Tiny Homes Are a Big Trend
If you’re the sort of person who keeps tabs on the real estate market and its comings and goings – which you should be, if you’re an investor – you may have noticed the relatively recent trend of tiny homes. Even the non-initiated are likely aware of the trend if they frequent Twitter, Pinterest, or home and gardening blogs. There’s no mistake about it: tiny homes are a big trend these days.
What exactly is a tiny home, and how can the conscientious investor formulate their popularity into their existing set of goals? To answer the first question, tiny homes are exactly as advertised: small houses, often small enough to be towed behind a pickup truck. Double-wide trailers and RV’s may now have some competition. Tiny homes are small, portable, fashionable, and in most cases designed with the aesthetically-conscious homeowner in mind. Their most obvious advantage is their cost, which can be as low as $23,000. Factor in the tendency of tiny home owners to have higher-than-average savings, which at a median of $10,000 is astonishing given the assumed income of a homeowner with such an inexpensive home, and it’s clear that saving on homeownership is a smart economic move.
Given that home ownership is much a hallmark of the American Dream as it is a symbol of the country’s economic strength, it’s easy to overlook the fact that the purchase of homes is a driving force with regard to consumer debt and for most Americans, a single house is the largest asset they’ll acquire in their entire lifetimes. An average single-unit family home priced at $239,000 may very well cost over $400,000 with a 6% interest rate on a 30-year mortgage, and is generally one of the most important investments someone makes in their life. A tiny home, by comparison, is by far easier to afford, maintain, and eventually pay off, which is why 78% of tiny house owners own their home, compared to the 65% of traditional house owners who own theirs. In an even more staggering disparity, 68% of tiny house owners have no mortgage whereas only 23.9% of traditional house owners can say the same, and this is where the prospect of owning a tiny house truly begins to make profound economic sense.
More than a matter of fiscal pragmatism, the tiny house movement is just that: a movement, and one that’s about far more than just dollars and cents. The reason you’re probably aware of the tiny house trend is because it, well, trended and continues to trend today, particularly through blogs, lifestyle magazines, and social media. Overwhelmingly, consumers’ various reasons for owning a tiny house boil down to two things: limitations/liabilities, and priorities. With regard to the former, we pointed out a moment ago that buying a home is a big deal – as it should be – but like any other economic trade-off, it comes with its own set of limitations and liabilities. For one, a traditional home is in a fixed location on a set of property purchased specifically for that purpose, and where a family’s children attend school, what conveniences are nearby, and family’s proximity to their jobs are inextricably tied to that location. As far as liability goes, traditional homes come with maintenance costs, property taxes, and of course, more often than not, debt.
Tiny houses are free from most of those limitations and liabilities or, at the very least, far less susceptible to them and to a lesser extent. The average tiny house owner holds much less debt than the traditional house owner, due in no small part to the vastly reduced cost of tiny houses and equally reduced need for mortgages. The limitations are fewer as well, with most tiny houses designed to be portable, meaning owners can change their location as they see fit, with less cost and hassle, and not be tied down to a given location. The appeal of being able to travel or allocate funds that would have been spent on a much more expensive home and a mortgage is obvious, and that’s the second most consistent characteristic of tiny house owners: their placement of high value on setting their own priorities.
As investors, we have a lot of respect for individuals who prioritize their lives effectively and in a way that works for them. Much like real estate investment, life is about priorities, and neither works very well in the absence of them. For most tiny house owners, they see their home as not only a vehicle to financial freedom, but also as a means to realize other goals or prioritize other things in that they’re free to allocate both resources and time that may otherwise be taken up by a mortgage, longer hours at work, etc. Again, it’s about priorities, and the typical tiny house owner could be anyone from a young, childless, educated couple looking for jobs in competitive fields and requiring the flexibility to move on an offer, or they could be an older retired couple looking to downsize their bills and liabilities while spending their golden years traveling. The typical tiny house owner could also be a small family forgoing a traditional house and using the windfall to fund private school tuition for their children, or they could be environmentally conscious and interested in reducing their carbon footprint. Make no mistake; these houses – as the name quite literally indicates – are tiny. Given that they’re between 100 and 400 square feet, compared to a traditional home’s average 2,600 square feet, they’re aptly named and represent both a considerable lifestyle change for most people and, in terms of what most of us are used to, no small amount of sacrifice. But then, that’s what priorities are all about: if you can’t afford/accomplish two things, consider which is more important and decide on one. For the tiny house owner, the trade-off is learning to live in a smaller space with the goal of saving money for retirement or the peace of mind that comes with being environmentally conscious.
So what’s an investor to make of all this? For one, it’s important to be conscious of all trends in the real estate market, be they those of price or those of fashion. With tiny houses, there’s a slight advantage for investors and wholesalers alike in that the homes themselves are portable and, by definition, small. For the investor, it means he or she could make a purchase and move the asset as needed, or for a wholesaler it may mean that he or she can park keep several homes on one lot or piece of property. Further, a seller may not need to sell the location of a property when selling a tiny house because while the demographics interested in such homes is definitely limited in some ways as far as area and location, it’s by no means going to be the primary consideration it might be for traditional home buyers.
Beyond the easier logistics and management of the assets, the pool of buyers is a lot more diverse, not necessarily hampered by a lower salary or ability to qualify for a loan, and may even be more amenable to buying the asset outright since the average price of a tiny home is usually a fraction of what the down payment alone would cost for a traditional home. Let’s also not underestimate the value of a larger and more-qualified pool of buyers. Not only are you less likely to need to sell locally, you’re also liable to have an easier time selling in general because, as we’ve said multiple times, the demand is both larger and more fluid (especially with regard to location and income) than that of traditional homes. When was the last time you had considered that a buyer for your home might be retirees? When was the last time you thought someone who made less than $25,000 per year could feasibly get a home loan? With tiny houses, their availability extends to far more potential buyers, and the smart investor would do well to be aware of this.
For more insight and analyses of the real estate market and tips on the art of real estate investment, be sure to check our blog regularly and follow us on Facebook and Twitter!
– Get It Right Solutions LLC