Tiny homes are the new thing this year, but the question is: are they actually reasonable? Usually, people buy a house with a plan to end up making a profit. Can this same plan be put to use with a tiny home?
So, do tiny homes depreciate in value? Tiny homes do have a nasty habit of depreciating at roughly the same rate as a car or RV depreciates. Small homes, however, appreciate just like regular homes.
Why exactly do tiny homes depreciate? What is the difference between a tiny home and a small home (besides the choice in adjectives), and what alternatives do you have if you want to downsize but still turn a profit? All this, and more, featured below.
Why do Tiny Homes Depreciate?
Tiny homes are really just houses on wheels. In that sense, they are very much like an RV or a trailer, and are treated as such by banks.
Vehicles don’t last as long as homes, and the longer they are in use, they more run down they get. This means that when they are ready to be put back up for sale, they will generate less, if any, profit.
Tiny homes, since they are technically vehicles, fall into this pit of depreciation. In fact, they depreciate even faster than other vehicles. Because you don’t just drive around in these tiny homes or just use them when you go camping, you actually live in them.
Once you’ve lived in one house for a while, you’ll start to notice little damages here and there; a scratch in the paint, a dent in the fridge, a stain on the carpet. These things, in a big house can be easily overlooked, especially if you take very good care of your home. Some wear and tear is unavoidable.
In a tiny home, however, the space is so much smaller, and the damage looks so much bigger. A stain that is only an inch long now takes up roughly 10% of your counter space! That’s a lot more noticeable.
Then there’s the issue that comes with just living in a smaller space. I lived in a few rooms when I was growing up, and I know that the smaller my room was, the messier it looked. In a tiny space, there’s no room to spread out without punching a hole in the wall. Things look crowded, dirty, and damaged. Try selling something like that for a profit.
Tiny homes are not meant to withstand a whole lot of weather. Cars and RVs last longer if you store them in a garage, and consequently depreciate slower. The same would go for your tiny home as well.
However, you are not going to be storing your tiny home in a garage. You are going to be driving that thing around the country, having a blast, enduring rain, snow, wind, hail, and the occasional falling rock. That tiny home is going to get beat up pretty quickly, and suddenly you’re going to have to start looking for a new home.
The only problem is, you’re going to have a hard time selling that home to finance your new search, because now you are in possession of damaged goods. People don’t want to buy an old tiny house that’s been run to the ground and beaten by too many hail storms.
Another big reason why tiny homes depreciate is how banks view them. Many people go to banks to get loans when buying or building a house. If your blueprints, payment plan, and credit score look good, then you’ll get the loan.
Now imagine how a bank is going to react to somebody coming in and saying that they want a loan to build a tiny home. They are going to laugh behind their coffee mug and politely refer you to the bank across the street.
Banks won’t invest money into something that they know won’t even outlast them. When they invest in something, they need to know that their investment is going to pay off, and if they invest in a tiny home, they can kiss that money goodbye. Tiny homes just aren’t worth it.
The same thing goes for somebody trying to get a loan so that they can buy a tiny home. A bank knows that somebody who buys a tiny home won’t be in a good situation to pay that loan back. They won’t be able to flip the home and sell for a profit. They won’t be living a lifestyle condusive to earning enough money to pay it back either.
Really the only people the bank would even consider granting a loan to, are rich people with really good credit scores. But if you’re really rich, you’re not going to be asking a bank for a loan, so that scenario is fiction anyway.
Tiny Home Versus Small Home: What’s the Difference?
As I was surprised to learn, there actually is a difference between tiny homes and small homes. I always thought people were just throwing in whatever description they felt fit best. I was wrong.
Below I’m going to go in to the financial differences between the two homes, the physical differences between the two homes, and the functional differences between the two homes.
Tiny homes, as mentioned before, depreciate over time, just like cars, trucks, RVs, boats, and trailers. This is because they get worn out over time, are not durable, and are not a safe investment for banks.
Besides banks, insurance companies also have a strong aversion to tiny homes. Tiny homes are going to be a hard sell for these companies to shell out insurance for. I’m sure you could probably convince them, but the monthly payment is going to be ginormous.
We’ve already talked about how fragile tiny homes are (relatively). The possibility of something destroying your tiny home are pretty high, meaning the possibility of the insurance company having to pay you are also pretty high. Something as little as a hail storm could lead to the company having to pay a lot on your behalf, and that’s not something they want on their plates.
Tiny homes are even worse for insurance companies to insure than cars. Cars, just like tiny homes, are also fairly fragile, so why do they insure other vehicles. It shouldn’t be a far stretch for them to start insuring tiny homes.
However, again we have to talk about the fact that you are living in your tiny home. Living in anything is going to exponentially increase the amount of damage that happens to it.
Plus, you’re likely not going to be storing your tiny home inside a garage, where it would be protected from storms, vandals, and thieves.
Tiny homes also significantly increase the risk of a crash. I can’t tell you how many times I’ve almost pulled into an intersection, expecting it to be clear, before realizing there is a trailer attached to the truck I thought was almost out of the way.
Trailers aren’t something people expect everyday, and so when suddenly there is a trailer attached to a vehicle that increases its length, some people can’t react fast enough. The resulting collision can cost insurance companies thousands. So many companies just cut their loses and avoid insuring tiny homes.
Small homes cost just about as much as tiny houses to build. Tiny homes cost an average of $23,000. Small homes cost just a tad bit more, considering you have to lay a foundation and buy the land to build the house on. Still, considering that the average cost of an average home (about 2,600 square feet) is about $338,405.
You can confidently insure small homes. Small homes are more durable and have a longer lifespan, meaning they could be around for generations. Your kids, your grand kids, and so on could potentially live in that house. Insurance companies see this as a safe investment, and will give you a reasonable plan.
Apparently, banks and insurance companies must have each other on speed dial, because if one will help you out, odds are, the other one will too.
Yep, you guessed it, if you go to a bank and ask for a loan to build or buy a small house (instead of a tiny house), you’ll probably get it, provided you have a good income and credit score. Small homes are a much better investment for banks in the same way that they are a good investment for insurance companies.
In addition favoring small homes for their durability, banks also like small homes because they appreciate in market value (as long as you take care of them).
You can remodel, update, and repair small homes much easier and with a much better result than you could with tiny homes. Small homes can have good curb appeal with a well put together garden and lawn. Since they’re immobile, small houses and their inhabitants can also contribute to a community and neighborhood, and that helps with appreciation.
Tiny homes are called tiny because, well, they’re tiny. The average tiny house is about 500 square feet. They are usually no bigger than 20 feet by 8 feet, with the overall living space totaling about 120 square feet. Pretty tiny, right?
Tiny homes are that tiny because they have to be able to be transported by vehicle from place to place. Some tiny homes simply rest on a trailer and are towed to different places as the season permits. Maybe you want to spend the summer in North Dakota, so you plant your home there for a few months before lifting it on a trailer and driving to Florida for the winter.
Some tiny homes come with the wheels included. They are a trailer in and of themselves. All you have to do is connect the hitch and you’re off on whatever adventure you have in mind.
Most of the furnishings in tiny homes have to have duel purposes. The stairs have to also be drawers. The couch has to have storage. The floor has to have hidden compartments. The table has to be able to fold into the wall. The shower has to include the toilet. You get the idea.
Everything in a tiny home has to have a purpose, and this can lead to a kind of spartan, austere atmosphere. While some people might like this minimalist lifestyle, there are many who start to feel drained by it after a while. There is something about being able to decorate, and sometimes, you just want to be able to keep some sentimental clutter around.
Despite the need for downsizing in a tiny house, there is the benefit of complete customization. You can build your own tiny house to fit your every need for relatively cheap. If you have a fascination with gypsies, you can build your home in a way that mimics a gypsy caravan. Your home can be completely and totally yours. After all, you’re likely not going to able to buy or sell a tiny house (see the first subheading for more detail).
Small homes can be the same size as a tiny home (500 square feet), but are often times as big as 1,500 square feet. They usually have few rooms, but big rooms. They also cost around the same ($23,000).
Small homes, instead of being mobile, have a foundation, and are settled on a plot of land. They have gardens, yard swings, porches, and all the air of a cozy English cottage.
The furnishings in a small homes, though necessarily small and few, do not often need duel functionality. You can include sentimental things like pictures, centerpieces, and that coffee table you got from your Grandfather.
Unlike tiny homes, who usually have a loft, small homes are typically one story. However, there is more room in small houses to spread out, decorate, and practice whatever hobby your currently have your eye on at the moment.
Tiny homes are usually marketed as a way to “go green.” There is some merit to this. Solar panels can be installed and hooked up to a generator to produce electricity, and self-composting toilets can turn waste into fertilizer. You’ll have a smaller carbon footprint if you live in a smaller place.
Tiny homes are also a way for you to live your nomadic dream. These homes are equipped with wheels and a promise to take you anywhere you want to go. They allow you to explore different places and different cultures without having to make a commitment to stay anywhere.
Tiny homes, though tiny, have fully functional kitchens and bathrooms. Each one can include dishwashers, microwaves, ovens, stoves, toilets, showers, and sinks. It’s exactly like a house, just in a smaller package.
Tiny homes also come with the worry of weight. You can only put so much weight onto a trailer. And often times when traveling between states, you have to weight large vehicles (read “tiny homes”) on scales. And there are fines that come with extra pounds.
If you’re thinking about building a tiny house, you’re going to have to think about everything you’re going to put into it. You’re going to have to think about how much a porcelain sink weighs in comparison to a stainless steel sink. Buying cast iron pans or a new potted plant. Everything has to be scrutinized.
Because your tiny house is on wheels, you’re going to have to find a place to park it wherever you go. This could prove difficult, but often you can just find a place in an RV park or trailer park to unhook your tiny home for a while. This can lead to a rather sizable bill, as it is akin to spending a week in a hotel.
Small homes can also be energy efficient. Once again, they have size on their side when it comes to a carbon footprint. It takes less to heat, cool, and power the home. Solar panels and generators can also be installed, though they will work significantly less well in a small home than in a tiny home.
Small homes also help in building a sense of community. When you stay in one place for longer, you get to know the people and the culture around you. You get to start contributing and donating.
Small homes can feel big while being small. You don’t have to create a fold up kitchenette because you have room for a full size kitchen. You can keep all of your furniture on display without having to hide things away.
You can expand in a small home. Maybe once you start having kids, a tiny house just doesn’t cut it anymore. You start thinking you need another bedroom. Well, with a small house, you have the ability to expand and build add-ons because you’re not limited by the size of trailer.
Alternatives to Tiny Homes
So now that you have all the facts at your disposal, you have a choice to make. Will you still buy or build a tiny home, know it will depreciate within a few years. Keep in mind, I understand the allure of a tiny house and I have no intention of scaring you off.
If you still want to downsize but are abandoning your dream of a tiny house, I have a few alternatives that might be more appealing to you now.
I’ve been talking about small homes this whole article, so it seems only fitting that they should be first on my list of alternatives for tiny homes.
As mentioned before, small homes take the idea of having a small home and make it more reasonable. Small homes can appreciate, allow you to plant roots in a community, and remain small and environmentally efficient.
You can have curb appeal with a garden and the capability of expanding should you need to. The house is cheap and customizable while still being insurable and durable.
Cabins are a lot like small homes. You can build it yourself or you can contract a company to build it for you in a warehouse, then have it transport it to the plot of your choice.
Cabins are also environmentally friendly, cheap, and customizable. They can provide the benefit of feeling close to nature, and, if you build it yourself, can teach you a lot of skills you wouldn’t otherwise be able to gain.
You can build cabins virtually anywhere. With a foundation, they become more durable and weather resistant. You can insure it and keep it in the family for generations. With a stable place, you can integrate into a community.
Cabins are typically $20,000 and about 16 feet by 16 feet. However, you can customize your cabin to be as big or as small as you want it to be.
Modular homes are small homes that are built in factories than shipped or moved to a location of your choice.
When built in a factory, homes usually fare significantly better. They are built away from the harmful affects of weather or vandals, and are in better shape when you get them. They can also be built in as little as six weeks.
Modular homes cost 20% less than the average home, and you get the added benefit of customizing it to your needs. You will need to buy a plot of land to place it on. Banks and insurance companies will be happy to provide you with their services, as it is a good investment for them.
Tiny Homes Aren’t Necessarily a Bad Thing
Tiny homes are still a viable option if you want to downsize and travel at the same time. Even if you don’t want to travel, you can build a tiny home and just plop it down on your own land. If that’s the way you’re leaning, don’t let me stop you. It’s not a bad dream.
And if your main goal is to travel, maybe you could just buy an RV, camper, or bus. These will also depreciate, but they are better built for the road.
Do you have to pay taxes on tiny homes? If you have a tiny home, you do not have to pay a property tax, which has been a long standing argument in favor of moving to a tiny home lifestyle. If you take out a loan in order to build or purchase the home, however, you will need to make payments on that. Those payments will last a much shorter time than payments on a standard house though.
Can you build a tiny house on your property? There are laws that regulate having, building, or living in an ADU (accessory dwelling unit). However, you can build it on your property or a friend’s property. You could also put your tiny home on a trailer, which makes it a vehicle, not a home.
What’s the best state to build a tiny house in? California is by far the best state to build a tiny house in. They are the most progressive (not surprising) in zoning and building laws. They just lifted the regulation that says that you can only live in a tiny house on somebody’s property if you are providing care to the elderly. The mayor still doesn’t support a “tiny house village.”