A major question people have before making the decision to downsize, is the future prospects of their house when it comes to market value.
The national housing trend is that property prices go up constantly. It is very rare to hear of a house that costs cheaper now than it was purchased. It is natural that tiny home owners would also want the same for their houses.
While not as big an investment as a normal house, spending fifty thousand bucks on property that will likely depreciate is not a very enticing concept.
But appreciation and depreciation of property is not a straight forward matter.
There is a common misunderstanding that a physical house appreciates in value over time. That is far from true. A house is an asset like any other, and its continued use leads to depreciation.
It is the land on which the house sits that appreciates in value. Therefore, for the selling price of any house to be higher than the buying price, the land must have appreciated more than the house has depreciated.
Alternatively, improvements on the house, such as adding a pool, may help mitigate this depreciation, but that still factors into the cost.
Do tiny homes appreciate in value?
Once you understand the concept of what appreciates and what does not, it is easy to answer this one.
A tiny house built on a permanent foundation will more often than not behave or react to market forces the same as a normal house would. That means that if the land value in a particular area has gone up, the tiny house too will appreciate.
The concept is simple really. Land appreciates because it is in limited supply, while the population keeps on growing. If no one is producing more of something, but the demand keeps going up, you get yourself some appreciation.
Other ways a tiny home may appreciate in value?
1. Economic reality: In boom times, more and more people will be willing to take on tiny homes, particularly those on wheels, as their second home away from home. In the 2008 recession for example, RV sales reached record lows, but rebounded as soon as the economy improved. 2017 was a record high for RV shipments in the US. In such times, it is common for tiny homes to appreciate in value alongside other types of property.
Tiny houses also happen to be one of the few if not the only type of property which may see an appreciation in both recessions and boom times.
During recessions, the demand for affordable homes either to rent or buy is off the charts, and tiny houses are well positioned to benefit from that.
2. Zoning and regulatory changes: This is location specific, and may only be temporary. States and local councils are changing zoning laws all the time, often towards more acceptance of tiny houses and accessory dwelling units (ADUs). It is common for demand of tiny houses to go up whenever such changes happen. This means people within or nearby these areas can make a killing selling their houses.
Why do tiny homes depreciate in value?
Many tiny homes, perhaps even the majority, are on wheels. This means that they are frequently moved around, and cannot claim the land they lie on at any particular time.
This can either be an RV parking lot, some temporary off-grid location or someone else’s backyard.
Since we have established that houses depreciate while the land appreciate, it is therefore logical that a tiny home on wheels will depreciate in value over time.
In fact, you can look at the situation the same way you would look at buying a used car over a new car, because frankly, many of these mobile tiny homes are just livable motor vehicles.
So, if you ask yourself; is a tiny home is a good investment to make? you will have to establish whether you want to have it on a permanent foundation with full ownership of the land below it, or whether you want it to be a mobile home.
Other ways a tiny home may depreciate in value
Other than the usual wear and tear, mostly common in a mobile tiny home, there are other ways a tiny house can lose value.
It is largely the same reasons any other house would depreciate, except in one regard.
1. Economic reality: When it comes to tiny housing, the economy cuts both ways. In times of recession and high unemployment, the supply may exceed demand, which translates to houses of all kinds staying in the market longer. The end result is usually to slash prices.
2. The fad ends: The argument that tiny houses are a passing fad is as strong now as any other time. There are uncountable people who believe that this is a phase and that people will at some point get back to their right senses. If they are right on the money, you can bet many tiny homes will depreciate. This will be a gradual process however.
3. Location: This influences not just the price of a tiny house, but all other properties in an area. It could be anything from the construction of a new road nearby, or a decline in the population of the area, hence lower demand.
4. Nearby foreclosures: Having a high number of foreclosures in a neighborhood is a sure way of repelling buyers. Lower demand, lower prices.
5. Neighbors: Your neighbors’ behavior play a key role in influencing the value of a house. No one wants loud parties, barking dogs or a registered sex offender living close to them.
Also check out: Are Tiny Houses Still Popular ?