Are Tiny Houses a Good Investment?

Are Tiny Houses a Good Investment?

5 min read

No one likes the problems and payments that come with a big house. Let’s face it: huge air conditioning bills and excessive property taxes don’t seem appealing.

Enter the Tiny House Movement.

In comparison to traditionally-sized homes, tiny homes cost less to run, making them a great investment. On average, they’re subject to fewer property taxes and are easier to maintain. Given their popularity, they also work exceptionally well as investment rentals.

If you play your cards right, a tiny house can be the best investment you’ve ever made. Here’s what you need to know:

 

How much do tiny houses cost?

The average cost for a tiny home right now is roughly $46,000. When you compare that cost to the average price of a traditional home, $310,000, you are getting a pretty good deal.

Of course, depending on the materials used, labor costs and the region of the country you live in you could pay as much as $70,000 for a tiny 400 square foot house. Those prices are quite high when you compare them to what it will cost you to build your own tiny house.

If you’re handy with a saw and a hammer, you can lower your housing costs to just $15,000 and up if you build it yourself. Your total costs will depend on the quality of the materials you use.

Tile is more expensive than wood flooring and cedar is more expensive than drywall for the interior. Your costs will fluctuate according to your tastes and budget.

 

Do tiny houses depreciate?

Tiny houses can depreciate, but only if you keep them on wheels.

On wheels, for tax purposes, they will be seen as a depreciating asset and not as a true real estate holding. This can be concerning if you are looking for real estate tax breaks.

It is not wise to think that you will get the same type of ROI or return on your investment for a tiny house that you would receive from selling your traditional home. Tiny houses are in a different tax category.

It would be a wise move if you checked with your local accountant or bookkeeper before investing in a tiny house or spending the money on the materials to build one. They’ll be able to let you know the best way to proceed before you commit yourself to a tiny house.

 

How long does a tiny house last?

A tiny home is like any house, RV, or trailer you may already own. How you take care of it will be the largest factor in how long the home survives. If you don’t take care of it, don’t expect it to last more than a few years.

But if you take the time and make sure you fix problems as they come, then these little homes can last for decades. Here are some things to consider prior to building or buying your tiny home:

 

1. Items will be getting more wear and tear

Space and appliances are going to be used more often in a tiny home than in a traditional house. That extra usage adds wear and tear to the materials and property.

 

2. You’ll have less room to maneuver

The small space means that everyone will be in close quarters. Everyone will have less room to maneuver and less personal space. The furniture will be used a lot more which may lead it to break faster than they normally would.

 

3. Your trailer may break down

If you keep your tiny house on wheels then you’re adding to your troubles. Wheels and axles can break or go flat. And these repairs need to get fixed if you want to move your house. This doesn’t include lights, brakes, and other items associated with movable tiny homes.

The vibrations that come or the bumps in the road when the house is moving also take a toll on your tiny house. Not just on furniture, but on the frame as well. For example, tile is prone to cracking.

If you build on a stationary foundation, chances are your home will last a lot longer than one built on wheels.

 

Do you have to pay property taxes on a tiny house?

Whether or not you’ll have to pay property taxes on a tiny house will depend on where you live and if it’ll be anchored to a permanent foundation or not.

The region of the country you live in will have tax laws that govern what kind of tax you will have to pay and how much you will have to pay. As one group of tiny homeowners found out, while their house was titled as an RV, the government classified their tiny home as a mobile home. As a result, they had to pay property taxes.

Every county, state, and city tax office view tiny homes differently, so you’ll need to check the laws in your local area. Keep in mind that the Federal IRS, for Americans, doesn’t levy property taxes but they do allow you to deduct those taxes from your federal tax statements.

If you own the land and anchor your tiny home to it, then most likely you will have to pay property tax as it will be seen as true real estate.

 

Will a bank finance a tiny home?

Typically, tiny houses do not qualify for traditional home loans. Their average sales price is usually too low to qualify. However, if you want your tiny house classified as an RV you should be able to qualify for an RV loan, but only if your bank has that option.

But, if you are planning to live in a tiny house on a permanent basis, you won’t qualify for this loan option.

The other problem that usually disqualifies a tiny home from traditional home loan programs is their lack of foundation. There are other ways to finance your tiny home purchase through the bank. The first way would be to get a personal loan to cover the costs. These loans can go from $1,000 up to $100,000.

A second method is the home equity loan and you would need enough equity in your current traditional home to qualify. There is also a home equity line of credit which acts more like a credit card instead of a real loan. Again your traditional home’s equity is the determining factor here.

To qualify for a regular mortgage loan, the tiny house would have to be put on a permanent foundation and the blueprints would have to meet bank approval.

 

Ways to use your tiny house for investment

When you are thinking about taking advantage of the tiny house trend, there are ways you can use these homes as good investments. Here are some of those ways to help you earn some money from these homes:

 

1. Traditional renting

Tiny homes are great for single, employed men and women or for a couple just starting out. They get more privacy than they would if they rented an apartment in a traditional apartment building.

 

2. Use it as a vacation rental

Airbnb and similar companies are quite big and you will get more money through this option than traditional rentals. However, this does require more maintenance as you will have to worry about cleaning and check-in.

 

3. Flip the tiny house

You can renovate your tiny house and sell it for a higher cost or attach it to a permanent foundation on vacant land you already own.

 

The advantages of investing in tiny houses

Here are the benefits of investing in a tiny house:

 

1. Tiny houses are cheaper

It is a well-known fact that you can buy a tiny house for a fraction of a traditional house. This makes it easier to pay off and if you do it right when you are ready you can resell it at a profit.

 

2. Tiny houses are easier to maintain

Maintenance will take less time since the areas that you have to fix, upgrade, or replace will be smaller. For example, instead of 5 to 10 gallons of paint to cover the exterior, you may only use 1 or 2.

 

3. Tiny houses cost less to run

Tiny houses use less heat and electricity in comparison to traditional homes. Therefore, you’ll save on electricity.

 

Final thoughts

A tiny house can be a great investment because they are relatively inexpensive and more efficient compared to traditional homes. They can also be flexible, allowing you to travel, while never leaving your home behind.

If you found this article interesting, feel free to check out my other posts on tiny homes!

Victoria Miller

I'm the founder of NTT. I live in Miami, Florida, and enjoy learning everything there is to know about tiny spaces.