Examples of tiny homes can be found throughout history, dating back to the earliest cave-dwelling humans through to pre-revolutionary times in France. However, the modern tiny house movement can be traced to the late 1970s and early 1980s when contemporary artists put a social and architectural campaign in motion that rejected larger dwellings and advocated for pared-down living spaces, embracing a simpler and more efficient lifestyle. Nowadays, more and more people welcome tiny houses as a cheaper and more sustainable living option.
Since then, tiny houses have continued to evolve and grow in popularity as an affordable homeownership option for many Americans. They’ve also become a sustainable source of income among rental market investors. For many of the same reasons homebuyers are drawn to tiny homes, renters in both long-term and short-term rental markets see the unique benefits of renting a tiny house.
Like most other rental units—whether short- or long-term, on a stand-alone property, or in your backyard—investing in a tiny house as rental property has both advantages and drawbacks.
What’s a tiny house?
While no standard universal definition exists for tiny houses, the term generally refers to a detached single-family dwelling unit that measures no less than 150 square feet and is rarely over 600 square feet in size.
Based on information gathered in a national survey conducted by Porch, tiny houses sold in America average 225 square feet in size, with an average price of around $52,000, making tiny houses 87% more affordable than traditional single-family homes.
Although many tiny homes sit on wheels, allowing for easy transport, they may be constructed on permanent foundations. Typically, deciding to put a permanent foundation under a tiny house versus keeping it on a trailer will depend on state or local laws regarding dwelling units and your personal needs.
In addition to being significantly more affordable compared to a traditional, average-sized single-family home, the long-term cost associated with owning a tiny house will also be substantially cheaper. That’s because the ongoing maintenance requirements related to a tiny house will be similar to that of a traditional home, except on a much smaller scale, thus reducing average monthly bills.
Tiny Houses as Rental Investments
Tiny houses continue to grow in popularity here in the United States and worldwide, even capturing the attention of television viewers with reality television shows about the subject.
Many Americans look to tiny houses as viable home options thanks to their efficiency, affordability, and minimalist lifestyle. So it stands to reason that anyone looking to invest in the rental market will want to consider the benefits of tiny houses as rental investments.
One of the most obvious benefits of investing in tiny houses as rentals compared to more traditional rental units lies in a tiny house’s flexibility and affordability. Tiny houses, especially when on wheels, provide investors with a great opportunity to bring in rental income on their existing property. In addition, tiny homes are low-risk investments for would-be landlords thanks to their affordability, initial cost, and long-term overhead.
Unfortunately, local and state laws are among the most significant stumbling blocks for those who want to invest in a tiny house as a rental unit. While tiny houses continue to gain popularity among homebuyers and renters, especially within the short-term and vacation home rental arenas, widespread acceptance among state and local governments is not yet a reality. In many locations, tiny houses remain prohibited.
Advantages and Disadvantages of Tiny Houses as Rental Properties
A tiny house can make an excellent rental property investment, especially in the short-term and vacation rental market. However, like any venture, investing in a tiny house as a rental property has advantages and drawbacks.
Advantages of Tiny Houses as Rental Properties
Probably the most significant advantage of purchasing a tiny home as a rental property remains its affordability. Because the cost to either build or buy a tiny home is so much cheaper than an average home, tiny houses remain a viable option for those who want to create an additional income stream through a rental investment but have limited capital.
Another advantage of tiny home rentals is that when compared to similar small accommodations, like RVs, a tiny house, whether on wheels or a permanent foundation, typically remains stationary at a single location for an extended period. Therefore, tiny house landlords can customize the unit and transform it into an incredibly homey and welcoming space.
There’s a strong and consistent affinity for tiny houses, increasing their popularity among renters searching for efficient and affordable rental options.
Disadvantages of Tiny Houses as Rental Properties
The major drawback to tiny houses as rental properties is that the value of tiny houses does not typically appreciate the same way a traditional single-family dwelling rental property will. The primary reason is that tiny houses are essentially mobile, disconnected from the land where they are located, the way a larger, traditional single-family dwelling wouldn’t be.
In time, particularly as housing demand in a particular area increases, the land on which a larger, traditional, permanent house sits will appreciate while the home itself will lose value. Since land ownership and tiny houses don’t typically go hand-in-hand, tiny houses, like our cars, represent depreciating assets.
Finally, although tiny homes are cheaper than traditional single-family dwellings, lenders are less likely to approve financing for a tiny house. Since most home loans aren’t designed to accommodate a tiny home purchase, investors must rely on personal or RV loans. Unfortunately, those loans may have less favorable conditions than a traditional home loan.
Making the Decision to Invest in a Tiny House as a Rental Property
For anyone considering an investment in the rental market, tiny houses are a good option, especially if you have room on your existing property to accommodate a tiny house rental and it is permitted in your area. The affordability of a tiny house means that it comes with a much lower risk than other rental investments. That is why so many beginners turn to tiny houses as rental investments to create passive income.
As with any investment, there are pros and cons associated with using a tiny house as a rental property. So do your due diligence, research the laws in your particular area, and weigh your options carefully.
If you ultimately decide to invest in a tiny house as a rental property, you’ll join a growing number of individuals enjoying a rewarding experience contributing to the tiny house movement while earning passive income on their investment.