Tiny homes.

Just saying the name brings to mind images of adorable rolling cottages, cutting-edge lifestyles, and minimal possessions and worries.

We’ve all seen the TV shows, listened to the podcasts, and fantasized a bit about living in a home in the forest or on a plot of land near a creek that costs less than $10,000. This begs the question, Are tiny homes good investments?

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How much does living the “tiny life” actually cost, and what kind of resale value can you expect from owning a tiny house?

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What Kind of Investment Is a Tiny Home?

One of the things people love most about tiny homes is their endless customizability, which also makes it difficult to answer the question of how much tiny homes cost.

Given that they are easily personalized, this makes it difficult to find an average price for tiny homes, as size, materials, and finishes can vary greatly. The figure runs from about $5,000 for a DIY tiny home with minimal fixtures all the way up to $100,000 and beyond for a custom-built tiny home with luxe fittings and features.

The biggest factors in pricing out a tiny home are materials and labor costs. Anyone who’s worked with a contractor can tell you they aren’t cheap.

If you’re willing to do a large portion of the work yourself, you can significantly lower the cost of your home. When looking at a tiny home as an investment, you have to put a dollar value on your own labor. This tells you the real cost, in both money and time spent, of building one.

Materials are the next largest pricing factor.

If you’re savvy and willing to spend some time researching, you can often find reclaimed materials or leftovers from a job site.

There are entire stores that sell nothing but the extra parts and slightly damaged fixtures from major building companies.

These stores are often local businesses, so a quick Google search should bring up the appropriate place to go depending on your location.

Tiny living can be either inexpensive or about the cost of a small starter home. Try finding a $100,000 home with truly top-of-the-line fittings.

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The Cost of Living in a Tiny Home

Living in a tiny home can be incredibly affordable. Heating, cooling, and cleaning a 300-square-foot space is a whole lot cheaper and easier to handle than in a 2,386-square-foot home (the median new home size in 2018, according to the U.S. Census Bureau).

You can reduce your water, power, and other bills even further if you choose to live a sustainability-focused lifestyle.

Solar panels, well water, and options such as a wood stove for heating can drop your living expenses substantially and shrink your carbon footprint.

There are other expenses to consider, though, especially if you’re living in a tiny house on wheels and plan to travel. Gas, insurance, and campground fees can add up fast.

Finding a Place to Live

One thing that you have to take into account when considering the cost and value of tiny living is where you live. Most American cities aren’t tiny-home friendly. Many zoning laws prohibit full-time tiny-home habitation across the board.

Even if you plan to stay in one place, you have to find land that allows tiny homes and has the necessary improvements with water, sewage, and electrical hookups. Many tiny-home dwellers get around this by living on family land or going out into a more rural area.

If you’re more sustainably minded, a tiny home is one of the best ways to explore alternative lifestyles. This allows you to disconnect from traditional ways of Western life and see what living off the grid or growing your own food can be like.

The Resale Market

If you just go by all the reality shows and hype you’d think the tiny home market was absolutely booming. The reality is, well, a tiny bit different.

Tiny homes are popular, in a big way. But that doesn’t mean that everyone, or even most people, are willing to live in one. 

Ask any real estate agent about home renovations, and they’ll advise you to go for broader appeal. Look for the improvements that match the largest portion of the market’s taste and try not to overcustomize.

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Only 23 percent of Americans would either “definitely” or “strongly consider” living in a tiny home, according to Restoring Simple, an online resource for tiny-home buyers. Anything that has such a limited market — or liquidity — is going to be harder to sell.

Taking Out a Loan

The biggest selling point for tiny homes is that you don’t need to take out a mortgage, according to Hannah Maman, a real estate agent in Phoenix, Arizona.

You won’t find a traditional home loan for a tiny house because most mortgage lenders have minimum loan amounts that are much higher than the one needed for a tiny house. Additionally, typical mortgage lenders won’t give out a loan because many tiny houses are transportable (aka THOW) and not on a foundation, and most lenders require a permanent foundation.

That said, Maman explains that you can finance directly through a builder or take out either a personal loan or an RV loan. If you are to take out an RV loan for a tiny house, it must first be certified under the Recreational Vehicle Industry Association (to show it’s safe for the road). You can expect to get about 4 to 9 percent interest rates here on a term of 70 to 85 months.

However, if you aren’t association certified and would rather take out a personal loan, this is totally doable. It would just be an unsecured personal loan with a higher interest rate, in the 7 to 11 percent range.

“So many individuals are struggling with debt and are looking for viable alternatives to being locked into a 30-year mortgage,” Maman says.

“Even maintenance and utility bills are cut in half, which saves people a ton of money.”

On the other hand, Maman states, “I think people need to be aware that buying a tiny home, in most cases, isn’t the same as buying a traditional home.” Continue reading below to find out why this kind of investment may not be for you.

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Do Tiny Homes Appreciate in Value?

Best answer: It’s complicated. Traditional wisdom tells us owning a house over a long period of time — say at least five years — can be a good way to grow your money. After all, don’t homes grow in value over time?

Not always.

The land that your home sits on may appreciate in value, but the physical house is actually depreciating. The same thing holds true for tiny homes, with the added twist that you don’t usually own any land under them.

Don’t expect your tiny home to appreciate in value like a traditional home, advises Noaz Miller, a home-insurance specialist in Scottsdale, Arizona. Location is the key factor that predicts valuation, he adds.

“Land typically appreciates or depreciates with the local market,” Miller says. Any traditional home with a permanent foundation will have better resale value than a tiny home on wheels, which will depreciate in value like an RV.

Tiny Homes as Passive-Income Investments

If you’re renting out a tiny home, it could be a source of passive income, as is any other rental. But be aware that there are a host of considerations to consider before becoming a landlord, such as state and local laws.

A landlord should use a legally reviewed template for his or her state when creating a lease. States vary in terms of their protections for tenants and landlords, so ensure you protect yourself as much as possible in the event that any tenant falls far enough behind on rent that legal intervention is needed.

One should also take into careful consideration the financial aspects of maintaining the property. Last, be sure to screen your tenants. As problems arise, you will likely be the one responsible for fixing them.

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Are Tiny Homes Good Investments? The Bottom Line

A tiny home can be a great investment for the right person. If you want to build your own house, travel the country with it, and embrace an alternative lifestyle, a tiny home can be an affordable way to accomplish this.

You can customize the home almost endlessly and save money on rent and utilities. It also allows you to take the comforts of home to all kinds of wild and beautiful places.

If you want to go tiny with an eye toward reselling your home down the line and realizing gains, you may be disappointed. Tiny homes depreciate and can be difficult to sell, so they might not make good investments in that sense. And if you want to live in a major city, it can be difficult and expensive to find somewhere to do so.

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