Is a Tiny Home a Good Investment?

is a tiny home a good investment

The environmental and sustainability argument often dominate the debate on tiny homes. Most proponents of the idea push and advance tiny living because of all the benefits it brings, particularly when it comes to climate change and environmental degradation.

However, it goes without saying that unless an economic argument is made, tiny homes will always remain a curiosity or a novelty, only attracting the most daring. Unless people are convinced that a tiny house makes proper investment sense, we will never reach mass adoption. Very few real estate companies will jump on board, which will then translate to more barriers to the adoption.

Most importantly, if people do not see any economic value in tiny homes, they will not pressure policy makers into smoothening the path for their adoption. This means that most parts of the US will continue having very unfavorable ordinances and zoning regulations.

So, let us try to answer that very question.

In summary:

Why a tiny home is a good investment:

  1. It’s cheaper than a regular home
  2. Availability of lenders with multiple financing options.
  3. Long-term savings such as energy bill, water bill, tax bill etc.
  4. Increasing interest in tiny home rentals on Airbnb and others.
  5. Location flexibility
  6. Resale value

Is a tiny home cheaper than a regular home?

is a tiny home a good investment 1The easiest way to make a price comparison is by comparing directly. While the conventional way is to price houses by the square footage, it is no secret that we often end up with more space than we need.

The point of a tiny house is to downsize, and therefore a wholesome price comparison is appropriate.

A tiny house can be surprisingly cheap. We have seen very decent ones starting at about $8000, but a nice average is about $50,000.

Remember the national median price for a home in the US is $363,300 in 2021. That’s an increase of over $70,000 in just five years and over $140,000 in ten.

The national median can further be quite deceptive. The lowest priced houses are found in states that are relatively poor; like Mississippi, West Virginia, Arkansas, Oklahoma, South Carolina, Kentucky, Alabama and Louisiana.

In fact, the above listed states make up the lowest 10 median home prices in the country.

Another defining trait common with all these states is that they are very conservative with their politics and policies. As a result, they have some of the lowest favorbility ratings for tiny houses. Most of them have not even held any debates on changing zoning regulations to allow for tiny houses, and thus adoption is quite low.

The states that are seriously pursuing tiny houses as a sustainable option happen to be the most expensive states to live in, and California is the best example.

The Golden State has the highest or second highest home median price in the country, depending on the month and year. In 2021, that price was over $500,000. While many in the state are capable of paying that, there is still a vast number that cannot.

Which explains why California is leading the way in terms of adoption of tiny houses.

Given the choice of a $500,000 house, or a tiny house that will likely cost you under $50,000, the choice is rather obvious.

So, to answer the question, Yes, a tiny house is cheaper than a regular house. Depending on the state, the difference may either be small or very dramatic.

A tiny house in Alabama may not save you much, but in California, it could be the equivalent of a decent retirement fund.

Can you get mortgage for a tiny home?

is a tiny home a good investment

Transforming your Pinterest vision into a cute tiny home requires financing. And let’s face it, not many of us can walk into a bank and withdraw $50,000 from our savings account.

It is true that most people who go this route self-finance. In fact, approximately 68% of tiny home owners are mortgage-free, compared to an average of just 29% of all homeowners.

This is due to two reasons:

1. Self-financing with savings is easier when the bill is not huge.
2. Paying off a smaller mortgage can be faster.

Some years back when tiny homes were seen more as a novelty, just a few financial institution were willing to lend out for this purpose. This has however changed dramatically over the years, and today lenders are literally begging people to take up their tiny home mortgages.

That, however, is not to say that the gap has closed. It is still a lot easier to get financing for a normal house than a tiny house. This is because most lenders have a minimum mortgage amount, which often exceeds the price of the average tiny home.

On top of that, other requirements adopted by most lenders, such as the house be built on a permanent foundation, rule out certain types of tiny houses, such as those being transported off-grid.

Another barrier to financing of a tiny house is the requirement of most lenders that an appraiser finds comparable properties in the area, so as to give a proper market price. Well, it’s a bit tricky if you are to be the only tiny house in the area.

When the mortgage route fails, there are still other ways you can finance your tiny house. A good option is taking a personal loan.

If you want a tiny house on wheels, an RV loan would be an even better option.

Bottom-line is that availability of financing would go a long way in making a tiny home a good and seamless investment. As mentioned, it is much easier to get that today than it was several years ago.

What are the long-term savings of owning a tiny home?

The benefits of downsizing into a tiny house are not just apparent with the purchase price. Yes, you can save a tidy sum instantly, but there are more savings coming your way with continued use.

For a tiny house to be a better investment than a regular house, this must be the case during purchase and in the course of its useful lifetime.

Let us look at some of the things you can save:

Tiny house energy savings:

The vast majority of tiny home-owners have adopted alternative forms of energy, partly to pinch their pennies, and partly to be sustainable.

Finding tiny houses that get all their power from solar is not an exception, but actually rather common. For a normal-sized house, powering it exclusively with solar would be a very expensive undertaking. But a tiny house has much less space and much less need for power.

Even when not using solar exclusively, the energy bill of a tiny house is a fraction of what a normal house is.

According to the Energy Information Administration (EIA), the average electricity bill in the US is $117. It’s a lot more in some states like California, at over $190 a month.

With a tiny house, the electricity bill can be as low as $30, and rarely above $70. This is quite significant savings on just one utility.

Tiny house water savings:

When it comes to water, tiny homes are notoriously frugal in their usage.

In the US, the average person uses an average of 82 gallons of water a day, according to the Environmental Protection Agency (EPA). For a family of four, that amounts to almost $100 a month.

With a tiny house, that number can be as low as 10 gallons of water per person per day. In short, your water bill can just be a rounding error.

Tiny house groceries savings:

Savings on food and other groceries is not uniform. One advantage of living in a large house is that you have lots of storage space. This means you can buy lots of stuff in bulk, often cheaper.

With a tiny house, space is limited and you therefore have no choice but to buy grocery in small batches.

This can have two effects:

1. Cost you more in upfront price.
2. Save you more in wastage reduction.

A key advantage of downsizing is that tiny homes reduce wastage of food and other things. If you find a way to almost eliminate all wastage, you could potentially save a lot on groceries.

Tiny house tax savings:

As Benjamin Franklin famously said, nothing is certain except death and taxes, and like with any other type of home, tiny home owners are expected to meet their tax obligations.

How much you pay depends first and foremost on where you live. Different states in the US have different tax laws. Some states demand either a state or local property tax, while others do not.

These taxes are most importantly based on the value of the home, but in some cases, other factors such as the weight and type may be put into consideration.

With any of these parameters, it is quite evident that a tiny house will have the upper hand. Whether it’s how much a tiny house weighs, or its market value, there is no beating that with a normal house.

With the mobile nature of most tiny homes, you can even opt to save more on taxes by moving to a state with no state or local property taxes. These include: Texas, Washington, Michigan, Maryland, Hawaii etc.

Tiny house Insurance savings:

The average homeowners insurance cost in the US is about $1312 per year. This is based on a home valuation of about $250,000.

With a smaller home valuation, a tiny home owner can expect to pay much less than that. Full benefits are realized by tiny homes set on a permanent foundation. Those on wheels like RVs will attract more charges, in that they are first regarded as motor vehicles.

Tiny house as an Airbnb Investment

is a tiny home a good investment 4If you are considering a tiny house as an actual investment, there is great news for you.

A recent report by Airbnb showed that tiny homes are driving growth on that platform. In fact, while many other categories of houses stagnated or declined during the pandemic, interest in tiny homes and related terms shot up incredibly.

  • Houseboats (1,015%)
  • Tiny homes (791%)
  • Huts (1,379%)
  • Yurts (1,701%)

This is driven by travelers valuing experiences more and more. Staying in a nice apartment is barely as Instagrammable as staying in a secluded tiny cabin in the middle of nowhere.

The good news for anyone considering a tiny house as an investment is that this trend is only going up. You are all but guaranteed better rates and more bookings than normal houses.

So, with a tiny house, you can look forward to a high Return On Investment (ROI).

Location flexibility

Working from home is now the big thing. Investing in a tiny house, particularly one on wheels can be the best investment decision you can possibly make.

If you don’t need to leave your computer for you to work, there is no reason why you can’t live where you want. You can travel far and wide, taking advantage of what every state has to offer. Moreover, this will be a great thing for your health and well-being.

Tiny house resale value

One major drawback in the adoption of tiny houses has been the resale value. A few years ago, this was a big deal and part of the reason why everyone was recommending against going this route. Initially, tiny-home-owners seeking to sell often did it at a loss.

Today however, the ground has shifted and the demand for tiny accommodations is off the roof.

That said, the market is still quite small compared to normal housing. While the depreciation can still happen today, it is now quite common to sell at a profit, especially when it comes to tiny homes on a permanent foundation.

It is not preposterous to claim that the resale value of a tiny home will soon be on par with other homes.

In conclusion, it is hard to make the case that tiny homes are not a good investment owing to the above discussed savings. Anyone willing to trade-off space for a simpler, less expensive life will find a tiny home as not just a good investment, but a perfect investment.

Anyone buying a tiny house as a business opportunity will also enjoy lots of fruits, in that the demand to either rent long-term or short-term (Airbnb) has never been higher.

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