Understanding Tiny Houses

A tiny home is a dwelling typically 400 square feet or less. It is often designed to be space-efficient and ergonomic. A tiny home can be built on a permanent foundation or a mobile platform, such as a trailer.

As you can see, tiny houses are simply what the name implies: "small houses." A few shows, including Netflix’s Tiny House Nation and HGTV’s Tiny House, have popularized these homes. Most tiny homes are intended for downsizing or living a minimalist lifestyle. For the sake of this article, we will assume the investment that a tiny house is built on a permanent foundation and not intended for routine moving.

What are realtors' first impressions? We asked Nat Lancaster with EXP Advantage Real Estate.

Affordable Living Option: Tiny houses offer a cost-effective housing solution, reducing expenses on construction, maintenance, and utilities. Thus, homeownership is accessible to a wider range of people.

Eco-Friendly Lifestyle: Tiny homes promote sustainability by reducing energy consumption and material usage, leading to a smaller carbon footprint and a greener way of living.

What are the Benefits?

Tiny homes offer many benefits that traditional homes lack. They are small, which is beneficial for those looking to live a minimalist lifestyle. Tiny homes are also energy-efficient, space-saving, and cost-efficient.

What are the Costs?

Building a tiny home can cost anywhere from $10,000 to $180,000, depending on the scale of the product. Compare that to a traditional home of $100,000 to $300,000 for a small new construction home. This means that getting a new construction loan isn't needed. None of this includes the ongoing costs of the homes. Due to its size, it will naturally be more cost-efficient. A lower electrical bill, water bill, and all additional costs.

Investment Potential

Now that we know the costs and benefits, are they really worth investing in? Or should we stick with traditional real estate investments?

Resale Value and Depreciation of Tiny Houses

This is where tiny homes struggle. Because they are smaller and more similar to an RV than a home, they depreciate instead of appreciating. One caveat is that the land on which the tiny home sits would appreciate, but the home itself would not, meaning the resale value of the tiny house wouldn't be that great.

Not to mention finding a buyer can be difficult. Here is what Ramsey Solutions had to say:

“With that in mind, selling your tiny house might be hard—especially since you’d have to find a super specific buyer, and you’d have to sell that buyer on the customizations and style of house you chose for yourself. The multipurpose spaces you thought were a no-brainer for your lifestyle may not work for someone else’s lifestyle. Yup—that special closet you made for your handbell collection will be worthless to anyone who doesn’t give a rip about tiny musical bells.”

Tiny Homes Cashflow

The saving grace for tiny homes could be cash flow. To see if a tiny home would cash flow, we will do some rough calculations. First, we will pick a state and then a city. I picked Wisconsin and found an article on the 7 Best Places to Live in Wisconsin. This led me to Ashland, WI, due to its outdoorsy vibe, which is perfect for a tiny home lover.

We first looked at the Ashland Real Estate Market and found 2 acres of vacant land for $28,900, and we can estimate that $45,500 on the build-out. That's 74,400 and $1,740 in closing costs. Factoring $6,700 in annual costs, including insurance, taxes, etc., we find that the property does cash flow given a renting price of $1,100, which is just above average in Ashland!

Is this a generous assumption? Yes. However, it does highlight that it is possible to cashflow a tiny house if you are savvy enough.

Are Tiny Homes Worth Investing In?

The answer is a solid “it depends.” While a tiny home does have the ability to cash flow, it may take some grit to get it there. If you're planning on buying a tiny house out of passion, go for it. However, if you're looking to invest strictly for investment and cash flow purposes, this may be one to shy away from.