Tiny houses are taking off all over the world. Offering the allure of luxury internal finishes and a low price point, investors can use tiny houses as a low-cost rental investment option. While the cost of tiny homes is a major selling point, eco-conscious and minimalist consumers are attracted to the simplicity of the potentially off-grid lifestyle.
Tiny home investments can be an opportunity to build a hotel out of tiny houses or rent a single tiny home. Consider whether you want the tiny home to remain stationary or you’d allow tenants to travel with the tiny home. Below are the basic steps and tips for creating a customized tiny home investment strategy.
What is Tiny Home Investment and is it Worth It?
Tiny home investment involves acquiring and managing small, energy-efficient and often mobile dwellings. Tiny homes, typically ranging from 100 square feet to 400 square feet, are designed to maximize space while minimizing environmental impact. Unlike traditional real estate, tiny home investments provide a unique blend of mobility, affordability and sustainability.
Tiny homes also differ from mobile homes or RVs. Tiny homes often emphasize using natural materials, with wood interiors and sustainable priorities. They’re designed to feel like a tiny version of a traditional home. Of course, because they’re smaller, tiny homes also require less maintenance over time.
The Tiny Home Investment Process: Step by Step
If you’re ready to build or buy a tiny home investment, here’s an outline of the steps to cover.
1. Defining Investment Goals
Determine your objectives for a tiny home investment property. These can include long-term rental income, short-term vacation rentals or personal use. Your investment goals will determine your strategy. For example, if you want to build a tiny home for personal use and rent your primary residence, you’ll want to customize the property to your preferences and may have a larger budget.
If you want to build up a vacation rental location with multiple properties, consider economies of scale in building five to 10 properties at once. Likewise, you’ll need to decide whether you want the tiny homes to be on-grid or off-grid.
The objective will also dictate tiny house design as tiny homes intended for long-term rentals need to maximize storage and include better finishes and appliances like refrigerators and washing machines. A short-term vacation rental will only need a place for guests to store luggage and a comfortable, clean design.
2. Market Research
Conduct in-depth market research to identify locations with high demand and rental rates for tiny homes. Keep in mind that some cities or vacation destinations have restrictions on parking tiny homes. Look for areas with high tourist traffic and low vacancy rates to place short-term vacation rentals. For long-term rentals, look for locations with high rental prices or increasing demand and growth.
3. Budgeting and Financing
Set a realistic budget, considering construction costs, land acquisition and ongoing expenses. While you’ll see articles stating you can purchase a tiny home for less than $50,000, those are often basic, bare-bones options. Luxury tiny homes can cost $80,000 to $100,000 or more, depending on the size and finishes.
If you plan to make the tiny home off-grid, you’ll need to consider the cost of solar panels with batteries, waste management and water storage. Be sure to weigh your total budget with expected returns or rental income to balance cost and investment return.
If you plan to invest in a low-cost tiny home, explore financing options suitable for tiny home investments. For financing, most mortgage lenders won’t offer mortgages for under $60,000. Consider a personal loan, RV loan or a builder’s loan if you plan to construct the tiny home yourself.
4. Finding the Right Location
Choose a location that aligns with your investment goals and offers attractive amenities and proximity to essential services. Attractive locations include those close to public transportation, areas of natural beauty like beaches, mountains or nature preserves or with easy access to major metropolitan areas.
As some areas may have zoning restrictions, it’s important to research options and double-check with the municipality before purchasing a tiny home.
5. Design and Build
Work with reputable builders to design and construct a functional, aesthetically appealing tiny home. Ensure the tiny home meets all construction and compliance standards. As the tiny home is simply a tiny living space, consider ventilation, insulation, internal and external lighting, natural light and windows.
If you plan to build a tiny home on a trailer for transport, ensure that the trailer and design also meet all standards for road safety.
6. Legal and Regulatory Compliance
Ensure your tiny home investment adheres to local zoning and building regulations. Failure to comply can lead to fines or the inability to get a return on the tiny home investment.
7. Marketing and Promotion
Before you invest in a tiny home, consider marketing and promotion. Develop a marketing strategy to attract potential tenants or vacationers, emphasizing the unique features of tiny home living. With the growing interest in tiny homes, you can also list your rental on dedicated tiny home sites, such as tinyhouselistings.com, as well as traditional short-term or long-term rental sites like Airbnb or Trulia.
8. Property Management
Deciding whether to manage the property yourself or hire a property management company for seamless operations is a major decision for many investors. A property management company will cut into profits but can lead to more satisfied clients and a better return on investment. Property management companies can also make the tiny home investment passive, as you won’t be responsible for responding to tenant requests.
9. Tenant Screening
If you plan to rent out your tiny home, establish a thorough tenant screening process to find responsible and reliable occupants. This is especially important for long-term rentals where tenants who fail to make payments or damage the house can eliminate investment returns.
Consider screening by credit score, an interview process and requesting referrals or recommendations.
10. Maintenance and Upkeep
Regularly maintain and inspect your tiny home to ensure it remains in top-notch condition. Like any rental property, plan to budget around 3% of the total purchase cost for annual repairs and updates.
Consider regularly checking doors, windows, locks, roofs, siding and other parts of the tiny house and make repairs before small issues can cause more significant damage.
The Benefits of Tiny Home Investment
Tiny home investment is an opportunity to build a real estate portfolio for less while capitalizing on a growing trend toward sustainability and minimalism. Here are some of the main benefits of tiny house investments:
1. Affordability
Tiny homes are more affordable than conventional houses, allowing investors to enter the real estate market with lower initial investments. Upkeep costs also are less, reducing additional expenses.
2. Sustainable Living
Embracing tiny home living encourages sustainable practices, such as reduced energy consumption and lower environmental impact. This is better for the planet and a strong marketing point for potential tenants.
3. Minimalist Lifestyle
Tiny homes promote a clutter-free and minimalist lifestyle, appealing to those seeking a simpler and more intentional way of living.
4. Flexibility and Mobility
Tiny homes are often built on wheels, offering the freedom to relocate to different places without the burden of selling or buying new properties. The mobile lifestyle is also increasingly popular with everyone from younger people to retirees and offers the opportunity to explore beautiful areas across the country.
5. Growing Market Demand
As the popularity of tiny homes rises, the demand for tiny home rentals and purchases steadily increases, making it a promising investment opportunity.
Key Considerations Before Investing in Tiny Homes
Before investing in tiny homes, remember to research and perform due diligence as you would on any other rental investment.
1. Zoning and Regulations
Research local zoning laws and regulations to ensure that tiny homes are legally permitted in the area you plan to invest in. Failure to comply can cause significant problems down the road. For that reason, understand regulations, including any building code compliance, ahead of time.
2. Location
Select a strategic location with high demand for tiny homes, such as popular tourist destinations or areas with a strong eco-conscious community. Popular tiny home communities exist on the West Coast, including Oregon, Washington and California, but are now cropping up across the U.S.
3. Builder Reputation
Choose reputable builders with a track record of constructing quality tiny homes to avoid future maintenance and structural issues. Ask for references, read reviews and ask about the builders' certification and experience.
4. Financing Options
Explore various financing options tailored to tiny home investments, as traditional mortgages may not apply. Consider personal loans, business loans, RV loans, self-financing or HOME Investment Partnerships Program financing options.
5. Insurance Coverage
Secure adequate insurance coverage for your tiny home investment to protect against potential risks and liabilities. This may be more costly than traditional insurance, but insurance to secure your tiny home investment is essential.
Should You Invest in a Tiny Home?
With due diligence and market research, a tiny home investment can offer positive cash flow and serve as diversification in your investment portfolio. To improve long-term value, consider property management and careful maintenance.
While tiny home investments can offer excellent return potential and market growth, their long-term ability to retain value and yield positive cash flow hasn’t been tested on a large scale. As with any investment, due diligence and monitoring performance can help mitigate risk.
Frequently Asked Questions
Are tiny homes a good investment?
Tiny homes can be a good investment. To maximize return on investment, investors must carefully research the optimal area and create a budget and business plan. Consider the tips above to get started.
Can you finance the purchase of a tiny home?
Yes, you can finance the purchase of a tiny home, but you might need to get a personal loan or RV loan unless the mortgage amount is greater than $60,000.
Are there any challenges with investing in tiny homes?
Tiny home investing offers many of the same challenges as other forms of investment. You risk losing money on a tiny home investment without proper market research and placement. In addition, tiny homes can be more challenging to finance than traditional homes or other investment properties, and you may need more costly insurance to protect your investment.
About Alison Plaut
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.