The tiny house market has been steadily gaining momentum for years. Tiny living has attracted the attention of many homeowners who seek a simpler lifestyle, but it has also sparked the interest of many property investors. The question is, is there potential in tiny homes as investment properties?
What is a Tiny House?
There is no specific definition of a tiny house, but in general, a tiny house is any home that’s under 600 square feet — a significant downsize from the typical 2,600-square-feet American homes. While most tiny homes are built on trailers, which are called Tiny House on Wheels (THOW), they can also be built on foundations.
Since tiny homes are mobile, they can be parked in RV parks, campgrounds, and more. However, some states require tiny homes to be parked within one’s property. Tiny homes that are built on a trailer are not governed by the building code since they are not permanent structures, and are instead considered recreational vehicles.
What is the Tiny House Movement?
The tiny house movement gained traction in 1999 when Jay Shafer founded the Tumbleweed Tiny House Company in California, a company that builds tiny houses. The idea of tiny living was pushed forward due to the 2008 housing crisis where foreclosures across the U.S. spiked above 81%. This motivated homeowners to downsize and move to more minimalist homes such as tiny houses.
How Much Do You Need to Own a Tiny Home?
The cost of adding a tiny home to your rental property depends on whether you’re planning to build it on your own or buy a pre-made unit. Below are the average costs of both scenarios to help you decide:
Building Your Own Tiny Home
A tiny house can require anything from $25,000 to $35,000 in materials alone. While there are tiny homes that have been built with far less ($7,000 to $8,000), the difference is in the quality of materials. Besides the cost of materials, you also have to take into account building permit fees, labor, transportation, and much more. If you construct your tiny home by yourself, you can save around $7,000, but remember — professionals already need 120 hours to build a tiny home. If you can only dedicate half of your time to the build, it may take you over a year to complete it.
Buying a Pre-Made Tiny Home
Ready-made tiny homes can cost $35,000 to $100,000. Generally, the higher the price, the better the materials, appliances, etc. Higher prices are also expected in prime locations such as Los Angeles or Miami. The main advantage of buying a pre-made tiny home is that it’s fully customizable. Whether you’re six feet tall and need more headroom, or you’re living with pets, professional tiny home builders will design the tiny house that fits your requirements to a tee.
Advantages of a Tiny Home Rental Property
More and more people are taking part in the tiny house movement, but the real question is, are tiny homes a smart investment? As a property investor, should you consider adding a tiny home to your rental property? Below, we break down the major benefits of investing in tiny homes.
#1 More Affordable
For first-time investors who can’t afford big investment properties such as single-family homes, a tiny home is an affordable alternative. Pre-made homes can cost as little as $35,000 but other factors can affect this price, including location, appliances, size, water access, etc. For comparison, the average price to buy a home in Florida is $285,000.
#2 Easier to Manage
Tiny homes are generally easier to maintain. You only have to worry about 600 square feet or less, which means you’ll have more time on your hands for other activities. What’s more, is that you don’t have to worry about the costs of major repairs, and you can save thousands of dollars on utility bills. Many tiny homes are energy-efficient and are powered by solar panels.
#3 Tiny Living is Big
The tiny house movement is continuing to gain momentum across the U.S. People are embracing the simple and minimalist lifestyle that comes with tiny living. In areas with a high population of young professionals, tiny homes are popular because of their affordable rent. They’re significantly cheaper than a single-family home or apartment unit.
#4 Higher ROI
Because tiny homes are affordable and easy to manage, you can buy multiple tiny homes to generate more income. You can see a higher return on investment at a much faster rate. For instance, you can buy one tiny home today, rent it out, and buy another tiny home within a few months!
Should You Add a Tiny Home to Your Rental Property?
Before adding a tiny home to your rental property, you should first consider your existing tenants. If you have tenants living in the main house, they might not be too happy about a stranger living in their backyard. Tenants may not find this type of property appealing, especially if they’re looking for privacy more than anything else. On the other hand, some renters may appreciate having a tiny home adjacent to the main house for their in-laws, guests, etc.
What Legal Aspects Should You Consider?
In some cities, tiny homes are governed by local zoning ordinances that limit the number of tiny homes in a particular district. Some areas also require tiny homes to be built on permanent foundations of at least 300-square-feet. Others prohibit tiny homes to be parked on land unless it is legally owned.
Wherever your rental property is located, it’s best to thoroughly research local zoning laws and ordinances. You can also consider getting property management services to help you navigate the different legal aspects to consider.
Luxury Property Care can help property investors decide if a tiny home is a worthwhile addition to their rental properties. Our seasoned property managers will analyze the market to determine if it’s the best move.