If you’re looking to invest in property you may be wondering if a tiny home could be worth your time and money.
The big question is: do tiny houses stack up financially? These types of homes may not be for everyone, but the good news is for some people tiny homes can mean big profits.
Let’s break it down.
Do tiny houses appreciate in value?
Unfortunately, tiny houses tend to depreciate rather than gain value.
This isn’t due to their size. It’s simply because, even when it comes to a conventional property, it is the value of the land that gains value over time, not the structure.
According to Tiny Away Co-founder Jeff Yeo most tiny homes are also classified as vehicles, which don’t gain value.
“Tiny homes are regulated as caravans in most shires in Australia and hence they will depreciate over their lifespan,” he says. “However, there are some cases whereby the tiny house that has been built and appreciates in value because of certain aspects such as the look and feel of the tiny house or its interior decoration.”
Having said all this, the fact a tiny home doesn’t appreciate in value can benefit some investors, as you can claim tax depreciation if the tiny home is regularly rented out.
In fact, there are multiple ways a tiny home can still be a worthwhile investment.
Tiny homes can still be a worthy investment
Tiny houses may not offer capital gains, but this doesn’t necessarily mean they’re not worth investing in. After all, they can be quite good little income earners.
Here are some potential upsides of investing in a tiny home:
1. More affordable
The price tag of building or buying a tiny home is far less than normal real estate.
Most cost between $60,000 to $120,000, while the mean price of a standard residential dwelling hit $728,500 in 2020, according to the Australian Bureau of Statistics.
In some cases, owners can even buy a tiny house outright rather than applying for a loan, cutting down long term interest costs.
2. They cost less to run
Tiny homes are small, meaning they need less energy to warm up, cool down, and just generally keep the lights on. In fact, many are self-sufficient and utilise solar panels to provide energy. This can potentially reduce ongoing power costs to zero.
As traditional tiny homes, by definition, should be built on a trailer, this means they can be moved anywhere. Owners have more freedom when it comes to location and can theoretically take their tiny home wherever they move. Additionally, when it comes time to sell, a tiny home can be moved to any state, increasing the size of the potential pool of buyers.
4. High rental yield
Because of the low purchase cost, tiny homes tend to have higher rental yields.
For example: if you purchase a tiny house for $80,000 and rent it out 30 times per year for a total of $150 each time then your gross rental yield will be 5.6%.
This compares to a house where you buy a property for $500,000, rent it out for $390 a week, giving a gross yield of 4.1%.
Further to this point, Jeff says tiny houses rent out on average for $200 per night and some command up to $400, so rental yields could be much higher for popular listings. Not too shabby!
5. Lower carbon footprint
Ethical investors will be drawn to tiny homes as their size and self sufficiency make them more environmentally friendly than a normal rental.
6. Less maintenance
With less space to clean, fewer appliances to repair and no gardens, tiny home maintenance is quite easy. This also means the cost of maintaining the home is less, which will appeal to many potential landlords.
Overall, there are less costs involved, giving investors more opportunity to directly pocket profits, if done correctly.