Can you imagine moving all your belongings into a space the size of a two-car garage with a full bathroom, kitchen, and bedroom? 54% of Americans surveyed say housing expenses are their largest financial burden.
When Consumer Affairs asked, 65% of the respondents with a mortgage considered themselves "house poor," meaning a significant portion of their income goes to their house payment and other housing expenses. This often means sacrificing other opportunities, such as traveling and purchasing expensive items.
It's common for people to downsize. But a new trend called tiny home living is taking that to new levels.
Many Americans are jumping on board the bandwagon and ditching their large homes .
Of course, moving into a tiny home that's a fraction of the space is a significant lifestyle commitment. But if reducing clutter and lower bills isn't convincing enough, tiny homes can also be a lucrative investment .
Making Money with a Tiny Home
Many people would love to jump into the real estate market, not only for home ownership but also to pursue rental market opportunities. The ideal scenario is to collect enough rental income to cover the mortgage, property taxes, and bills while owning an appreciating asset.
Usually, start-up costs can be a considerable barrier for real estate entrepreneurs.
Precious Price, a tiny house business success story, is thriving in the short-term rental market to the extent that she was able to leave her six-figure corporate job to pursue her tiny house dream full-time. For Price, the goal was to reduce her cost of living, but the rewards were more than that. She was able to achieve financial freedom at a young age.
Price says she realized when she became homebound that her 3-bedroom home was much more space than she needed. With plenty of room left in her backyard, she envisioned a tiny home with enough space to fulfill her needs. On top of that, it would allow her to rent her full-sized home and cover her mortgage payment.
In 2020, Price purchased a shed structure for her backyard. The shed became an obvious choice over a shipping container because of the ability to customize the shed with additional windows to bring in more natural light, and delivery was more manageable.
Tiny Houses Require Upfront Costs
Since most tiny homes don't qualify for a traditional mortgage, Precious Price financed the cost of the tiny home with her personal savings. The initial investment for the structure was $10,000. However, construction costs were more than she had anticipated.
Building a tiny home can cost even more per square foot than a full-sized home. Price shares her experience in her video series, Going Tiny, because she says, "I wanted to help save tiny home builders the headaches I encountered on my building journey." She also provides coaching services to help people establish a tiny house rental business.
The first contractor Price hired specialized in plumbing. However, they insisted they were capable of constructing the entire interior. Price agreed to move forward with the build, but it placed her in a design and project management role she didn't anticipate.
As the build progressed, their lack of experience became apparent as the quality of the work didn't live up to expectations. This ended the relationship with the first contractor, and the second was also short-lived because of their overcharging practices.
Price says her biggest takeaway is, "if you can't find contractors with tiny home building experience, find a general contractor who can act as a project manager as well. Don't just hire someone who specializes in plumbing and believes they can complete the job because there will be contractors who underestimate tiny home builds because of their size."
If a contractor's portfolio of builds is limited to full-sized homes, you can still consider this a valuable experience. Their building project management skills will still serve them well.
Price kept the layout and amenities simple but added a separate area for working from home. The location is also attractive, as the house is nestled in a private backyard with plenty of greenery and a fire pit. The general contractor completed the build to a final total construction cost of $25,000. The tiny home in her backyard cost her $35,000 in total.
Entering a Tiny House in the Short-Term Rental Market
Initially, Precious Price had envisioned herself moving into the tiny home while renting out her house. But as the build ended in 2021, she decided to enter the short-term rental market instead.
Tiny homes can be a big draw for the short-term rental market on popular sites like Airbnb and Vrbo. Price would charge between $89 and $149 for short-term stays, depending on the season and events happening in the area.
Many visitors from out of town rented the property to experience tiny home living before taking the plunge and moving into one. Others wanted to see how it would feel from the perspective of potential renters.
Eventually, Price realized that renting the property to students monthly would be less work and more lucrative for her business. She now charges between $1,200 and $1,400 a month.
Tiny houses can easily be converted back for personal use, office space, and even multi-generational living options. Precious Price believes there are many benefits to owning a tiny house, and even though she faced several challenges along the way, the investment for her is a win-win.