A tiny house might be smaller than traditional houses, but they still offer good real estate investment opportunities. These small and often mobile houses offer enough living space for minimalist individuals and small families. They are among the latest real estate trends that make housing more affordable. More than ever, people are choosing to downsize their living space and live with less. Tiny houses are also more environmentally friendly and are accompanied by some freedom. If you are thinking about investing in a tiny home, then you may be asking yourself a lot of questions. Is a tiny house a good investment? How do I ensure I make a good return? Don’t worry, we’ve got you covered.
Related: The 4 Biggest Reasons to Live in a Tiny Home
The tiny house movement has lowered barriers to owning a rental property for new real estate investors. They can be good alternative real estate investments for those who want investment properties that are less expensive in terms of initial cost (purchase or building costs), taxes, repair, and maintenance costs.
While there are several benefits of buying a tiny house as a real estate investor, there has also been plenty of criticism. Some of the challenges include but aren’t limited to securing a loan, finding good tenants, and legalities. There are also concerns by some analysts that the tiny house movement is a fad. Some investors who joined the tiny house movement blindly have ended up regretting a tiny house investment. However, landlords can still make these small investments profitable and avoid tiny house regret. With the right strategies, the potential for growth is exponential.
Here are 7 ways to avoid tiny house regret:
1. Choose the Right Location
The first step to avoiding tiny house regret is choosing the right location. Location is key to the success of all types of real estate investments, including tiny homes. When choosing a suitable location for your tiny house, consider your potential customers and what their needs are. You can invest in tiny homes by renting them out traditionally, renting them out as vacation rentals, or by flipping them. The strategy you use will influence the customers you have and, consequently, your choice of location. Ensure that there is a demand for that type of investment property. This way, finding tenants will be easier and the rental rate will be decent or you’ll be able to find buyers quickly and get a good return on investment. Most real estate investors tend to use tiny homes as vacation rentals since they give a unique experience to guests.
Generally, people tend to live in tiny homes in cities that are more expensive. Therefore, you should consider the cost of living in the area. Also, research the area’s laws and regulations, especially when you want to rent out the tiny home on Airbnb. Choosing the wrong location will often lead to buyer’s remorse. You can use Mashvisor to search for the best cities to buy tiny houses in the US. You can also work with a real estate agent to help you find areas that will make for the most profitable investments.
To start looking for and analyzing the best tiny house investments in your city and neighborhood of choice, sign up for Mashvisor.
2. Check the Building Codes
Another way to avoid tiny house regret is to ensure that they are built to code. This is an important factor to consider if you are looking to build a tiny home. The housing code standards for tiny homes are usually different from those of traditional structures. Therefore, it is important for real estate investors to check their local building codes before building a tiny home.
3. Check the Zoning Regulations
Apart from building codes, to avoid tiny house regret, you also need to learn the zoning regulations. There are areas where tiny homes are not permitted or have strict regulations. This makes it easier to build or acquire tiny houses in some areas than others. For instance, a particular amount of square footage may be required when building a tiny house. You may also be required to own the land where you want to put a tiny house rental. To avoid regretting a tiny house investment, contact your local government to gain a good understanding of the zoning regulations in your area.
4. Use the Best Financing Option
Financing tiny homes can be quite challenging. Banks usually don’t finance tiny houses because they are not considered to have substantial value to make for good collateral. Most mortgage lenders offer loans to houses on permanent foundations only and have minimum loan amounts. The process of approving a loan also requires a lot of effort. It wouldn’t be cost-effective unless it is a sizable amount. However, this doesn’t mean that your dream is out of reach. There are a few other financing alternatives you can use. These tiny house financing options include:
- Personal loan
- RV loan
- Home equity loan
- Peer-to-peer lending
As the demand for tiny homes increases and the market grows, more entities are willing to finance them. However, most tiny house owners prefer using cash where possible. After all, tiny houses are quite cheap. Apart from the higher credit score requirement, the other options may have higher interest rates. Depending on your situation, make sure you use the best possible financing option to avoid tiny house regret.
5. Choose the Right Real Estate Marketing Strategies
Your marketing and promotion tactics will also influence the success of your tiny house investment. To avoid tiny house regret, ensure that you choose the right real estate marketing methods. Tiny home tenants are typically young adults who are in their 20s or 30s. Therefore, for your marketing to be effective, you should target mediums that this age group is exposed to. You can also have an active website and social media accounts. It will be helpful to have regular updates and share quality professional pictures of your tiny house. Your content should also be interesting and keyword-laden.
Related: Real Estate Marketing Strategies: How to Market Your Rental Property
6. Choose the Right Tenants
Finding the right tenants for your tiny home can also help in preventing tiny house regret. Tiny homes are not fit for everyone, especially when renting it out traditionally. They are usually suitable for individuals or a very small family. They may not work for larger families, depending on the size and amenities available. Therefore, you ought to be realistic about the type of tenant you rent out to. You don’t want to rent out to larger families only for them to leave for a larger house in a short while after realizing that tiny living isn’t for them. This way, you will often be left with an empty rental property that is not bringing in any returns. You should also conduct thorough tenant screening to ensure that your tenant will be paying rent on time and not damage the investment property.
Related: Tenant Screening Process: Red Flags Landlords Should Not Ignore
7. Maximize Your Profit
The price you are able to charge tenants will depend on a number of factors. Apart from choosing a good location and having a good quality investment property, you can also maximize your profit by adding amenities such as an outdoor sports court, luxurious fixtures, Wi-Fi connectivity, a bigger kitchen, etc. Analyze your competition and ensure that you offer more than what they are offering. What do you offer that makes your tiny house special? By offering more, more customers will be interested in your rental property and you will be able to charge more.
However, ensure that the property is staged correctly if you do choose to add more amenities and features. You should keep in mind that you need to avoid clutter and give the space a minimalist look. You can achieve this by using multi-purpose furnishings and ensuring that the home is well lit. One of the common real estate mistakes is not leaving enough storage space so be careful not to commit it!
The Bottom Line
Many new real estate investors end up with tiny house regret because they don’t use the right strategies and don’t take the necessary precautions before jumping into the business. With these tips, you will be able to get a good ROI from your investment property and avoid tiny house regret. It is likely that the demand for tiny houses will continue to rise as the population increases and the values of traditional homes continue to soar. Therefore, there is no reason for you not to capitalize on this trend now and start growing your portfolio.
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