Financial Considerations Of Buying a Tiny House
Did an episode of the TV show Tiny House Nation get you thinking about massively downsizing your living space? Or maybe you haven't yet bought a house and want to opt out of the typical 2,000-plus square foot home in the suburbs and all the ongoing work and expenses that come with a place that size.
Whether it's simplicity, saving money or an alternative lifestyle you seek, a tiny house could help you meet those goals. Here, we've laid out the main financial considerations in choosing a tiny house – one that's just 100 to 400 square feet.Buying One New
The up-front cost of a tiny house depends on its size, finishes and amenities, as well as whether you build it yourself, have one built for you or buy a pre-owned house. Expect to pay anywhere from a few thousand dollars to more than $70,000.
The best-known purveyor of tiny houses is the Tumbleweed Tiny House Company, founded by Jay Shafer in 1999 and based in Colorado Springs, Colo. The company sells four tiny house models that it will build for you: the Elm, the Cypress, the Linden and the Mica. They range in size from 117 to 172 square feet and are designed to sit on trailer beds and function like RVs. Each base model comes in a variety of sizes and floor plans; prices range from $57,000 for a 117-square-foot Elm model or 130-square-foot Cypress model to $66,000 for a 161-square-foot Elm, a 172-square-foot Cypress or a 172-square-foot Mica.
Numerous options are included in the base price, but certain options add slightly to the cost, such as board-and-batten siding, front steps, replacing a window with a side door or adding a screen door to your front door. Other options, such as dormers, skylights, a polyurethane-sealed interior or propane electric light energy for off-the-grid living, add to the cost significantly. Tiny house delivery is $500 if you live in Colorado and increases to as much as $3,000 for the East Coast. Regardless of house model, the trailer to put your tiny house on costs another $4,000 to $6,000, based on trailer length. Tumbleweed will also sell you plans so that you can build the house yourself.
Tiny Home Builders, based in DeLand, Fla., and founded by Dan Louche, who built his first tiny house in 2009, will also sell you plans for a tiny house. If you want something between total DIY and a finished product, the company will sell you a shell of a tiny house that includes the trailer, framing and sheathing, and Rain & Ice Shield wrap and metal roofing. For a bit more money, your shell can include the windows, siding and trim, and electrical and plumbing rough-in. Both shells require you to finish the interior at additional cost.
Tiny Home Builders will also completely build a tiny house for you, right down to the appliances, which include air conditioning, an induction cooktop, a microwave and a tankless water heater. Basic shells start at $12,000 for a standard, 12-foot model; prices top out at $58,000 for a completed 28-foot house with dormers. There are plenty of size and price options in between.Build It Yourself or Buy Pre-owned
You might be able to cut your up-front costs significantly by buying a tiny house plan and building the house yourself. You'll need to be confident about your construction skills and have hundreds of hours of spare time. Plans for any of Tumbleweed's four models cost $759. In addition, Tumbleweed sells a how-to DVD for $60 and hosts two-day building workshops nationwide that cost $279 or $329 if you buy in advance and $399 if you don't.
The biggest costs of DIY, besides your time, are materials and tools. Tumbleweed says you can expect to spend a minimum of $10,000 to build one of its houses yourself using recycled materials. There's also an in-between option that Tumbleweed calls the Amish Barn Raiser, where Tumbleweed builds the structure for $13,000 to $16,000 and you finish it at additional cost. The additional cost will depend on the materials you choose to complete the work.
You could also buy a pre-owned tiny home. One place to find listings for existing tiny homes is TinyHouseListings.com. At the time of writing, there were more than 2,000 listings nationwide, dozens of which were priced below $10,000.Finding Land
You'll need land to put your tiny house on. How much land you want, where that land is located and whether you rent or buy the land will determine its cost. Most cities' zoning laws won't let you purchase a piece of land to put such a small dwelling on, so you're most likely looking at renting, not owning, the land under your tiny house. The American Tiny House Association website is a good place to start learning about the local regulations that apply to tiny homes.
If your tiny house is on a trailer and local laws allow homeowners to park trailers on their property, you may be able to rent land from a traditional homeowner for a few hundred dollars a month. However, municipalities that allow homeowners to park trailers on their property don't necessarily allow people to inhabit those trailers as a primary residence, so make sure to learn about the local laws before you park your house. If frequent travel is part of your tiny house lifestyle, you may be able to park your house at various campsites, as long as you don't stay longer than the maximum number of days a site allows. A trailer park or mobile home park might be another option, but height and other restrictions sometimes rule out this option. If you already own land that will legally and logistically accommodate your tiny house, your land costs will be zero.Financing a Tiny House
While tiny houses are much less expensive than traditional homes, unlike a traditional home, you can't get a mortgage to buy one. Your best bet might be a recreational vehicle loan or travel trailer loan from a credit union, if your tiny house meets the criteria to be classified as an RV or travel trailer. A Waco, Texas-based company called Rock Solid Funding specializes in helping consumers find these loans, with terms ranging from one to 15 years and interest rates ranging from 5% to 19.95%.
Another alternative is a personal loan, but it will have a much higher interest rate than a mortgage would. If your tiny house is cheap enough, you might be able to charge it to one or more credit cards, but the interest payments will be expensive. No mortgage also means no mortgage-interest tax deduction, and credit card or personal loan interest is not tax deductible. See The Pros & Cons of Personal Loans Vs. Credit Cards.
If you have and will continue to own a traditional home, you could use a home-equity loan or line of credit to finance your tiny house; the interest would then be tax deductible. However, you'd be putting your primary home up as collateral, meaning you could be foreclosed on if you aren't able to make the loan payments. (See Home-Equity Loans: What You Need To Know.)
To finance a tiny house, you'll need good credit, meaning a score of at least 700, to get an unsecured loan, and OK credit, 640 or better, to get a secured loan. The better your credit, the lower your interest rate.
Saving up and buying your tiny house with cash is the cheapest option. If you must use financing, here's a chart that will give you a rough idea of how much different options cost.
Sample Traditional Home vs. Tiny House Financing Costs for a Borrower with Excellent Credit
$250,000 traditional mortgage
$60,000 tiny house loan with RV or trailer financing
$60,000 tiny house loan with low-interest credit card financing
$60,000 tiny house loan with home equity loan financing
$60,000 tiny house loan with personal loan financing
Total principal + interest
s: Bankrate, Wells Fargo and Rock Solid Funding loan calculators and interest rates as of April 24, 2015.Ongoing Costs and Incidentals
Heating and cooling bills will be significantly lower than for a traditional home since you're changing the temperature of a much smaller space. Consider the tiny home's insulation before you buy or build; a well-insulated home will be more comfortable and cost less to heat and cool. Electricity will also cost less since tiny homes don't have the space for tons of energy-hogging appliances.
You won't have the enormous property tax bills that come with traditional homeownership, but if you live in a state with personal property taxes, you'll likely pay an annual personal property tax on your tiny house as an RV or trailer. You may be able to deduct the personal property tax on your federal tax return if you itemize your deductions. But without the massive expense of mortgage interest, you might not have enough deductions to come out ahead from itemizing and end up taking the standard deduction.
A couple of other costs some tiny-home owners find themselves with are fines for violating local housing and zoning laws and monthly storage-space rental for excess personal belongings.The Bottom Line
There's much more to tiny house ownership than the potential to save lots of money. It's about simple living, freedom, environmental stewardship – and living life to the fullest in accordance with your personal value system. Living in a tiny house might give you more money to have life experiences or more time to enjoy non-work activities.
The trade-offs include a lack of privacy and solitude, if you share your tiny house with family; being generally perceived as strange for choosing an alternative lifestyle; and the headaches of dealing with laws that weren't designed with tiny houses in mind (see New Retirement Living Option – And Income ). The financial considerations are just the beginning of deciding whether to become a tiny house owner. It's a larger life decision than most moves to new housing. Research it thoroughly before taking the leap.