The Cost of Renting vs. Buying a Tiny Home

Will your savings outweigh your costs?

After watching a documentary on tiny house living, Las Vegas native Paul Wolford decided to ditch his big house and figure out how to substantially downsize. “In our house, we used maybe one or two rooms. We had a lot of wasted space,” he said. “We realized we didn’t want all of the clutter and useless things.”

Wolford is far from alone. Tiny houses — typically 400 square feet in size or less — have popped up around the country over the last decade, as more people choose to opt out of the U.S. housing market, which is becoming increasingly expensive.

If you’re one of the growing number of people who want to buy or rent a tiny home, you can weigh a number of factors to help you decide whether renting a tiny home or buying one makes the most sense.

Keep reading to decide whether tiny homes are a big mistake — or exactly right for you.

Consider the Long-Term Cost

As with any rent-versus-buy scenario, the favorable outcome depends on many factors, including how long you plan to live in the property, costs in your local area and expected increases in real estate values and rental rates.

“Whether one is buying a tiny home or a mansion, markets can price them very differently, depending on rental sales and demand,” said David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship. You might find a better deal on a tiny house, “if rental units are priced differently from owned units in terms of their monthly cost,” he added.

Unlike traditional houses, which are far more likely to be built by a professional contractor, many people choose to DIY their homes entirely. New, finished tiny homes can cost more than $100,000, according to a recent round-up from Curbed.com. A DIY-er, meanwhile, can avoid labor costs and potentially shave thousands off a home’s overall cost.

That’s exactly how Wolford cut real-world construction costs when he left his 1,600-square-foot Las Vegas home to build a 350-square-foot house in West Jordan, Utah. “Electrical, plumbing and our gas systems were pretty expensive. I did the work on these myself, which helped save a lot of money,” he said. He also accepted a donated building shell and used local classifieds listings to source double-pane windows, doors, cabinets, a vanity, sink and a bath tub — all for $400.

All told, Wolford spent $21,000, which breaks out to $14,000 for construction materials and appliance costs — his composting toilet alone was a $1,000 expense — and then an additional $7,000 for a custom-made trailer, which acts as the tiny home’s foundation. The trailer cost “was way over what I had planned and budgeted,” he said, “but it is vitally important to the overall structure’s stability and strength.”

The lesson: Even though there are many ways to cut costs, particularly for those who can do a lot of the work themselves, unexpectedly large costs can crop up.

Read More: The Secret Costs of Owning a Tiny Home

The Monthly Costs Matter, Too

Even for those who pay construction fees out-of-pocket, the monthly costs associated with tiny house living can vary dramatically. You have to decide whether you’ll pay a monthly mortgage payment for a land loan, rent space off the books or buy a plot within one of several tiny house communities cropping up across the nation. Each decision affects your overall monthly expense. Land owners are subject to property taxes, which can be radically different from one municipality to another.

Wolford pays $400 per month to a friend in exchange for keeping his tiny house parked on his lot. He also financed the trailer on which his house sits, which costs an additional $200 per month.

Then, for those without upfront capital, there’s the financing charge. Mortgages are hard to obtain for homes under 600 square feet and for those that cost less than $50,000. Available financing options — which include loans from tiny house builders, certified RV loans for tiny homes on wheels and credit cards — can be much pricier than traditional home financing options.

Long-term tiny houses for rent can be found for much less per month, but they can also be difficult to locate. Some are listed on tiny home rental and purchase site Tiny House Listings. Although prices ranged at publishing time from a low of $120 per month to several thousand, $500 per month was a typical range.

But that’s the cost for long-term rentals. Renting a tiny home by the night through a site like Airbnb or through a tiny house village can cost substantially more. Mt. Hood Tiny House Village rentals in Mt. Hood, Ore. can start at about $139 per night, making short-term rentals a better option for vacationers or for those who want to test drive tiny house living before committing to it for the long term.

Don’t Forget About Utilities

Whether renting a tiny home or buying, the cost of utilities will depend on the available utility hook-up. If you’ll have access to public electricity, gas and a sewer hook-up, standard local rates will apply — and finding ways to stretch your paycheck to cover them can be more of a burden in some states than others.

If, like Wolford, you rent space on someone’s lot and hook into their water and electrical lines, your rental fee might include those items. At the time of reporting, his $400-per-month rental fee included electric, water and access to WiFi. If your house is located in a rural or remote area where no utilities are provided, owners might need to install an accessory structure to collect rain water, solar or wind power sources, and a composting toilet. If you’re renting a tiny house in a remote location, you might need to incur these costs depending on what amenities the landlord provides.

In short, there’s no easy way to compare the utility costs of renting a tiny home versus buying — though you should be able to slash phone and cable bills to start. Each housing option needs to be considered and priced out on its own.

Read More: Unplug These: Appliances That Could Be Hiking Up Your Electricity Bill

Zoning May Be the Key to Your Success

Many communities require a minimum home size of 1,000 square feet or permit homes on wheels, which means zoning can limit where and how you live. Although a growing number of communities now allow tiny houses on private land and tiny houses on wheels, many tiny home owners are stymied by the rules and simply fly under the radar, parking their tiny house in a friend or family member’s yard.

“Our living situation is a little bit of a grey area,” admitted Wolford. “There are not a lot of laws or rules about tiny houses.”

Renters luck out in this area, as it’s the landlord’s responsibility to make sure all zoning requirements have been met.

Look into Insurance Policies

Insurance for tiny homes built by certified RV manufacturers is readily available. But for self-built tiny houses, those built on a permanent foundation and houses not certified as an RV, insurance is much harder to find.

In 2017, Insurance Journal noted a few insurers would cover tiny homes, including a division of American Reliable and a number of independent insurance endeavors nationwide. Yet in many states, insurance can be more or less affordable.

Some tiny home owners choose to self-insure, learning how to build an emergency fund in case fire, flood or other catastrophic event damages the home. Still, self-insurance doesn’t cover liability claims, like if someone falls on your property and decides to sue.

So — Should You Rent or Buy?

In the end, if you can find one, a long-term tiny house rental can be an affordable option. Still, there aren’t many readily available on the market, which can make a tiny house rental difficult to procure.

Even if you have the upfront resources to build a tiny home, and even if you plan to do much of the work yourself, it could take several years to break even when comparing the costs of building the tiny home to the costs of renting a traditional home.

“We are not saving any money yet. We pay way more than we did renting a 1,600-square-foot house at $1,100,” said Wolford. His monthly cost includes his lot rent, trailer payment and a $500 minimum credit card payment, which he amassed while building his tiny home.

“However, the equity of the tiny house is probably $30,000 to $35,000,” he said. That’s definitely worth adding to the equation. Plus, Wolford loved the process of building and living in his tiny home.

“It was extremely rewarding to research, design and build my house.” Now that they’re there, “It’s very comfortable. We love the freedom we have,” he added.

Click through to find out how much you need to live comfortably in major cities across America.

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