Photo by Harry Pepelnar on Unsplash

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You probably know the old saying, “Big things come in small packages.” Jewelry for instance is one of those big things but in the real estate world, it’s tiny homes that are trending in a very big way. So what exactly is a tiny home? A tiny home is a home that is between 100 and 400 square feet offering a very efficient design to maximize space. For comparison according to realtor.com, an average home in the United States is about 2,600 square feet. That's an amazing 2,200 square feet difference! If you’re wondering how someone could feel right at home in this smaller-than-traditional space, it's the amenities like large windows, larger ceilings, and strategically placed furniture, that do the trick. Additionally, they are more affordable, making them a win, win for many home seekers.

Tiny houses can be constructed in many ways. They can be old warehouse containers or other existing structures that are transferred into homes. They can also be built from the ground up, made to be mobile, or attached to other structures on the property. The attraction to this trending lifestyle is affordability and flexibility. As Generation Z makes a leap into the business world and favors experiences over ownership, tiny houses make sense to them.

But it is not only the younger generation that is favoring the tiny house lifestyle. It also makes sense to those retiring looking for a more affordable, relaxed way of life too. According to Mashvisor, a website that provides real estate investment data analysis to real estate investors, the benefits of buying and living in tiny homes started in the 1980s and gained attraction in the late 1990s. It continued during the 2009 housing crisis, and the rise in foreclosures nationwide fueled the interest in living in more modest homes, including tiny homes.

The question remains, "How can it make sense to you, an investor or real estate agent, to get in on the tiny home business? Keep reading to learn more about the growing market opportunity.

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What's The Big Deal About Tiny Homes?

These compact homes are taking the real estate industry by storm, offering solutions to many of today’s housing challenges including inflation, interest rate increases, and the difficulty of securing financing. It's important for you to get to know this growing opportunity because tiny homes are not a, here today, gone tomorrow, fad. According to research from the Tiny House Society, the demand for these little real estate gems increased by 67 percent in 2021 and from the looks of things, will continue to grow into the future. As mentioned before, with rising home prices and more sustainable living demand, more people are gravitating toward a more minimalist, affordable option.

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Location Matters In More Ways Than One

If you want to get in on the tiny home action for a future investment possibility, location is a key factor to consider. The warmer Southwestern United States historically got the ball rolling in this category. Today, due to skyrocketing real estate prices, and demand in other states like New York, and California, among others, the tiny house movement is increasing and will continue moving into the future. Take a look at more tiny home investment benefits.

• Affordability: The initial investment is much lower than a traditional home or apartment complex
• Flexibility: These smaller structures are easily placed on wheels offering flexible locations and uses. They can become long-term rental homes or temporary accommodations for vacationers to the area.
• Sustainability: Tiny homes meet the eco-friendly expectations and lower carbon footprint lifestyle of today's growing generation that favors protecting the environment.

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Tiny Homes Offer Impressive Return on Investment

Not only do tiny homes offer big benefits, but they also offer an impressive return on investment (ROI). According to Mashvisor, a tiny home, whether you build or buy one, is extremely profitable with up to twelve percent return, way outperforming traditional homes that average ten percent. Realtor.com estimates the average cost of building a 200-square-foot tiny home in the United States is between $25,000 to $35,000. On the other hand a new traditional home averages $292,000. Additionally, taxes, utilities, and maintenance costs are much lower in a tiny home. Keep in mind that these figures will vary based on property location, occupancy rates, mortgage, and rental rates for tenants.

Different Strategies To Make The Most Of Tiny Home Investments

Investing in the tiny home market provides you with a number of different options. How you decide to market your tiny house investment is an important decision to your profitability and bottom line. Take a look at a few ideas to get you started on your business strategy.

Build From Ground Up: Building your very own tiny home can turn a profit whether you decide to sell the finished home to a buyer or decide to lease it and over time recoup the cost. 

Renovate and Flip: Tiny homes are ideal for fixer-uppers because the structures are inexpensive and renovation doesn't take a huge time or money investment. Once they are ready, list them on the market to sell or lease.

Rent For Vacationers: Tiny homes are the perfect size for short-term rentals especially in markets that are havens for vacationers. You can either list the property on an online resource or manage it yourself with useful tools like a tenant screener. These constant rentals transform into a consistent passive income source.

Do Your Research In Advance

• Zoning and Permits: Before you invest in a tiny home, always check with the local borough or municipality for zoning regulations to make sure there are no requirements that don't allow them. There might also be special permits and code requirements.
• Amenities and Upgrades: Before furnishing your tiny home or allowing your tenant to, make sure the furnishings will fit into the space. Tiny homes are much smaller than traditional homes and the interior design must make the most of this limited space. 
• Create Rental/Lease Agreement: Transparency is key between landlords and tenants and sellers and buyers. Creating contracts that both parties agree on will make the business deal smooth and seamless. Consulting an attorney is always advisable so nothing important is overlooked.

Tiny Homes Create Unexpected Investment Opportunity

Tiny homes offer an interesting investment opportunity in this always-changing real estate market we're faced with. They are more affordable than traditional homes, they are eco-friendly, offer unlimited flexibility and profitability. The best thing to do is understand the market, do your research, and have a strong and focused business plan. Tiny homes could be your next big thing in an unexpected real estate venture.

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