With home prices rising month after month, would-be buyers have turned to a small solution: tiny houses. Tiny houses typically range in size from 100 to 400 square feet. Yes, that is extremely small, especially when the average size of a studio apartment is 600 square feet, according to apartments.com. But what owners lack in space they make up for in savings. The average tiny house is about $46,000, not including the land it’s built on. (More on that later.) Being able to save on rent or a mortgage has freed up tiny homeowners to save more than the typical homeowner. According to the research and advocacy group The Tiny House Society, 89 percent of tiny house owners have less credit card debt than the average American, and 60 percent have no credit card debt whatsoever.
So we know that tiny houses are a lot more affordable than standard-sized houses, but as we pointed out above, that price only reflects the house itself, not the land it’s on. The reality is that in the densely populated areas where tiny houses would otherwise be a great solution, the cost of land makes this a less practical solution. Assuming the homeowner overcame the hurdle of buying land in a pricey urban area, high land costs limit resale potential. Sue Goodhart, a real estate agent in Alexandria, Virginia, says “If the goal is to save money, I would have to say tiny home investors would need to go to areas where land prices are low, which means not located near major commuter routes.” That means tiny homes may work best either as permanent structures in RV resorts or as structures on a plot where owners can lease from landowners. Currently, most tiny houses conform to this pattern, with tiny houses mainly clustered in small communities similar to RV parks.
From an investor standpoint, tiny houses are a good way of capturing the short-term rental market for vacationers, but there are some factors that make it less than ideal for long-term, year-round renters. One of the reasons for this is that, unlike normal homes which traditionally appreciate in value, tiny houses tend to depreciate in value due to the fact that tiny houses can wear and tear more quickly. Also, because tiny houses are relatively inexpensive and easy to customize, buyers are more interested in finding or building homes that fit their exact needs. Another barrier for investors is that there are still legal and regulatory hurdles that builders have to deal with to make sure that their tiny homes are compliant. Before you buy a tiny house, find out what the laws and regulations are.
While tiny houses are a relatively new phenomenon, the industry may get a boost from one famous resident: Elon Musk, who currently resides in a tiny house on SpaceX’s base in Texas. According to a report by Business Insider, Elon Musk lives in the $49,500 375-square-foot unit created by Boxabl. The company currently has a waitlist of close to 50,000 people who have placed orders for over 100,000 prefab houses.
