Buying tiny houses is a tendency that grows daily. These little houses can really help you bring down your cost of living. Find out what they cost, how you can finance them, and all you need to consider before investing in a tiny home.
It is a growing trend to reduce the size of houses to lower the cost of living. Tiny homes with less than 500 square feet of living space not only offer less maintenance and upkeep for the homeowner, but they can make your life simpler, too.
How does a tiny home help you reach your financial goals sooner?
If in the 2000s the trend was to buy large houses with all possible luxuries, but nowadays, buyers are looking for functional and efficient houses. Tiny homes with less than 500 square feet of living space offer fewer maintenance costs for the owner and can also make your life a lot simpler while you work your way to your financial goals.
The costs of a tiny house
To start with, the upfront cost for a tiny home is fairly low. Where the national median home value is 4218,000, these small dwellings can be built with raw materials for as little as $23,000, and prebuilt or used tiny homes can cost $5,000 to up to $75,000, on average.
Tiny homes come with enormous financial benefits, the "all in" cost of living can be around $575 per month, including food, gas, insurance, phone, and other living expenses.
The type of loan you'll need depends on the tiny home you buy, but the relatively low cost of tiny home living enables a great number of possibilities when it comes to financing.
Mortgage: With a traditional mortgage, tiny homeowners may be able to qualify for a lower interest rate than they could get with other financial products.
Personal loan: Since most personal loans are usually available in amounts up to $35,000, they are often enough to cover the cost of a tiny home altogether and these loans can mimic a traditional fixed-rate mortgage.
Cash: Many people also choose to build in stages and save up to pay in cash as they go. This way, they finish the project free of debt.
RV loan: Since many tiny homes are on wheels, an RV loan for recreational vehicles is an obvious choice.
Tiny home loan: There are also a handful of online lenders that offer loans specifically for tiny homes, with no fees and repayment terms of 24 to 84 months for applicants with excellent credit.
Credit cards: With a card that offers zero interest, you may be able to pay for a tiny home to be built without any interest for 12 months or longer.
Should you use your credit card to buy your tiny home?
The financial benefits of buying a tiny house are hard to deny. Of course, part of the appeal of tiny homes is the fairly low upfront cost. Building a tiny home with raw materials can cost as little as $23,000 and prebuilt or used tiny homes run from $5,000 to up to $75,000, on average.
While there are several financing methods for tiny homes, many clients seek to pay with a card that offers zero interest. If you can space your payments out and pay for your tiny home within the card's introductory offer period, you could cover the costs of a tiny home with no interest at all.
What are the risks?
One of the biggest disadvantages of using a credit card to pay for a tiny home is the very obvious potential for debt. Buyers must have a very clear plan to pay it off if they don’t want this debt to go against their financial goals.
Also, if the house is paid with a credit card that isn’t in the introductory offer period, interest may be around 17% and, due to the price, charging it to your card could hurt your credit. As your credit utilization makes up 30% of your FICO score, charging a large amount can cause your score to plummet.
If you're entirely free of debt and only need to finance your tiny home, however, charging your tiny home to a credit card can make sense, if you are not worried about your credit score in the short term.
Tiny homes and taxes
If you build a tiny house on wheels you are not subject to a property tax. That has long been an argument for tiny houses. But the moment you park that tiny house on a parcel of land that “you own” you owe real estate tax to your local government
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.
Are tiny homes a good investment?
A tiny home built on wheels is not real estate even if you own the land it's parked on. These are considered mobile personal property (not permanently fixed on the land) like cars and RVs. So, they are depreciating assets and you can't expect them to appreciate over time like a traditional investment property.
The money you save on other expenses by living in a tiny home, however, may make the investment worthwhile.
While tiny homes aren’t easy to sell, renting your little house (especially if it surrounded by a beautiful landscape), can be a way of making money if you are no longer living in it. Airbnb offers a great number of tiny homes across the country and people who miss traveling, but don’t want to take the risks of flying on a plane, are making staying at these places a growing trend.