A tiny house is essentially a small house. You may be wondering why people are suddenly gravitating to houses as small as nut shells in what is known as the tiny house movement. This article will aim at answering this question as well as outlining the business potentials inherent in a tiny house.
For one, the tiny house movement is an architectural and social movement that advocates living simply in small homes. People are now seeking to take better advantages of space in a bid to reduce or cut down on excesses where real estate is concerned.
Tiny houses or homes come in various forms and designs. Some are built on wheels and are hooked up to trailers to enable their owners take them from one place to another. Others, however, are permanent dwellings that are set on a solid foundation.
Owners of these houses can elect to build them by themselves right from the scratch, or they can have it done professionally. There are construction companies that also specialize in building tiny homes. To create the illusion of space, tiny homes typically employ hyper-efficient design, open floor plans, large windows, high ceilings, double-duty furniture, and micro-appliances. So, even though they come in different shapes, sizes, and forms, they all enable simpler living in a smaller, more efficient space.
Table of Content
- What Lures People to Tiny Houses?
- How to Make Money From Tiny Homes
- What to Consider Before Investing in a Tiny House
How Big is a Tiny House?
According to ‘The Tiny Life’, the definition of a tiny house as far as the United States is concerned is that it is a home with a square footage of between 100 and 400. For you to get the real perspective being referred to here, the size of a typical American home is around 2,600 square feet, you should now think of what a house sitting on 400 square feet would look like.
What Lures People to Tiny Houses?
It is Cheap: For one thing, tiny houses are cheap to own. It has been found out that 68% of tiny home owners have no mortgage (compared to 29.3% of all U.S. homeowners). It’s no surprise then, that more tiny home owners own their own home. The ripple effect of this is that tiny home owners tend to have more savings than the average American who own a mortgage.
Easy maintenance: A tiny home is easier to maintain because the average tiny home is significantly small. Imagine the time you’ll save cleaning up with the average tiny home square footage (just 186 square feet). The average “regular-sized” home in the U.S. is over 11 times larger! That’s much more time spent on upkeep.
They Appeal to Renters and Buyers: While tiny living is not for everyone, do a quick search on the internet and you’ll find stories from people who are and have been living in tiny homes for years. This proves how the tiny house movement is continuing to gain popularity across the country. Simply put, people are embracing the tiny life philosophy and are choosing to downsize and live with less. Many decide to rent tiny houses as paying rent for such properties is less expensive than the average rent for a single-family home or condo.
Buying a tiny house is also appealing to home buyers from baby boomers to millennials because they offer many unique features at an affordable price. As more and more owners of tiny houses share details on their comfortable lives, many people are following suit. For a real estate investor, this shows you that investing in these properties is bound to make profits whether you choose to buy tiny houses for rent or to flip and sell.
More Units and Higher Returns on Investment: When you combine the above advantage, you’ll get yet another reason to consider buying tiny homes for investment. The fact that these real estate properties are cheap, easy to manage, and are in demand tells investors that they’re perfect for building a profitable investment portfolio. In other words, you can buy multiple tiny houses to make more income over a short period of time. In comparison with conventional residential investment properties, tiny homes can make profits at a faster rate.
For example, you can buy a 10-unit multifamily real estate property and wait several years to buy another one. On the other hand, you can buy a tiny home, flip it, and reinvest in an additional property after only a few months! Alternatively, you can buy a number of cheap tiny houses for sale, rent them out, and have multiple streams of rental income! Years later, you would achieve a higher yield and have multiple investment properties under your belt than you would if you went with the multifamily investment.
How to Make Money From Tiny Homes
With houses so tiny, is it ever possible to make money out of it? Well, the answer to that question is yes. There are indeed multiple ways an investor can make money in the tiny house market. Here are some of them;
Rent Them Out Traditionally
The first way you can make money from your tiny house as a real estate investment is by renting it out or leasing it to a tenant. When you buy a tiny house, you can turn it into a rental property there by creating a source of monthly rental income. This can provide you with a good return on investment – depending on where the rental property is located. To make sure you make a headway in this business, ensure that you invest in an area where there is demand for this type of real estate property. This way, you can easily find a tenant and that the rental rate there is decent.
Another thing to consider before renting out tiny houses traditionally is that they’re not fit for everyone. For example, a tiny house that works for an individual would not work for a couple or a family with a baby. As a result, you need to be realistic about what type of tenant is suitable to rent to, based on the size and appliances available in your investment property. You don’t want to rent out to someone only for them to later realize that tiny living isn’t for them, leaving you with an empty rental that is not generating income.
Rent Out To People On Vacation
Another way to make money from tiny houses is to rent them out to people on vacation. While buying a tiny house and turning it into a traditional rental property is a good investment strategy, renting it out as a vacation rental is definitely the better option for most real estate investors. Many of today’s travelers (especially millennials) prefer to stay in non-traditional accommodations rather than a hotel room during their vacations. Besides RVs, lodges, and yurts, tiny houses have become a very popular choice for them as it gives them a unique experience. So, if you’re thinking of starting an Airbnb business as a way to invest in real estate and make extra income, tiny vacation houses are definitely something to consider.
Before jumping in, however, it’s important that you do your research and make sure that you know what’s required in your area. Some cities in the US have strict laws and regulations regarding what type of real estate property can be rented out on Airbnb and similar sites. Furthermore, there might be a limit on the number of days per year that the property can be rented out to short-term guests. Such regulations affect how much money you can make from your Airbnb rental.
Flip Tiny Houses For Profit
The tiny house trend has also opened up investment opportunities for house flippers. Flipping real estate has become a popular strategy for making money in real estate and many people are starting a house flipping business. However, the housing availability is shrinking – which can be both good and bad for flippers. This means that while flipped properties will sell faster, they are harder to find. As a result, house flippers need to be more innovative at finding investment properties. Hence, many of them have turned to flipping tiny houses.
There are two ways to flip tiny homes. The first way is for a real estate investor to simply buy a tiny house, renovate, and then sell for profits. Not only will you take on smaller square-foot projects and have lower costs, due to the demand for tiny houses, you’ll also have a pool of potential home buyers. So, your risk is lower when flipping tiny houses than a larger residential property. The second way is to buy a mobile home park and upgrade the units to tiny houses. Doing this will increase the value and appeal of the park, which you can then sell at a large profit margin.
Rent Out Land
Yet another way to invest in tiny homes involves the land. Say that you have the money but not the time to renovate or rent out a house. Simply buying land and renting it out to tiny homeowners is a great way to easily earn a monthly paycheck and make quick profits. Many owners of tiny houses (specifically those built on wheels) rent the land where their properties sit.
Long Term Backyard Rental
Instead of renting out your tiny home to short term vacationers, you can choose to go the long term. You can rent out your free tiny house and generate steady income year round by renting it out to long term tenants like in-laws, or college students home for the summer.
Apartment To-Go/Tiny RV camper house
You may not have enough space to store your tiny house and you don’t have enough space to take it around either, one thing you can do is to rent out to people who have both of these. Rent it to a trustworthy tenant who will care for it on their own property or on an RV park/campground. To avoid any problems, do a background check and install a GPS locator on the trailer just in case.
Use it for Backyard Office
Working from home, but not at home is a way to keep family life and career separate. Not to mention, less gas, wear and tear on your vehicle, and no traffic. This is one way tiny houses can come to the rescue and also earn you some income. You can rent out your tiny house to serve as an office.
You can also use it as a concession stand for coffee and baked goods, to sell roadside art, flowers, or antiques, or offer services like a mobile hair and nail salon. The possibilities are endless to earn an income with a Tiny House.
What to Consider Before Investing in a Tiny House
Before you jump into the tiny house trend, keep in mind that, just as with other real estate investment opportunities, there are some drawbacks to this strategy. Here are a few things to consider before investing in a tiny home:
Tiny Houses Are Regulated With a lot of Codes
If you’re thinking of building a tiny home, keep in mind that state and local governments have their own building codes for homes built on foundations. Tiny houses built on foundation often have to meet the same requirements as any other house. For example, you might have to prepare the land for construction, pull permits, order inspections, and pay to bring utility service to the site. So, make sure to check the codes in your area for tiny houses and build accordingly.
Stiff Zoning Regulations
Besides codes, many cities have zoning regulations regarding tiny houses which can be strict. Some require you to own the land where you plan to build and rent out tiny homes. There are also regulations regarding the amount of square footage that a living space must have. So, if you want to buy a tiny house for real estate investing, make sure you find one that is zoned correctly. The last thing you want is to buy an investment property and rent it out only to discover that zoning laws don’t allow it to be occupied.
They Don’t Really Appreciate With Time
A tiny home built on wheels is not real estate even if you own the land it’s parked on. These are considered mobile personal property (not permanently fixed on the land) like cars and RVs. So, they are depreciating assets and you can’t expect them to appreciate over time like a traditional investment property. While the land’s value should appreciate in line with the market, the structure will have a smaller net of the total appreciation. Tiny homes permanently built on foundation, on the other hand, have better resale value. Still, you can’t expect to earn the same ROI compared to a traditional home.
Financing Can Be Hard To Come By
Depending on how you’re planning to buy the investment property, this could be a potential drawback. Unless your tiny home meets zoning and building code standards and is built on a permanent foundation, it won’t qualify for a traditional mortgage. You’ll need another alternative if you aim at financing your tiny house. You may have to look at an RV loan, a personal loan or a credit card. However, these can have higher interest rates and require a higher credit score than a mortgage loan.
Nonetheless, considering that tiny homes are cheap, you can still afford to buy them fully in cash instead of taking out a mortgage. In fact, almost 68% of tiny house owners don’t have a mortgage, according to The Tiny Life.