Tiny Home as a Property Investment: How It Works
A Tiny House Does Not Mean Tiny Profits.
Tiny houses have become a huge trend not only in Australia but around the rest of the world. A tiny home is more than just cute. It is a diminutive dwelling that continues to explode in popularity.
But what is it exactly?
Originally, tiny homes came from the US but are now an accepted concept in Australia. In 2018, it was estimated that there were about 200 to 250 existing in Australia, considering how big the country is, this number may seem insignificant. However, it continues to grow each day.
More and more people, including investors and potential homeowners, are seeing how great tiny homes are as an alternative to a conventional house.
A tiny house is a moveable dwelling that is indeed tiny, measuring up to 50 square metres only. They can either be on skids or wheels. Building and living in a tiny house is mainly not because of lack of funds. Most of the time, it is a personal preference, particularly those who want to live a simple life. Material possessions are not the focus of the small space. At the same time, it is a conscious decision to transmit a smaller eco-footprint.
Tiny homes are a clever way to utilise space. Although it is small, it does not mean it lacks amenities. Australian tiny homes are known to be full of innovative technologies. The construction alone embodies advanced design and self-sufficiency.
These houses are fully functional and can be moved from one place to another.
What Makes Tiny Houses Unique?
A survey in 2015 showed that an increasing number of people wanted to build and live in a tiny home. About 20% of them already lived in a tiny house while 61% of the respondents were eager to build one. These homes are either partly or fully mobile or on skids.
However, some of those who answered the questionnaire wanted to live in a permanent or immovable tiny home.
If you take a good look at these homes, they are quite fascinating indeed. These homes have a unique appeal for everyone, including those who are environmentally-conscious. Tiny houses successfully integrate eco-tourism.
Renters are turning to tiny homes as their perfect getaway, particularly the mobile tiny houses. Guests can unwind while they are in a remote or quiet place.
Tiny houses may not be a hotel but they still offer comfort and flexibility. While you are somewhat closer to nature, allowing you to recharge. This does not mean you are sleeping in the wilderness.
Minimalist living may not be right for everyone, but several Australians and even tourists want to experience staying in a tiny house.
It offers several benefits, including:
- Freedom: If people could take their home with them, they would. It is possible with tiny homes. Renters now want to be outdoors and many of them get tired of the same surroundings they are in. A tiny house offers this type of freedom, which is why it is becoming more appealing to renters and travellers each day.
- Simple Living: We live in a world where technology and material things are dominant. Sometimes, we need to take a break from them. Staying in a tiny home, even if it is temporary, can give the renter less distraction while living more consciously.
- Sustainability: Everything people do contributes to the carbon footprint on the planet. Today, more Australians are becoming conscious of their environment. People want to live in a more sustainable home that can aid in reducing their carbon footprint. Staying in a tiny house gives this chance because it produces less waste and uses less energy.
- Attractive: Tiny homes are well-made, so they can last for several years with minimal maintenance. It is why these houses are a great investment. At the same time, they are appealing and built with craftsmanship. Builders are careful and have an eye for detail, paying attention to the design and suitability of the house to its dwellers.
Because they are tiny, these homes are often built faster than regular ones. On average, professionals can build a tiny home in just 120 hours, specifically constructing one that already has prefabricated panels.
Are Tiny Houses Worth the Investment?
Housing affordability is a nationwide problem and has gotten worse over the past 30 years. Lack of affordable housing is due to many reasons, including:
- Increased preference to live in urban areas
- Tax incentives
- Access to housing finance
- Population growth
Australians also favour living in owner-occupied detached homes. Additionally, these problems on housing affordability are exacerbated by low housing stock and lack of options. The planning process is also quite inefficient, as well as the development assessment.
For these reasons, the tiny house movement has become increasingly popular. It can be a potential solution to affordability problems. Just in the past decade, tiny homes have become more mainstream.
All over the country, tiny home developers are partnering with real estate investors. If you are thinking about investing in tiny houses, here are top reasons why doing so is an excellent idea:
1. It is affordable.
Tiny homes cost a fraction of conventional housing. Although it varies from one supplier to another, you will most likely have to provide 25% down payment if you plan to purchase one.
2. It appeals to renters and homebuyers.
Tiny homes attract many types of people. If you are planning to sell or have it rented, it will not be difficult to find a person or group you can market it to.
The latest trends show that there is a growing demand for retirement developments. Tiny homes are perfect for those who want to live quietly. At the same time, they get the benefit of living while travelling.
These days, people who want to live in an urban location prefer tiny homes. Perhaps the reason behind this preference has to do with the land costs in urban areas.
Demographically, tiny homes are appealing towards older people, especially women over the age of 50 as a result of homelessness. Nevertheless, tiny houses are perfect for young families, as well as first-time homebuyers and millennials. They are flexible, eco-friendly, and affordable. These reasons alone can make it easy for you to sell or have the property rented.
3. It is an easy deal.
Transactions involving tiny homes are fairly simple. If you are an investor, you can fund the development of the construction in a certain land. You can also opt to have it developed in a community. After that, the owner of the land will receive payment or compensation for letting the investor use the location.
The investor will then profit from the tiny home, either by selling it or renting it out to travellers. It can be a short-term or long-term rental. With the money you gain, you can invest in more tiny homes.
The great thing about investing in a tiny home is that you have established resources. Building one does not require you to purchase a piece of land or building. You also do not have to worry about planning for the most part. Investors do not need to find additional resources, such as water and electricity as well.
To have a tiny home, you will only be required to provide an initial payment. You can then select how involved you will be in its development.
4. You can gain high yields.
The more units you build, the higher the profits. Because of the low initial investment, many investors do not usually have to worry about purchasing more units. In just a short period, you can gain access to more tiny homes so you can increase your inventory.
How Much Can You Earn with a Tiny House?
The answer to this question varies greatly. Let us have an example:
Two investors make a long-term investment. One of them purchases a building with 10 units. Meanwhile, the second investor only purchases one tiny home.
The first investor can purchase one more building of the same size (10 units). However, he has to wait at least six years to do so because he needs more cash. On the other hand, the tiny home investor continues to invest in more homes after two to eight months.
Fast forward to 10 years later, the first investor now has an effective yield of 10.524% while the person with tiny homes investment has earned 16.738%. When the 10% bet yield is removed, the premium earned from compound will be 0.524% and 6.738% for the first and second investor respectively.
During this time, the tiny home investor owns 45 units after 10 years while the other one has two complexes with 10 units, totalling 20 units.
As you can see from this example, you can quickly determine that investing in more tiny homes will lead to more profits than purchasing apartment units.
The amount you earn will depend on how you will use the tiny home though. For example, if it will be for short stay accommodation, it can certainly supplement your income. You can then increase your revenue up to seven per cent or even more.
For instance, if you purchase a tiny house from Fox Tiny Homes for $60,000, you can rent it out for about 28 nights each year. Each night is worth $150, which gives you a seven per cent return on your initial investment.
Let us assume that you enjoy a three per cent increase in your earnings. In 10 years, you can earn more than $48,000, which is already 80% of your initial investment. It can pay itself off after 14 years with a 10.28% ROI. These numbers are simply for renting the property out for just 28 nights yearly.
Before You Start: Laws and Regulations to Know About
Tiny homes can be a home attached to a caravan, on wheels, or foundations. For most people, they would usually opt for a home on wheels. As an investor, you may want to go for the same thing for the following reasons:
- Building codes will not apply. Since the tiny house will be attached to a trailer, permits, and regulations involving buildings will not affect how you run the mobile structure.
- You do not have to wait. If you ever decide to go for a tiny home and build it on land, you will typically have to contact the local council. It means you need the authorities’ approval, which will certainly take time. If you want to earn money out of this investment, you surely do not want to wait.
- It does not take a lot of money. Since there is no piece of land involved, you get to save on this hefty purchase.
In Perth and other regions, tiny houses on wheels, for the most part, are accepted legally. A large amount of Council’s recognises them in a similar view to a caravan. This works out well as it means there is an already, clear and existing rule set to adhere to. The most important part to know about is that Australia does not allow anyone to live in a caravan permanently.
Additionally, the legislation in New South Wales only allows people to own a maximum of two caravans or tents. Allowing someone to stay in a caravan is only allowed up to 48 hours at a time. In short, it is designed for short-term stays only.
One more thing to remember is that you can use campervans, tents, and such as accommodation for up to 60 days annually.
Nevertheless, tiny homes on wheels easily comply with the housing provisions in Australia. In particular, they meet the performance requirements in the country set out by NCC Vol. 2 Class 1 Buildings. The mobile nature of these homes, however, may require more research to create a certification scheme.
Investors and buyers of tiny homes should assess the construction properly. This way, they will know the integrity and quality of these houses.
Tips on How to Have a Successful Tiny House Investment
Although there are still unclear laws about tiny houses in Australia, it does not mean you cannot invest in them. With their huge earning potential, it is easy to see why investors are purchasing and building more tiny homes in the country.
If you have decided to get into the tiny home industry, you may be wondering how you can actually earn from them. The good news is that there are a variety of ways, including:
- Rent the property out.
Once you have the tiny home, the next logical step is to determine how you can profit out of it. There is no better and easier method to earn than to rent it out the traditional way. It is quite simple: just lease it to a tenant.
You can turn the tiny home into a rental property where you can get a regular source of income, typically each night. It can provide you with a good return on investment, especially if you place it in an in-demand location.
If you plan to rent it out, make sure that you target the correct audience. Tiny homes are most suitable for individuals and not a couple, especially a family with a baby. The trick here is to be realistic when it comes to determining the type of tenant you can lease the property to.
- Use it as a vacation rental.
Turning the tiny home into a conventional rental property is indeed a wise strategy for your investment. However, converting it into a vacation rental can even be a better option. Travellers today, particularly the younger generation, want to stay in a budget-friendly place. Additionally, they continue to look for non-traditional options and tiny homes are indeed the top choice for them.
Many of these travellers prefer RVs and lodges. However, you can offer them a more unique experience with your tiny home.
- Turn into an Airbnb business.
Much like with the second option above, you can sign up the tiny home with Airbnb. You can have a wider reach, especially since Airbnb continues to grow in Australia. More people are converting their homes and extra space into this type of accommodation. In fact, the listings grew from 43,610 to almost 90,000 by the end of 2017. Airbnb allows you to take a lot of the hassle out of finding people who want to experience your unique tiny home. This type of accommodation has become increasingly popular, so much so that the website now has a dedicated section for this type of dwelling. Airbnb is a wonderful way to make extra income.
A tiny home could be a great investment for you, whether you’re a first-timer looking for an extra bit of income or a seasoned property investor looking to broaden your portfolio. There are many ways that you could make a tiny home, work for you.
If you are interested in making money out of tiny homes, why not get in contact with Fox Tiny Homes today. We have a huge range of Tiny Homes for whatever your needs may be.
The blog post is for general information purposes and does not constitute professional legal or financial advice. Before taking on any investment, you should seek out the proper advice and be aware of the risks involved with any investment. Make sure to do thorough research on all laws regarding tiny homes in your town, city and state.