Why not buy a Tiny House and rent it out?

[joenorm]

I have some raw land I'd like to do something with. I am trying to think of the most affordable way to get it earning me a little bit of cash.

Fastest way I can come up with is parking a tiny home on it and renting it long term to someone. Maybe when Covid is gone in a couple years I could try it as a vacation rental(I live in a good area for this)

In my area I can get a nice tiny house on wheels for $40-60K. If I borrow the money to buy it at around 3.5% I'll be paying anywhere from &100-200 a month on it lets say. I think I could easily rent a decent one for at least $750 per month. That leaves $500-600 a month to pocket. Tiny houses would be allowed in my area.

Surely there are other expenses involved but curious if anyone has done this and what you all think of those basic numbers?

 

[maizefolk]

Have you confirmed you'd be able to borrow at 3.5% for a tiny house on wheels? And for what term? That seems a surprisingly low interest rate for something that wouldn't qualify for a mortgage. This suggests that unless it has a foundation you likely won't be able to qualify for a mortgage and would likely be looking at a lot term of 7-10 years and interest rates in the 7-10% range.

If the tiny house qualified for a 30 year mortgage, a loan of $40-60k at $3.5/month would mean a payment of $180-$270/month rather than $100-200.

Without knowing your region I don't know enough to comment on the $750/month rent estimate, but I do know a lot of folks have been talking about a decline in the desirability of tiny houses with the increased risk of being locked down at short notice, at least for the next 1-2 years.

[Papa bear]

II would much rather have a permanent smaller cabin type.  20x20 with 1 bedroom and a loft sleep area (could sleep 4) kitchen, living room, and bathroom. This would blow the pants off of “tiny house” and could be built for about the same $$ as the tiny house, depending on if you have utility hookups available. 

If you need to dig a well or septic or pay to tie into any city services, you could be looking at a lot more, but getting utilities to a tiny house also poses similar problems. 


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[Wrenchturner]

If you live in an area that has nasty winters, you could set up an RV storage lot for winter.  I know of some people making substantial income that way.

Tiny home are overrated imo.

[Dancin'Dog]

I agree "tiny homes are way overrated".


You can get old non-running school buses for around $200 each & create a cool bus theme campground with them.  You could leave them school bus yellow, or decorate them, maybe like famous buses from the past.  You could have some of them grouped together backed to a central deck with a firepit. 


If you get tired of them or it isn't financially successful you can sell them to the scrapyard for what you paid for them.


You'd never be able to resell a used tiny home for the $40-$60K you're considering paying for a new one. 

[joenorm]

Thanks.

I agree with all of you on the Tiny Home being overrated. But the fact is a lot of these have been built DIY and now I see them being sold essentially at cost of materials.

Having a 20X20 cabin built in my area would cost $100K at least. I could build it myself but I do not have the interest or time as I am already building another home.

The upside of the Tinyhouse is that you roll it to the property, spend a couple days hooking things up, and you're done. Building a cabin is a whole other ballgame.

Trailers and buses are fine but I do not like them. People have built some pretty livable Tinyhomes and the best part is they're already built.

[Wrenchturner]

how is sewage, water and heat typically managed with a tiny house?

[Dancin'Dog]

If you can find used tiny homes for $5-6K that wouldn't be too bad. 

[maisymouser]

We own something of the type. Make sure you investigate the legality in your state/county and tenant rights. It is too easy to get into legal trouble. At least that's what we decided, we no longer rent one.

[Telecaster]

I think the idea has some merit but needs some fleshing out.   Like maizeman said, mobile home interest rates are much higher.  If you have  HELOC you could borrow from that perhaps. 

I don't think in the real world many people want to live in tiny houses long term.  Let's see what Google has to say about the number of tiny houses....

...10,000 tiny houses in the USA, if you believe a pro-tiny house website. 

https://www.godownsize.com/tiny-house-statistics/

Not very many.  And you mentioned the resale value is crap.  So I think people like the idea of tiny houses, but don't actually like living in tiny houses.   So the long term rental market is likely people who can't afford to live in a real place.  You don't want to get into that market.

The vacation rental market idea though, might have some merit.  The affordable tiny house might be fun for a weekend or a week.  If you are on vacation you don't have a lot of stuff you need to bring.  So, that part might work. 

[Papa bear]

Holy forking shirt balls, 100k?  250/sf for new construction? That’s nuts! I’m thinking more along 100-125/sf price, and if I GC or some of the work myself 80/sf. 

I back of napkined about 40k to build these.  Had a good thought experiment on this when some buddies were looking to buy some land and I was looking at it for short term rentals.


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[Smokystache]

.... I think I could easily rent a decent one for at least $750 per month. ...

This is the part of your post that caught my attention. What does $750/month get someone who is looking to rent in your area? Does this mean that people are paying a premium to live in a tiny house? Or is it just competing with traditional mobile homes or small houses?

I think the ideal situation is when the renter would see this as a niche or unique option and they are willing to pay a premium for it. Perhaps advertising with things like "great way to stay away from the virus". Or if they are looking to try a tiny house before they commit to buying their own. I wonder if it has more appeal as a AirB&B type of situation -a unique place to stay. Or perhaps as a place for a writer to finally finish that book they've been working on or a PhD student to finally finish a dissertation. Or have room for meditation or yoga and it can be a place to "reconnect with yourself".

In other words, I would want potential renters to see it as a special place for a unique purpose - and then it suddenly isn't being compared to mobile homes.

[joenorm]

There is actually just a lack of housing. A nicely built tiny home is far superior to a standard mobile home or trailer. Higher ceilings, full kitchens, real wood floors, etc. Some of them are small custom built homes, with really nice finishes. That is the difference I see.

Again, I'm not sold on them myself. But they are easy to obtain and move. That is the plus.

I would use a Heloc or take out a mortgage on my house(currently do not have one) to fund something. 

[FINate]

There is actually just a lack of housing. A nicely built tiny home is far superior to a standard mobile home or trailer. Higher ceilings, full kitchens, real wood floors, etc. Some of them are small custom built homes, with really nice finishes. That is the difference I see.

But why is there a lack of housing? Often this is the result of burdensome regulations and/or a difficult approval process. You don't want to buy a tiny house only to find that you can't legally rent it out.

Housing is very expensive in my city, and people love to scapegoat "greedy" landlords and developers for the high prices. Always fascinating to see their views evolve when they attempt to build an ADU and are $200k into the permitting/review process before even breaking ground.

[JoJoP]

I think a tiny house is just a very visually appealing travel trailer.   They function much the same once you're inside.

  In our area, any place where an individual could have a little place of their own, with out roommates,  commands a premium as rental.  Add a view and a pet, and I could rent as many of these as I had available.    We live in an area where there's not a lot of affordable housing, and the demand is high.  The deterrent to me is the entry price.  Like single wide "park" trailers, they are not cheap to buy.  If you can find a used one, that's the way to go.  They can be very cute, with little lofts, and big windows.   I've been hunting for years for a nice single wide to relocate to our area, but the resale ones generally don't have updated fire prevention systems, now required in my high risk for fire area.    Utilities and septic or sewer can be burdensome.  In my area, you're either going to go legal (prohibitively expensive for a $750 a month return) or slip it in (risk of complaining neighbors or code enforcement bringing the whole thing to a halt).    We never found anything compelling enough to move on.  By the time you're done making it legal, you might as well have something bigger that you can rent for more.   

One of my best returns on investment was a used double wide manufactured home.   It was empty and the owners were in a hurry to get out of the space rent at the mobile home park.  We paid less than 20K for a smallish 3 bedroom, moved it, set it up on a permanent foundation, installed the fire prevention and hooked it to the utilities.   The utility part was pricey, but had to be done anyway to develop the lot.   That was maybe $50-65K total, but would be more now with the fees.   That was 20 years ago and I've been making 20K+ a  year on the rent ever since. Yes, about $400,000 on it!   I don't think it's been vacant for more than a couple of weeks total. 

[maizefolk]

I would use a Heloc or take out a mortgage on my house(currently do not have one) to fund something.

Okay, good that takes care of the interest rate issue.

There is actually just a lack of housing. A nicely built tiny home is far superior to a standard mobile home or trailer. Higher ceilings, full kitchens, real wood floors, etc. Some of them are small custom built homes, with really nice finishes. That is the difference I see.

The quality of furnishings in a tiny home will likely be higher (because the costs per square foot are also higher). However, keep in mind a tiny house tends to have much less actual square footage than a mobile home.
-A singlewide mobile home is usually on the order of 1,000-1,100 square feet and costs $50-60/square foot.
-A tiny house built on a trailer is unlikely to exceed 340 square feet and they tend to cost $200-300/square foot.

If the goal is to find someone who specifically wants to live in a tiny home, that's less of an issue. It does create a much smaller world of potential renters and you should make sure you're making enough allowance for vacancy. But that's a separate issue.

AirBnB is an interesting idea but depending on where you live that will be seasonal, there will be significant costs (whether in money or your time) for cleaning and resetting between each visitor, and unexpected things can come out of nowhere and break your business model (like a disease that dramatically discourages travel potentially for up to several years). 

If your model for coming to the $750/month rental price point is that people who would otherwise rent mobile homes would be willing to pay more to live in a much smaller footprint but with higher quality furnishings, I think it is much more risky. What does a single wide mobile home rent for in your neck of the woods?

[joenorm]

I know of one single wide mobile home renting for $1200. Single occupant.

[YK-Phil]

Do your homework about what you can and cannot do on your property. Zoning can often throw a monkey wrench in your plans if you neglect it. I also own a nice piece of vacant forested land on a PNW island (PSW for Canadians), with good well water and power to the property. I thought about building a tiny house and rent it until I decide to live in it myself. Housing is very scarce and expensive on the island, and a well-built tiny house or small cabin could be rented for $800-$1000. Unfortunately, the option of a tiny house on wheels on the island is not an option for full-time living, as in my area, zoning treats these like RVs and occupancy is limited to up to 60 consecutive days and 90 days total in a calendar year. That rule is not actively enforced but it is complaint-based. It only takes one complaint from an unhappy neighbour to fuck your plans. My son lived happily off-grid in my 5th-wheel, minding his own business, growing a little garden and fishing for his sustenance, but was evicted after someone complained to the bylaw enforcement service. No exception, no leeway. The other option, building a cabin or a tiny house on a permanent foundation of some sort, is another ball game with its own challenges, as it then requires submitting full plans and specifications along with the building permit application, and compliance to the building code which also includes the requirement to have a full septic system in place. It is neither a cheap nor a simple process. Even if my plan was to use a composting toilet and greywater recycling, the requirement for a full septic system still stands, which defeats the purpose of having composting and water recycling. Until i decide what to do with that land and my life when I grow up, i will just build a small 12x16 shed-cabin with basic living amenities where I can at least have a place to sleep and hang out when I go there in the summer or for vacation.

[Bettersafe]

PTF