Are Tiny Homes Worth It?

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Are Tiny Homes Worth It?

Tiny homes could save you hundreds of thousands of dollars, but are they worth it?

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Are Tiny Homes Worth It?

I have a handful of friends who’ve mentioned to me that they’d love to live in a van.

Perhaps that’s because I’m millennial-aged, as are my friends, and I’m also from the Pacific Northwest, where you might expect more people to be interested in trends such as “van-living.”

In fact, I knew one couple close to my age that were actually living in a van for a while, and while I admired them for their minimalist lifestyle, I didn’t really get it. I didn’t understand the appeal of living in a small space without a shower and other amenities, among other things. It seemed inconvenient and unenjoyable.

But then I found myself doing some research on tiny homes recently, and I noticed that my sentiments were changing. I was beginning to understand and appreciate a minimal lifestyle facilitated by a small living space — the opportunity to save money and downsize began to sound better than making a massive down payment on a traditional home that could take me decades to pay off.

I still don’t think I’d want to live in a van — but a tiny house? I think I could get in on that trend.

I’m not the only one intrigued by tiny homes. According to a recent survey conducted by Fidelity National Financial, 56% of Americans say that they’d live in a tiny home. The data from this same survey also tells us that 86% of first-time home buyers would consider buying a tiny home to save money and avoid getting a traditional mortgage.

If that isn’t enough to convince you that there is a growing interest in downsizing, embracing minimalism, and living in a small space, even Elon Musk, the richest man in the world, was rumored to be living in a tiny home.

So what is it about tiny homes that is turning so many heads?

Affordability is the biggest draw, especially in a market that continues to see rising home prices. But even if you can save a substantial amount of money, are tiny homes worth it?

What are tiny homes?

To help guide you in the process of determining if a tiny home is worth it or not, it’s important to understand what a tiny home is.

Inherent in the name, tiny homes are tiny — typically ranging from 100 to 600 square feet, depending on your preference.

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While a 400-square-foot tiny home is much less than even a quarter the size of a traditional single-family home, tiny homes are extremely customizable and can be outfitted with amenities, such as a shower, toilet, dishwasher, washing machine, etc.

Tiny homes can be used as a primary or secondary living space, but they can also serve as rental spaces or accessory dwelling units (ADUs) which could help you generate some extra income.

Knowing how you’ll be using your tiny home — a primary living space, rental space, detached office, etc. — can be helpful in deciding which type of tiny home you’d like to buy or build.

There are a variety of tiny home types to choose from, ranging from a school bus to a treehouse or sailboat for the very adventurous. Or, if you want to keep it simple, mobile tiny homes that you can buy pre-built from a company like Tumbleweed or Mint are extremely popular.

Living in a school bus or your own tiny home in the forest may sound charming (and believe me, I find myself captivated by the spontaneous and carefree lifestyle that tiny homes display), but making the decision to adopt the “tiny” lifestyle is a big decision that includes a lot of moving parts.

For example, if you want to have a mobile tiny home you’ll have to find places where you can park. Or if you’re planning on building on a foundation, you’ll have to determine how you might hook up electricity, or tap into running water.

These are important considerations which might help you decide whether or not a tiny home is really worth it for you.

How much do tiny homes cost?

We already discussed how more than half of Americans say that they would consider living in a tiny home, but why would they consider the tiny lifestyle in the first place?

The answer can be boiled down to two things — affordability and a desire for flexibility, especially now that the COVID-19 pandemic has dramatically increased the number of people who are working remotely.

A tiny home can cost anywhere from $30,000 to $180,000, significantly lower than the average traditional home price of nearly $380,000 (not to mention highly populated/high demand areas where home prices can shoot up into million dollar territory).

Let’s face it, buying a house today is a huge and expensive investment; an investment that may not be realistic for many Americans. So why wouldn’t you consider a tiny home that could save you hundreds of thousands of dollars?

You can build a comfortable tiny home for under $100,000, but costs will vary depending on what type of tiny home you want, whether you’re building it yourself or buying a pre-built tiny home, and what kind of features and amenities you want to include. And in the end, your costs will likely fluctuate and may turn out to be higher than you anticipated.

If you’re buying a pre-built tiny home you’ll probably be looking at spending somewhere between $85,000 and $120,000. You might be able to save money if you build your tiny home yourself, but there are some tiny home costs that you should keep in mind, which can include the following:

  • Lumber — The cost of lumber has skyrocketed during the COVID-19 pandemic, so you will likely get hit with a very large bill for any lumber needed for your tiny home construction.
  • A trailer — If you’re wanting to take your tiny home and travel the world, you’ll need something that can manage and pull the extra weight.
  • Roofing — Make sure that you choose a material that will be durable and secure, particularly if you’re planning on moving your tiny home with a trailer.
  • Electric and plumbing — Keep in mind that to do any wiring or plumbing you will likely need a permit, and this work typically has to be done by a licensed professional. You should also research the costs of connecting your pipes to the municipal plumbing system and/or a septic system.
  • Amenities — You can include a shower, toilet, stove, oven, dishwasher, washer and dryer, etc. Just keep in mind that amenities take up space, and there isn’t typically much space to spare in a tiny home.

However, even if you put in a little more money and effort into your tiny home, you could quickly generate a passive income by turning it into an investment property. You could even turn it into an Airbnb or list it on Vrbo.

Are there any financing options for tiny homes?

Tiny homes are a more affordable housing option, but even then, $100,000 is a lot of money to hand over all at once.

Luckily, there are a variety of financing options available that can help make your tiny home dreams a reality.

The first thing to know about financing a tiny home is that you generally can’t get a traditional mortgage for a tiny home.

There are many reasons why you can’t typically get a mortgage for a tiny home, including the following:

  1. The lender wouldn’t make enough money out of the transaction (due to the fact that tiny homes typically cost less than $100,000)
  2. Tiny homes aren’t considered traditional real estate since they don’t incur property taxes
  3. There isn’t an easy way to appraise a tiny home property and ascertain its value.

That being said, some mortgage lenders, like Quicken Loans, may offer some tiny home solutions, but it would be up to you to speak with a company representative to see if a mortgage is an available option for you.

Since a mortgage may not be your best bet for financing your tiny home, you could look into some other financing options:

  • Personal loans
  • RV loans
  • Credit cards (but if you do use a credit card, make sure that you can reasonably pay everything back on time. Your tiny home isn’t worth ruining your credit).
  • Home equity loans — If you are planning on having a tiny home as a secondary property or an investment property, you could access your home equity to cover expenses. Many mortgage lenders offer home equity loans or lines of credit.

Deciding how to finance your tiny home really comes down to your circumstances and finances, and so it is most important to find the solution that will be best for you.

So are tiny homes worth it?

Whether or not a tiny home is worth it will depend on a variety of factors, including your current finances and circumstances. Would you be happy with a minimalist lifestyle? Do you mind sacrificing space for the sake of saving money? If you have a family, will you be able to sustain living in close quarters with them?

It is no secret that tiny homes are more affordable and offer increased lifestyle flexibility, factors that definitely have their appeal. And tiny homes offer a great solution to creating additional income if you were to turn your tiny home into an investment property. But, keep in mind that there can be many costs involved in building or buying a tiny house, and those costs can quickly pile up.

If you’re unsure that you’ll love living in a small space, you can rent a tiny house yourself and test the waters — just because tiny homes are a growing trend, that doesn’t mean the tiny lifestyle will be the best fit for everyone, and that’s okay.

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Kalicia Bateman
Kalicia Bateman is a personal finance editor specializing in mortgages. She is passionate about simplifying finance and strives to combine complex information with authenticity & humor when possible.

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