideas involve alternatives to getting saddled with a big mortgage in the first place. I had my mortgage before I discovered the FI movement, and there are certainly good reasons why this made sense for me at the time. So, in my case, I have been thinking outside of the box in trying to create an income stream to cover the mortgage. I was thinking along the lines of – How can I get my home to pay for itself?
It all started when, in April 2019, an ad appeared on my Facebook feed for a little modular housing unit which I could buy and which would be transported and lifted with a crane over my house and into my back garden. It looked very cute, and it incorporated a shower room and mini kitchen, and was being advertised as a fully self-contained housing unit which could potentially be placed in the garden and rented out. It wasn’t long before I followed up on my initial inquiry by putting my passport in my pocket and jumping on a bus for the 4 hour bus journey to Northern Ireland to go and see it in person and meet the people who had created it! This 5 * 3 m unit was coming in at about € 17 K including transport, crane, cost of the base, connection to services, etc. So, for € 17 K, I could have a little house in my back garden earning some rental income for me!
Here’s the post along with accompanying phtotos: “MODULAR STEEL FRAMED POD self-contained comes complete with fitted kitchen, shower, toilet, hand basin, living/bedroom, lights, sockets, water heater, very well insulated (for all year use), double glazed, internal measurements 5mx3m. Now taking orders for 2019 delivery extra room can be added or total custom build .“
I did some research and quickly realised that a separate unit being used as a dwelling would require planning permission. I also realised that it at 15 m2 it was very compact and that I might struggle to get anyone to stay for any length of time.
However, it had set my mind working, and the next thing I started to explore was the idea of converting my existing garden shed into a habitable dwelling. While it was a bit bigger, I believe planning permission would again have been required to convert the usage to be that of a habitable dwelling. A few buidlers took a look at it for me, and were quick to let me know that converting something that was built as a shed in 1972 to a dwelling of 2019 standards would be challenging. Most declined to take up this challenge, but instead offered to quote me to build an extension to my home, which is the next thing I explored!
Selecting a builder
In June 2019 or thereabouts I started meeting with builders. I contacted 14 builders, met with 10 in total. Some of these were referred to me by neighbours or friends from my walking group, or from the local financial independence community. Another had placed an ad in my local free newspaper, and others I found myself through my own research! It was not particularly difficult to get builders to come out to the house and assess the work that needed to be done, but it was much more difficult to get a detailed quote from several of them. I needed to make 42 follow up calls, send 34 text messages and 12 WhatsApp messages to generate 3 quotes! A number of builders ruled themselves out of my vetting process at this stage due to not being able to provide detailed quotes.
Determined to get 3 concrete, comparable quotes, I had to start thinking outside the box! In the case of one old-school builder, I wrote out the quote myself as we did the walkthrough, and got him to confirm on the numbers. In the case of another, he gave me a high-level quote in a WhatsApp message, and I asked a few follow-on questions to complete the picture. (This guy wanted to charge me € 100 for the more detailed quote, so as an alternative I just asked him a number of questions to get enough information together to be able to make a comparison). The third was able to give me 2 detailed written quotes based on 2 differing sizes, and was able to address my follow-on queries in a prompt and transparent manner. She was also able to direct me to her website, to which I was given members’ access with some additional information which included customer testimonials and phone numbers. I phoned and had a chat with one previous client. I was also invited out to the site to see one of ongoing projects, and I got to have a good look around the work in progress in the company of the builder. Not surprisingly, this company ended up getting the job!
This builder included the designs as part of her offering, and I made my initial payment to her in December 2019 to initiate the design process. We went through a couple of iterations of the design, including a number of meetings. Then Covid-19 happened. I postponed the start date, fearing that the building trade could be shut down at any moment. We finally started at the end of August 2020, and completed January 2021.
The Construction Process
I had engaged with the owner of the company, who had a building crew onsite doing the work. When planning originally took place, the assumption was that I would be out in work every day. However, due to Covid-19, I was (and still am), working from home, and as a result, I was aware of all of the comings and goings of the builders. The crew that initially started the job would typically arrive at 9 am, and then depart again at 9:30 am for breakfast for one hour. Returning around 10:30 am, they would then work until about 12:30, following which they would then take another hour for lunch. Rarely did they work past about 4:30pm, on Fridays it was typically 3pm. I soon got fed up of this when I saw how little progress was being made.
I raised this with the owner, and we agreed to meet every Friday to discuss progress for the past week and agree targets for the next, and to make the staged payments based on completion of those particular targets, as opposed to making fixed weekly payments. Having initially been given a timeline of 2 months (“3 to be safe”), I realised that 6 weeks in we were only at the stage of the concrete pour for the foundation, I knew I needed to speak up! The initial contractor tended to come with very detailed, fantastical stories and excuses for why he hadn’t got things done.
Eventually, the owner of the company and the initial contractor parted ways. The fact that she couldn’t rely on him to live up to his word in terms of deliverables was leaving her in a difficult position with clients, since she was promising things that were not getting delivered. At this point I was very nervous. A part of me wondered whether the initial contractor should be left to finish the job. However, a business decision had been made, and a second crew had been drafted in to pick up the work. At this point all of the ground work had been done, and I was told that progress would be very visible as the walls went up fast. This was true. The new crew came from the northern part of Ireland, and was very focused on getting their work done so that they could get off early on Fridays to beat the traffic and get home for the week end. There was definitely a sense of this crew working to targets.
Another challenge which emerged towards the end of the project in December or so was the electrician. While the company had a plumber on the payroll, the electrician was not an employee, and had many other commitments, so never seemed to turn up when he said he would. This delayed completion, and was an issue.
I made the point that I was losing money every month that the project ran over time, due to losing out on the income which I would have been making. (Let’s be honest, I could have invested the money elsewhere – like in a property which was already ready to go – and my money would already have been making a return for me).
I had already sourced all of the appliances at the stage where the kitchen was being built. I spent the Christmas period sourcing all of the furnishings and everything that would be needed to make the place rent ready. I ordered most things from IKEA (even cycling up there over the Christmas to put in my order when their website became overwhelmed in the pre-Christmas period).
There were a few bits and pieces to be tidied up in the aftermath. In addition to the standard build, I had said at the beginning of the project that there were a few other items which I wanted to get done while the builders were in, and we agreed to incorporate an additional amount in the pot to cover these items. The builder and I had a final negotiation over whether or not this amount should be incorporated into our calculation for the final payment, and, if so, what would be covered by it. In the end she was willing to let it go, and I was willing to acknowledge that they additional items had come up which they had taken care of for me without additional charges, so I agreed to add this final payment to the pot, and she agreed to have the guys build all of my IKEA furniture that I had bought! This was a win-win, as it would have taken me a long time to do with my novice ways, while the builders had it all done within a day.
My final touches were getting a bed delivered and some blinds fitted, and a new side gate outside my house. (Entrance to the apartment is through my garden which in turn is accessed via gate at the side of my house). As part of the building works, I had had my old garden shed demolished and a new smaller one built across the back garden wall to free up more space in my compact back garden. The old shed had previously housed the washing machine and a sink, and the builders had closed off the old water pipes under the garden. One of these must have sprung a leak, because I ended up with a big swampy pool in the middle of the garden which only became apparent after the building work had finished. Luckily, the builder took responsibility and sent someone round to dig up the garden and identify the leaking pipe and seal it off.
Finding a tenant
Because the apartment is basically an extension to the back of my house, finding the right tenant felt like a very important part of the process. It felt very personal – this person would be living in a part of my home. I advertised initially on Facebook Marketplace in early February 2021, which is free, reasoning that if I found someone through this route, I would not need to spend the € 75 fee for advertising on Daft, which is Ireland’s biggest property website. My vision was to rent it to an individual tenant (as opposed to a couple) due to the compact size of the space. However, what I quickly found was that my ad was attracting lots of couples. I also found that Facebook marketplace, while very good for selling household items (or indeed even a car), was quite a laborious way to find a tenant, and it also does not have such broad demographic coverage. There is a 1 click button on there which generates a message to the advertiser saying “Is this still available?”, I had a lot of these standard inquiries, and in total I sent 115 responses.
After a couple of weeks on Facebook, I decided to give myself the best opportunity to find the best tenant, and paid the advertising fee, and placed an ad on Daft. I subsequently dropped the price slightly to attract an individual tenant, and I got serious about setting up standard draft responses with a couple of screening questions. I sent 217 emails in total. My ideal tenant (in my mind) was someone who can easily afford to pay the rent from their job-based income, a working person, ideally an individual, without pets, partners or kids in tow. A number of people were savvy to this, and initially stated that they were searching for themselves, only revealing during the viewing that they were looking for themselves and a partner. I had one guy who after the viewing revealed that he had a dog, who brought me a box of chocolates and proceeded to bombard me with pictures of his dog chilling with cats, and even kids. He even brought the dog to meet me!
After about 3 weeks I found that I had more than sufficient interest. In the end I did end up renting to a gentleman who is renting it for himself and his wife. He is currently working here, and his wife is expected to join him soon. I verified employment and landlord references, we swapped photos of our IDs, and I put together a basic contract. All is well so far and now the income stream is up and running!
I have included a nice spreadsheet excerpt here to demonstrate the potential yield on this if earning the rental income under the rent-a-room scheme. € 14,000 is the maximum rent which can be earned every year tax-free. Standard build cost is € 65,000 + VAT at 13.5%. I have listed extras relating to the apartment build, and cost of appliances, furniture, blinds etc. On this basis, the maximum potential yield on investment is 18%. The initial investment would then be fully covered through rental income in 6 years. Cash flow is also strong at € 14,000 max. (I have shown the maximum tax-free rental income which is allowable under the rent-a-room scheme. If additional income were to be earned, income taxes would apply to 100% of the rental income, and not just the excess over the € 14,000). I have been transparent in showing my costs. However, I have excluded costs relating to the construction of the shed, which was a pre-agreed, fixed amount, and indeed any extras which did not relate directly to the construction of the apartment, and therefore is not part of the investment made to set up the income stream).
Also worth noting that this is a 25m2 extension in a back garden, so, on that basis, rent could be a lot less, and will also depend on the location, access to amenities etc. It’s worth researching rental prices in your area and running some initial estimates prior to undertaking anything! It’s also worth noting that the rent-a-room scheme might be discontinued by a future government, so it’s probably worth also running the calculations based on taxable income!
There is a really nice sense of satisfaction in seeing the build through to completion. Being able to roll up my sleeves and get physical, whether it was in clearing out my old shed before it was knocked in the early stage of the process, or furnishing the apartment, staging, cleaning and photographing it when it was finished, though to wheelbarrowing all of the spare top soil from my front garden to the back, and tidying up the front garden in the post-construction process, gave me a great sense of satisfaction that I just don’t experience working in the services sector.
There is something very empowering to my mind about being able to get up and do things and make changes. The whole project was something that started out as an idea in my head, initially inspired by the Facebook ad at the beginning of this post. It grew from there to the meeting with 10 builders, doing the due diligence and eventually selecting one, through many meetings to discuss design, delays due to Covid and due to issues between the company owner and her contractor, through to people not turning up when they should.
There were other positive unexpected events that I should mention as well. I had budgeted for a small shed (not included in the costings above). This ended up being insulated the same as the apartment, so that the apartment can in future be extended to be a 2 bed if I wish. The part where the apartment joins the main house was developed to be a laundry room, so now I no longer need to go in and out to the shed to do my washing.
Concluding thoughts are overwhelmingly positive on this. I found myself thinking that I have achieved more for myself this past year by undertaking this project than I have in the past 10 years of working various jobs! (Although it is probably worth pointing out that I would not have been able to do this at all without the savings I had amassed while working those jobs)!
I learnt a whole lot from the project. There were ups and downs along the way, primarily that it took much longer than initially projected – more like 6 months than the 3 initially projected. If I were to undertake another project with a builder in future, I might look to instill some kind of penalty clauses for late delivery! The fact that I was paying on a week-by-week basis and having those weekly meetings to assess progress really helped. It also really helped that I was working from home the entire time, and “living like a boss” in many ways, in terms of being able to run my own schedule, and take time out of my day to have these meetings. Importantly, the project did stay on budget. The aftercare has also been good, such as resolving the pipe that was leaking out underground, which was promptly addressed and repaired several months after the build had been completed.
I have accomplished my goal of setting up an additional income stream, so that my home is effectively covering its’ costs! I have also created a contingency for myself. Should I lose my job, I have the option to move in to the garden annex and rent out the main house. I also have the option in future to expand the extension into a 2 bed apartment, or indeed just to enjoy the extra large house myself! Now that I am in the post construction phase with the new income stream up-and-running, the next question becomes, “What will I do with this additional financial stability?”.That will be the subject of my next post!