Are accessory dwelling units (ADUs) the ultimate real estate hack? In this episode, we sit down with Derek Sherrell, That ADU Guy, to explore the benefits of accessory dwelling units and how ADUs are transforming the housing market. With over 49,000 Instagram followers and 26,000 YouTube subscribers, Derek is on a mission to influence the creation of one million ADUs nationwide.
Discover why ADUs are called the "missing middle" of housing and how they solve affordability issues while delivering unparalleled cash flow opportunities. Derek shares his personal real estate journey, the mindset needed to start building ADUs, and actionable strategies to overcome zoning and planning challenges. Plus, hear real-life case studies of successful mid-term rental ADUs and how they cater to traveling professionals and other niche markets.
Whether you're new to real estate investing or a seasoned pro, this episode is packed with actionable insights, including why ADUs are the gateway to creative investing, how they add value to communities, and the market trends shaping midterm rentals.
Highlights:
0:00 Welcome to the Landlord Diaries
2:20 Are ADUs worth the investment?
3:35 The mission: influence one million ADUs nationwide
9:15 Does an ADU add value to a house?
11:40 How ADUs open the door to increased cash flow
12:40 Why ADUs are the "missing middle" in housing
19:15 Overcoming zoning and planning challenges
24:55 These 7 states support additional dwelling units
25:45 Real stories of successful mid-term rental ADUs
29:20 The viability of this housing asset type
34:55 Major market trends with midterm rentals
38:10 Midterm rental demand is growing quickly
38:45 Derek's practical tips on the market, ADUs and MTRs
Episode 128 Transcript
The accessory dwelling unit is I call it the gateway drug to real estate investing, and it's the most affordable, most attainable housing option in the United States today, in my opinion for a couple of reasons. Welcome to the Landlord Diaries, where we talk about midterm rentals and the opportunities behind them.
We'll share landlord stories, talk about maximizing investment potential, and discuss how to live the very best landlord life. This podcast is proudly brought to you by Furnished Finder, the leader and largest online marketplace for midterm rentals. Remember to like and subscribe if you enjoy our content.
On today's episode, we're joined by Derek Sherrell, widely known as That ADU Guy. Derek is a leading advocate for accessory dwelling units, known as ADUs, offering free tools, practical courses, and personalized consultations to help homeowners and investors unlock the potential of their properties. With years of experience navigating zoning laws, financing strategies, and design processes.
Derek empowers his clients to create affordable housing solutions while generating additional income with a robust social media presence. Derek shares invaluable insights about ADUs with over 49, 000 followers on Instagram, 26, 000 subscribers on YouTube. So whether you're a seasoned real estate investor Or exploring ADUs for the first time.
Derek's expertise will inspire you to take action. So thank you for being here with us, Derek. How are you today? I'm great. My pleasure. Let's add some value to folks. Yes, sir. So the fun fact about Furnished Finder is we go everything from ADUs. to five plus bedroom houses on the site. So you can rent properties on Furnished Finder by the room.
You can rent properties on Furnished Finder by the entire unit. You could have an ADU in the backyard or attached. You could have to a three bedroom, two bath home. So there's lots of flexibility with how you can go about adding value to your real estate portfolio and really beefing that up with a midterm rental strategy.
Derek is here to emphasize how ADUs can be a huge value with that. So let's jump in. We always like to start with, your story. What is your real estate story and how did you land on ADUs as like your main focus? Great question. So I was a high school student. I was a freshman in high school and I had a woodshop teacher that was forward thinking and he handpicked a group of misfit kids that he knew probably weren't going to go to college and he'd better teach them a skill.
So in 1995, a small group of us built an illegal ADU for another one of our high school teachers. And that was 29 years ago. That's how I got my start. I knew right away that I was good at building from a really young age as a tenant. I knew I wanted to change housing. So from early on, I just, I had a couple of opportunities.
I didn't even know what a mentor was, but I ended up having this high school woodshop teacher as a mentor, got into the building industry right after high school, got my contractor's license. I was the lever that the investor was pulling. I was the labor that was building the asset. And a few years after that, I decided I could probably do this for myself.
And the last two and a half decades have been a journey. To say the least. I love it. And I think I heard that your goal is to influence over 1 million ADUs nationwide. You own a ton of real estate. So why don't you give some perspective to who you are and what value like you are a massive real estate investor.
You're very successful. So let's help the audience understand who you are a little bit better in the real estate world. Yeah. I always try to qualify as just being a normal person. I do want to influence a lot of housing. I've always said that I'd rather have I'd rather help a thousand people have one unit than have a thousand units myself.
But again, qualifying as normal, this is just a simple, repeatable process done all the time. Over time and there's so much emphasis today put on scale and like growth and everybody wants to get rich quick. And I always just want to set the tone early that this is not a get rich fast game.
It's a get rich for sure. If you can take, a longterm approach and you can think in decades and if you can build real estate or buy real estate and hold it. That's how we build wealth. And that's what I always want to teach people is, Hey, it takes a while to do this. It's a long term game and don't sell, don't go for the fast money.
If you want to build wealth over time always hold. And then back to the 1 million units influenced. By no means will I ever build 1 million ADUs. But I do want to have a little bit I just want to be that kind of noise in the ear of the marketplace to say, Hey, there are lots of different alternative housing types.
There are lots of different ways within our planning and zoning code to build housing. And if I can just be a spokesperson for some of those options, I think over time, and I plan to live a long time. We will have influence on a lot of different housing types. So that's the the overarching goal.
I don't like it to sound so arrogant. Hey, I'm going to build a million ADUs cause I'm not we just really want to give away our process. We open source, everything we do, our North star, everything that we're doing today is Geared towards helping other average people like us build this needed infill housing type.
You're just an average guy, but you're not just an average guy. You've got a real estate portfolio worth around 8 million with 50 percent loan to value position, but you live off. 5, 000 per month. So what big picture advice do you have for those that maybe are looking to scale their real estate portfolio and where to start?
Should they start with ADU? Should they start with something else? What advice do you have from them just from the big picture scale? Yeah, I would just get really clear on what your why is and why you want to be in this business for some people. It's money like that's okay. If you want 1000 units and you want to buy a jet, that's okay.
Just be really clear and make sure that everything that you're doing and all your actions and time and energy are going towards that goal. I would always just say, start with the Y for me. Money doesn't yeah. Doesn't power my motive. I don't judge my insides on other people's outsides.
I live a simple life. It's easy for me to live in a small. I live in one of my 80 years. It's 580 528 square feet and I drive a, a 20 year old car that's worth 1500. Those things don't bring me joy or value. So they're not really part of my plan. Another thing I would say is it's not about how much money we make.
It's about how much money we keep. So you can make big pops of money by flipping property, or you can make big pops of money by doing furnished finder arbitrage, but just keep in mind your tax burden. Your financial position, your tax brackets, things like that to build wealth and real estate, we've got to have a long term plan.
And that usually involves pretty much everything. pretty substantial tax strategies. So those are the the other things I would tell somebody who's looking to build a real estate portfolio as a full time job and to back up slightly, I was a blue collar worker. I was a builder and then I was a professional structural fireman.
I always had a blue collar job while I was slowly building this out. So don't think you have to quit your W2 job and then go jump into real estate. In fact, Keep your w two job so you can get loans and slowly, but surely phase your way out of that if that's part of your goal, but always start with the why for me, it's I want to run.
I want to ski. I don't want anybody to tell me what to do. I'm psychologically unemployable. I don't take directions well, and I knew my why was to get loans. To buy my own freedom. So everything I pointed out was how do I help other people open source housing? And then how do I not have somebody telling me what I have to do every day?
And that was the jet fuel that I needed to build what I have today. Love it. I think a lot of our listeners are going to relate with that so much, and so I think this is a perfect segue into, let's jump into the ADU conversation, the main reason why we're here and it's answering a lot of housing crisis issues right now, and a lot of states and national recognition of why we need more ADUs and additional units like this in our markets.
So why don't you. Why don't you go ahead and give us the scoop on why it matters so much to have ADUs as an option in some of these states and markets. Wonderful. The accessory dwelling unit is I call it the gateway drug to real estate investing, and it's the most affordable, most attainable housing option.
In the United States today, in my opinion for a couple of reasons, one any single family zone that has good ADU legislation allows average people, just your everyday homeowner to become a micro developer and build an additional housing unit or multiple additional housing units. In their backyard front yard or side yard.
So if we look at the zoning maps nationwide, this kind of lower density, single family zoning is a major piece. It could be up to 75 percent of the buildable lands within our urban growth boundaries and cities. So 1, it's the most untapped piece of land. We have 2, it allows homeowners to become developers and 3, it's affordable.
The reason Accessory dwelling units are affordable. The A, the acronym A and ADU stands for accessory in most cases. And that means it's accessory to a primary house. And to be a little more technical with that, it means that we can hook into the utilities of that primary house. And a quick example, if we were going to buy a standalone lot with no services, we would have to dig down into the street to the sewer line, say that's.
10, 000 to connect to the main and we'd have to bring in a new water meter, say that's 5, 000 in fees and labor. And then we would have to bring in a new power source, say that's 10 or 15, 000 of fees and utility labor. So we've got a 20, bill before we even start building. Whereas with an accessory dwelling unit, we can simply piggyback off of the existing utilities.
Another reason why the development is so much more affordable is because the infrastructure is already in place. There's fire departments, there's sidewalks, there's streetlights there's roadways, all that infrastructure has already been created. So it's a cheaper, easier, more attainable way to add needed units in any community, in my opinion.
So that's why it's such a valuable tool, not just for investors, not just for people that are looking to build multi generational families not just for people looking to put grandma or an adult age son. There's really no. Yeah. And a lot of you that listen to the show know that my husband and I in the Austin, Texas area, we have two ADUs that are in the backyard or one of them is actually has its own separate fenced yard as part of our three bedroom, two bath home.
So we've got. Two properties that have a three bedroom, two bath home, and then they also have their own ADUs. We rent them out both separately as midterm rentals and with the ADU, it allows us to take our cash flow from our normal, like if it was just a single family home, our goal is, around 500 to 1, 000 in cash flow.
We normally can jump an extra 500 with an ADU that added to the property so we're. Making more around a thousand to 1500 in cash flow. So the affordability is there and also the opportunity for increased cash flow is a fantastic opportunity in our real estate market right now. Alright, so let's talk more specifically about what.
ADUs are defined as, and why are they called the missing middle in housing? That's another wonderful question. You girls must have a podcast or something. I tell you that middle housing is, it's two things in the industry as a planner and as an investor and a builder and a housing advocate. Middle housing is an asset type in my opinion, which means it's priced somewhere in the middle between an apartment and a house.
And that could be for rent or for sale. So just think of 15 percent below the median. And then when it comes to a housing type, most state laws and industry best practices identify middle housing as a property type, usually a duplex, triplex, quadplex, Cottage cluster, hopefully an ADU that's capped out on average around 1200 square feet.
So it's a little bit smaller unit. It's usually some part of a multifamily development and it is a cheaper entry point, either for a rental or for a purchase than your median income. And I'll just give a quick example in my market, because I know it really well. The median price point of a single family home, it's about 600, 000.
And to qualify for middle housing, we're going to hopefully see those prices come in at about 400 K and there's a boutique premium on these. There's, they're actually higher. Square foot per cost to build or buy, but because it's a smaller unit on a smaller lot, typically it's a greater savings for the marketplace.
And you're in Oregon, right? Yeah. Yeah. I'm in a small market in Southern Oregon, just over the California border. Nice. One thing just to make sure we keep it focused on the benefit of ADUs for midterm rental investors is the community aspect, right? It's like midterm rentals, we already have an event short term rentals, because in our communities, we're able to say, Hey, we're providing that need for affordable housing for workforce seasonal workforce, that's coming in to take care of our loved ones in the hospitals or those, new plants going up that are going to really affect our industry and just the overall growth of our market.
That is the type of Of housing that midterm rental provides is that those types of travelers that we need in our cities and are great additions to our community where short term rentals. Maybe you get more partiers, you get more nightly turnover. They're not getting those tenants screenings with a midterm rental.
It's averaging a 90 day stay and they're normally being background checked. And. They are just a great addition to a community and you emphasize that ADUs add that community aspect as well. So how do ADUs change or add value to a community? Today's episode is proudly sponsored by Furnished Finder, the ultimate platform for hassle free midterm rentals.
Whether you're a seasoned landlord or just getting started, Furnished Finder has everything you need to find your next tenant. With Furnished Finder. You can say goodbye to booking fees, markups, and commissions, and hello to direct bookings. If you're ready to experience all the benefits renting your property for 30 days or more, head over to FurnishedFinder.
com where you can list your property for one low annual price. We make it easy to get started.
We're able to add this really cool housing type into, areas that already exist. Like I talked about earlier, there's already infrastructure just based on the actual design and housing type accessory to the primary, there's going to be some kind of shared yard, some kind of shared green space.
One major piece of middle housing. Be it cottage clusters, ADUs, duplexes, triplexes or quadplexes and lower density zones is there is some form of shared green space buildings that that face each other. So there's more of a sense of community actually designed into the plot mapping on this housing type.
So it's always a huge value add another thing that is worth talking about. And I love how you, you brought the benefit above the short term rental. Part of my story is all about long term housing. I grew up as a tenant myself with a single mom. We lived in apartments. We bounced around from place to place.
I knew really young that I was going to change housing. So everything I do is for workforce. I don't do any short term mental stuff. I really care about the need. You know that, that short term market, although it's needed we miss it with that. So the midterm market, not only do we get around the regulations in most areas that are 30 days or less, we're also providing, that product for the little bit longer stay.
And the last piece of the community benefit of the A DU or a DU type housing is that neighbors can, neighbors can accept it a lot more than if we were going to build tighter and taller multifamily development in areas that were traditionally zoned for single family houses so we can make the the neighborhood character flow with what's already there.
I'm not a fan of any legislation or code or ordinance that makes you plan and design and build the ADU matching the existing structure. But it does match the existing environment. So if we can take all these yards and infill them with smaller needed infill housing types it's a huge benefit to the community.
And one thing that a lot of people aren't talking about right now that I'm finding and I'm learning every day is that these are a single story a lot of times. And something like 40 percent of the industry is 65 or older aging in place, and very few people are building single level accessible units for people.
And this could be for traveling professionals, midterm stays, long term stays. So by building in these residential zones, we can also meet the need of the aging in place population. So that's another huge benefit that this housing type brings to a market. Yeah, and as far as the zoning and the planning considerations, it's not always easy to get a yes.
So what are some of those setbacks or like things that you need to think through, parking requirements, size limitations, that help, can help our investors be set up for success with going after adding ADUs to their existing property or looking for properties with existing ADUs? Yeah. So that ladder piece is going to be a huge advantage.
What you just said, if you're an investor and you put on what I like to call my ADU goggles, and now I call them infill housing goggles, but this is a visual. If you guys are not watching this podcast, just picture me with a goofy set of 5 science class goggles on my face. And I put these on in most presentations.
So people actually have a visual look at properties differently. Look through a different lens. If you're an investor looking for a market to build an ADU, you need to become an expert in that local planning and zoning code. When I say become an expert, it doesn't mean you have to go get a four year degree.
You literally have to call, email, and if possible, go into the planning department and say, Hey, I'm a local investor. I'm looking for a single family house in an area where I can build an attached or detached accessory dwelling unit. Can you please show me on your zoning map where that's allowed? And can you send me the standards?
In most cases, the ADU standards for a municipality or a city or a county are like 10 pages or less. Read the standard and then you go target areas that allow ADUs, they might say, Hey, we can, you can build ADUs anywhere in the city. And except for the historic district or except for anywhere with commercial overlay, and then you send that basically I call it the treasure map.
You send that to your team or to your realtor, or you use that to just look around on Zillow. If you're looking for a property, it's really easy. You're not going to miss. If you already have an existing home, you're going to be pinned down to that local address and never ever assume just because your neighbor across the street has an ADU and your neighbor next to you has an ADU, that you'll be able to to build one or convert one.
So I always just tell people to become an expert in your local planning and zoning code, ask better questions. So if you already have a house and you're in Austin, Texas, and you're watching this and you say, I want an ADU, You call, email, and if possible, you go into the local planning and zoning office and you say, Hey, I live at 123 Main Street in Austin, Texas.
I'd like to build an accessory dwelling unit in my backyard. What are the side setbacks? What are the rear setbacks? What are the parking requirements? Do I need sprinklers? Like just ask for the standards. And then here's probably the biggest value add that I'm going to be able to provide today is a lot of jurisdictions will still say no, you cannot.
You're only allowed to build one primary dwelling on a lot. Huge value add. Can I please see your policy for building a detached living space? There's not going to be a kitchen. Okay. Can I build a detached living space? And they're usually going to tell, and then you're going to ask for the standard.
There's clear and objective standards in planning and zoning in most cases. So always ask better questions. Ask for the standards. If they tell, it may just be. B because that's how they were trained or that's how they used to do it. Zoning reform is changing so fast right now that a lot of times professional planners don't even know their new code updates.
So in areas where we can't build accessory dwelling units, you can build an addition to your house, build a master, you can build a master suite. Attached or detached. And then you put in a wet bar and you can use 110 volt countertop plug in appliances, just like the city office would have in their break room.
And they're going to tell you, no, you can't have a fridge and no, you can't run a 20 amp designated circuit to plug in the hot top and no, you can't have a microwave that qualifies it as a dwelling. And you just ask to see those standards and then you ask them what they have in their break room and you're doing something very similar.
So there's. There's always a way to get more housing types depending on what you call it. I love that. It's about creativity, right? And I think even like I know in my area, we're not because of HOA requirements allowed to have any ADUs in our yard or in our home space. But that doesn't mean like you said, we couldn't have some sort of addition or close off the basement and make an extra entry or something like that.
So I love how. Just the concept of continuing to ask questions can open a lot more doors. I think that's true with a lot of things that we discover within real estate investing and being a landlord and within the midterm rental field. So just the idea of asking all of those questions, uncover what other options there are, I think will lead just to a lot more opportunities.
Yeah. And another big piece I'd like to share is empower the decision makers to help you. Hey, I'm really interested in this strategy. I'd like to have some kind of basement apartment or ADUs aren't allowed. I'd like to maybe rent by the room. If this was your property and you wanted to generate a little bit of income, what would you do?
If you ask the decision makers and the professionals, if there's some kind of route in the code that will get you where you want to go, they'll help you. Okay. They're paid based on usually a portion of your tax dollar to help you develop. That is their job. And a lot of times they're super helpful and they're development friendly.
That's why they got into that field. So the days of you know, always fighting with the county or the city and the answers always know are changing. And I'll tell everybody that's listening to this, like I would not be looking for a property anywhere in the country right now you That doesn't have room to add another unit because what we're seeing, and we've already seen it in seven States, seven States have overarching state legislation that say cities have to allow this Oregon, California, Washington, Arizona, Montana, Connecticut.
And I'm drawing a blank on the 7th, but what we're seeing in these big major markets is it takes a few years, but they'll allow the units a few years after that, the cities and states are designing ways where you can actually sell the split these units off and sell them. And we're seeing that in all these states.
So I wouldn't be an investor looking for any property that didn't have what we call infill potential. So just because the laws say one thing now does not mean zoning reform is not spreading across the country like wildfire. If you're in a market where rents are high and affordability is low, mark my words, these options are coming to you.
And what's, something that's interesting, Derek, is, we keep up with news articles that mention Furnished Finder and, A ton of news articles we've seen come across over the last, couple months have been focused on retirees that are looking for additional income or someone that's looking to move out of their W 2 and they decide I'm going to add an ADU to my property.
And then they are combining that with midterm rentals to maximize the value and the cash flow for the equity and the cash flow. And they're able to then take their freedom at. With that extra income coming in having their mortgage coverage, maybe having a little extra on top. And then they can go travel as they've been wanting to do for however long.
So we've had, we've seen quite a few news articles on that lately. Just reiterating what you're saying, tying it into the midterm rental aspect of it. And then we have a mid ADU playlist on YouTube. So if you're loving this idea that midterm rentals and ADUs could be a successful addition to your real estate then dive into that playlist and check out Karen's story.
She, this one's she's building in the process of building three luxury hotel style ADUs in. Attached to her house in California. She said I just have a fantastic view that I want to share with others and She loves the hospitality side of hosting and she already added a 700 square foot ADU to her existing property, so she's about to have three more additional options that she can rent out as individual rooms Or she can rent them out as a full three bedroom space for people, families coming into the area for like insurance claims or relocating things of that nature.
And then some other ones we have one more I want to highlight is with Barry Goldblatt. He's a retiree and he did exactly what you're saying. He added turned an office. Unused space of his home since all of his kids have moved out. They had four bedrooms or so and just was using it for storage.
So he put his thinking wheels on and he turned that into a profitable midterm rental and got to work on building it with, countertop appliances. I think it has a queen size bed, things of that nature. So there's a lot you can do in this space. And. Derek is actually a Furnished Finder host himself on properties that you like to live in occasionally, right?
Is that how you choose? You're mainly a long term rental investor, but how, when do you choose to add yours to Furnished Finder personally? Great lead in question there. You spoke of one of your case studies there who was traveling and renting out their place. And that's what I that's what I midterm my personal houses for.
So whatever house that's my primary after I live in it for a year or two I'll turn that into a midterm rental because I want to be able to come back to it. And on my longterm side, I'm putting everybody in one or two year leases. So it's one way to not lock up a place that I want to visit or a place that I want to stay.
That's my home base. And then I can't help myself, but to piggyback on what you were just saying about the viability of this housing type or this asset type for a midterm rental specifically, this is just for our listeners right now. I don't know the data, but I do pay attention and what I see, at least in markets that I follow is a lot of these travelers it's a single professional, maybe it's a single professional that brings their partner and a dog.
But the one bedroom, one bath space is what most people I see are looking for a midterm stay. If you're doing contractual stuff with executive placement groups or with insurance agencies, yeah, you're going to need this for families as well. But the cut and dry. No brainer. Real estate investment option for a lot of investors is going to host two or less people.
And by, by focusing on a product of this size, the returns are really high. Okay. You can get a lot higher return on your investment for a small space than you could on a large space, especially 300 square foot unit. Let's just say a grosses, 2, 500 a month. You could never get a three bedroom.
To, to gross three times that you're just not going to that economy of scale is not there. So specifically for our midterm rental investors that are thinking of what's the best return on my investment on Furnished Finder, these smaller units for two people or less, and I'll cap that with tenants, whether they're traveling midterm, short term or long term.
Tenants are savvy today. They have more choices than they've ever had. Tenants want the exact same thing that homeowners want in this order. They want location, They want privacy and they want amenities and we'll hit a home run every time. If we buy properties in good areas with good zoning, especially for this they want privacy.
So we like standalone units, no shared wall, definitely not over unders if we can help it. And then we give them all the nice amenities. So all these beautiful amenities and designer pictures and staged photos, like all the stuff that luxury for sale real estate used to have to really specialize in.
We're doing that for our longterm rentals and affordable areas. Like we have to get better, but that two person or less household and travel size is what I wanted to drive home to help your guys's viewers, especially right now. Yeah. Yeah. The 80 user, a great way to do that. Because. They're usually not going to be giant, right?
We have a lot of travelers that are like you said, individuals or couples, maybe a couple with a dog. Roughly 50 percent of our inventory is, that one bed or studio. So there's a really high demand for it. You are absolutely right with that.
Hey, landlords, are you ready to level up your rental game and simplify your midterm rental business? Get ready to meet your new best friend, Keycheck. Keycheck is your all in one solution for stress free property management. With tenant paid screenings, online rent payment processing, custom lease creation, and a suite of incredible landlord tools, you'll wonder how you ever lived without it.
No more chasing down checks or sifting through piles of applications. Keycheck helps you organize and manage all things landlording Simple and efficient way. Make landlord life a breeze with key. Check the game changer for modern property owners. Visit key check.com to unlock the power of stress-free property management and take your rental business to new heights.
And then again, just to set ourselves apart in this, in the midterm market looking at what the consumer, the client. The traveler wants, it's at least again, what I'm seeing in my areas and markets that I watch is that privacy piece. So they want, a no sugar wall and then a fenced yard because everybody's got a dog now and if we can I read some data on Zillow yesterday that 49 percent of tenants have a dog and I think that their FinTech is as good as anybody's and I believe that.
So just think half of the travelers or half of the tenants today. Have a dog. If you can be pet friendly and have a fenced yard and maybe put a doggy door in your back door. You're really going to stand out against the rest of the marketplace. Another tip. That's what I'm doing because it works right now.
Yeah, I love that. Those little tips can make all the difference though, especially when. There is a lot of inventory and tenants are getting savvy, right? Like in the midterm rental space, it used to be that there was so much choice or I'm sorry, there was so much demand and not a lot of choice that you could get by with not doing very much right now.
Tenants are noticing if you have amenities and when we're talking about amenities, this doesn't mean, giant pools or kayaks or surfboards or anything like that. It's like you mentioned, it's the privacy, it's being pet friendly, it's having a quiet location. These are the amenities that a midterm tenant will care about are very similar to a longterm tenant.
Yeah. Yeah. And even more so as a buyer, like the most picky person in the marketplace is always like the luxury buyer and tenants long, short, and mid are having more of a lens as a longterm luxury buyer. And we just have to get better at our craft. The days of like Just posting anything and filling up your calendar.
Those are over. I don't think they're ever coming back, especially in the midterm rental space, where more and more cities are passing legislation that disallows short term. So all these short term people are moving in the long term. I've seen some major market trends in 2. 5 decades of is. Practicing this strategy.
And this is a good case study that I want to share. One of the biggest influences on my local market was about 10 years ago when our city council came out and decided that we're going to wait. We're going to change the regulation, the requirement, the permit required to do a short And we live in this cool little mountain town with the Oregon Shakespeare festival that brought in about a million people a year.
So there was a large demand for this, what we're calling now a traveler accommodation, a short term rental. And all these people that had these grandfathered in short term rentals were no longer grandfathered in. And what we saw is in one season, we saw a couple hundred short term rental units hit the market.
In mid and long because they could no longer do short term and we had this instant flood of inventory for that space, think two people or less, a lot of standalone cottages, a lot of basement conversions, a lot of attic conversions, a lot of things that would you would find on your side at Furnished Finder and what we saw as investors was that like all of a sudden there was all this inventory, but the one advantage That we had being in the mid and long term space at the time was we'd already baked in that little bit lower price point.
So we had all these people that were used to say netting 2, 000 a month on a rental that had a market rate of 1, 000 a month. And they all came to the market at the same time and they advertised for 1850. So just know that when the market flexes, when we have a lot more inventory, when we have to pivot, just be aware, remember, have a different lens on be looking through a different lens try to do the opposite of what the market's doing.
I just see so many people that are like, Oh, in 2022, this property made 60 grand net. So I have to keep my nightly rate or my, I have to keep my monthly rate at this. And that's the number one mistake I'm seeing midterm investors that I know. Make is they're still stuck in the same pattern as they were a couple of years ago when the market is over here when the market has shifted.
Yeah, and I think to your point, it's very important to be. opportunistic when you're making these pivots, right? Because a lot of people, if they entered in that height of that market, where it was like, all you had to do is list your property and you knew it would get booked. It was easy to bring in that rent and that revenue and to place those tenants.
And now it might feel harder, right? But there's also opportunity with that. If you're looking at it through the right lenses, you can say, How can I differentiate myself? What amenities can I add? How can I be a different type of host? How can I present my listing on furnished finder so that I'll stand out?
How about my process? What can I do with it throughout my rental process to ensure that everything runs smoothly and efficiently? What type of online tools am I using? Am I using things like e sign for docs and online payments? Like these things that are, that might've felt little a couple of years ago.
are much bigger now that there is more competition, right? But it's all about how you look at it. And I think there's people that look at it and say, Oh, there's too much inventory. Now it's so much more inflated. And it's no, there's still plenty of demand. And the demand is growing. We're seeing it grow month after month, but you have to have the right attitude and the right point of view to say, okay, how am I going to make this work for me?
How am I going to, how am I going to pivot? Do I need to lower my rent during the lower months? If you have property, like we have properties in the Midwest, they're just not as popular in the winter. That's really cold. So we got to lower the rent a little bit in the winter. And that's okay.
Because to your point, I want to have the space filled. All right. I love this. We have just a couple minutes left. So Derek, I want to leave you with the floor to just maybe give people a few tips that they can take from you as the expert on ADUs and maybe some practical advice. We can even get, as detailed as how do you store things or how do you furnish small spaces like this?
Or where midterms and where's your outlook for the future? Just Give us your last few thoughts from someone who's been so ingrained in this industry and has so much expertise. I would say that the market is showing us that home sizes are trending smaller. Okay. Even the biggest home builders we've got DR Horton and Lenar that are building subdivisions in Texas that are 600 square foot.
Two bedroom, two bath, two story houses. So places are getting smaller. I would say that tenants long, mid and short term are all getting savvier. So we have to be better at our craft if we want to, capture a piece of that market. I would say that every question that you don't ask is a no.
Some of the limiting factors that I hear are, Derek, ADUs aren't allowed in my area, or Derek I can't afford the price to build. You're not asking the right questions and you're not asking enough of them. Another piece of advice I would give people is that this is hard. This is a really hard business.
And especially in the midterm rental space right now, you have to be motivated. If you're going to go into any business like half cocked and give it, 50 percent of your time and attention and effort, like you're probably not going to be successful. So this is a hard business. I always want to leave that disclaimer with people.
But repeatable when you figure it out. Another thing I would say is think long term. If you can think long term, you're going to win. Just so many people today, they want to scale. They think they need a thousand units in their first year because they saw some 21 year old on YouTube do that. Most people aren't capable of growing that fast.
So think long term. And then the last and most valuable thing I could probably say is everything that you're doing, you should also consider looking through the lens of your customer. For me, in most cases, it's long term. My biggest competitive advantage is thinking like a tenant and having been a tenant myself, taking care of that tenant.
If you're in the midterm rental space and you're wondering how to crush it and Furnished Finder in 2025, really get to know your customer and what they want. Look at the competition in your area, do better than they're doing, and you'll reap those rewards. I think that's all I could really Say, as far as the ADU space at least send an email to your local planning and zoning code in the market that you like and ask them, Hey, are ADUs allowed yet here?
If not, do you think they're coming soon? Is the council talking about them? A lot of people don't even know that they have awesome infill housing legislation in their own town or their own areas that they invest because they don't ask the questions. I think that's fantastic. Best advice we have heard in a while.
Well, Derek, it has been a pleasure and thank you so much for talking about something that we probably don't talk about enough because there's so much opportunity that could be quite literally in your own backyard. Let everybody know how they can connect with you or learn more if they would like to do yeah, I'm probably most active on Instagram and on YouTube. You can find me anywhere at that ADU guy. We have a ton of free resources at that ADU guy. com. And we give away our ADU plans, the two models that we build over and over. We actually give them away for free. You can download them right now at that ADU guy.
com. Go to the resources tab. I don't even need your email. You'll never get spam from me. I don't keep emails. You'll never hear from me. I don't have anything to sell you. I'm not going to sell you a course. We open source everything we're doing. And then on our YouTube channel, we actually teach people how to.
Build those two plan sets. I've got a playlist that's called how to build an ADU. It's 14 parts. And I personally am in the ditch and on the roof going over all 200 steps of how to build both of those ADUs. Not that you have to build it yourself, but you'll at least understand what you're paying your contractor for.
And then I try to post every day, something on Instagram on a reel about what we're doing. And that's, it's live. That's all the stuff I'm doing that day. I don't have some bank and then I just disperse that content. I just record what I'm doing and I share it with other average people like me. And if you take massive action and you have a long term view, one of these days, you're going to look up and you're going to be like, Holy crap.
How did I get here? But it's long term. Derek, thanks for being with us today. It's another fantastic episode of the landlord diaries all about midterm rentals from studios and ADUs all the way up to four plus bedroom homes. All can be successful. Midterm rentals. If you have a successful. ADU or additional space in your home on Furnished Finder.
We want to hear about it. Leave it in the comments. Thanks for tuning in. Don't forget to subscribe, or like I said, comment and share our show with a friend. Have a great day, everyone. We'll catch you next week for brand new episodes of the Landlord Diaries.