Thursday
August 25, 2016

Does It Pay to Invest in Tiny Homes?

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Does It Pay to Invest in Tiny Homes?

Careful design decisions, eco-friendly features, and targeted marketing can turn these small properties into big payouts. Learn how you can take advantage of this new investment frontier.

Adopting the mantra of bigger isn’t always better, the tiny-home movement is aimed at changing the way we view the housing market. There are many reasons for an increase interest in these chic shacks, chief among them being rising rental costs. As the average cost of renting in San Francisco has ballooned up to almost $3,500 a month, some renters may be thinking outside the box for ways to achieve home ownership sooner.

But these tiny homes also represent a movement of sorts and are being held up as a potential balm for society’s ills. Not only are these alternative constructions generally more eco-friendly due to their smaller footprint, but such homes are also being designed and built for the homeless in the United States and around the world. For real estate professionals, the question becomes whether tiny homes can both benefit the community and represent a solid investment opportunity.

Small Homes, Big Decisions

Tiny homes, often defined as being 500 square feet or less, can cost upwards of $40,000 dollars to build, with the average cost hovering around $23,000. Tiny homes are usually sold for around $200 to $400 per square foot, with the more decked-out properties going for more. But it’s not just the structure that buyers are paying for; the specialized features (such as a tiny water heater, refrigerator, stove, and other features) are packed into those prices too.

Not only should you find a specialized builder, it can be equally important to find an interior designer who can lend a hand due to the spatial constraints that make fitting a tiny home with furniture, carpet, and appliances a special challenge. It can be less daunting for new investors to look at tiny homes in the same light as other, more familiar small living spaces, says Vice President of ezLandlordForms Brian Davis: “Tiny homes are no smaller than many studio apartments or small houseboats. In fact, layouts and design features are often borrowed from boat designs, with their efficient use of space. Everything in a tiny house should serve multiple purposes.”

Mary Palumbo, real estate professional for Keller Williams and part of The Shockley Team based in Wellington, Fla., agrees. “For smaller properties, simple is better,” says Palumbo, who used to own a tiny home and has helped other tiny-home owners sell their properties. “With some sellers in the past, we had them remove the unnecessary furniture and reposition what was left to make their homes feel spacious and welcoming, rather than crammed and uncomfortable.”

Keeping It Green

Don’t discount the importance of the environment to potential buyers of tiny homes. Take into consideration the target of your property marketing plan in the building phase. The tiny-home movement is rooted in an environmentally conscious worldview, so installing eco-friendly fixtures and highlighting them in your marketing materials is a must for these properties.

Also, pay close attention to how travelers are embracing eco-friendly destinations. According to a survey conducted by Booking.com, travelers around the world interested in sustainable issues are three times more likely to plan to stay in an environmentally conscious space in 2015 than they were in 2014. Even if you plan to sell the property eventually, this growing group of eco-friendly vacationers may make it feasible to advertise your small, sustainable property directly to the consumer on short-term rental sites such as Airbnb and VRBO.

Another opportunity for investing is to simply buy up land and rent it out to eager tiny-home builders. This will be especially appealing to owners of small mobile homes. “More and more land owners are specifically renting out pieces of their property to multiple tiny home owners, making a profit easily and quickly,” says Marko Rubel, real estate investor and founder of Realestatemoney.com, based in San Diego. “If you have the money but not the time, renting out land to tiny-home owners is a simple way to earn a monthly paycheck. If possible, look for land that is flat and spacious. You can split the land into equal square footage or offer different sizes for different costs.”

Community Factors and Public Perception

The reputation of this movement has been promising thus far, especially as tiny homes offer flexible shelter across the globe to the homeless and victims of environmental destruction. Ben Kennedy, president of Brighton Builders and featured contributor on the ABC television show “Extreme Makeover Home Edition,” is one of many who have worked to give back to the community by donating tiny homes to those in need.

“With the recent devastation surrounding the South Carolina flooding, I wanted to help in a way that would be best suited to my own expertise: building,” Kennedy says. “My team at Brighton Builders has started to build tiny homes for some of the families who lost their homes in the flood. They allow a family the opportunity of temporary shelter or, if they love the house, they will receive a new permanent home.”

But the sprawling tiny-home communities popping up all around the country are not without their problems. Boneyard Studios in Washington, D.C., is one good example of the struggles inherent in sustaining a long-term micro colony: sanitation issues, small-scale construction obstacles, and reservations about how to best engage the neighborhood are among the chief challenges.

Jane Dizon, a designer with custom-home builder Avanti Homes in Edmonton, Alberta, lived in a tiny-home community similar to Boneyard Studios and, despite finding the closed quarters rather intrusive, has fond memories of her time in a micro colony: “My family [mother, father, and one younger brother] and I lived in a tiny-home community for two years during my late teens. The living area was just five steps away from our rooms and with that came the disadvantage of knowing everything that was happening. But there was this sense of belonging and simplicity in life that I miss now that we’ve moved to a much bigger, urban community.”

With tiny homes filling a market niche for communities, travelers, and the less fortunate, it is safe to assume that they are not just another fad in the real estate industry. While the grass won’t always be greener in a smaller yard, investors would be wise to investigate tiny-home opportunities now, while the niche is still novel.

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