Why a Tiny Home Doesn’t Always Mean a Smaller Bill

As home ownership becomes more expensive due to stricter mortgage requirements and rising prices, the trend of buying smaller homes, aka “tiny homes,” has gained a lot of attention. These small houses — which can include a bedroom, kitchen and bathroom — have attracted the attention of people worldwide who are concerned about having a smaller impact on the environment, saving money and devoting less time to home maintenance.

Tiny homes are defined as any residence of 400 square feet or less, compared to the average traditional home built on a fixed foundation of 2,600 square feet. The average tiny house is 186 square feet, can be built on flatbed trailers — many are the size of an RV — or on a fixed foundation, according to tiny home resource blog TheTinyLife.com.

A tiny house typically costs less overall to build or buy than a standard home, which is a major driving force of its appeal. Owner-builders generally spend about $15,000 to $25,000 on a tiny home, not including their own labor, according to TinyHouseDesign.com. On the other hand, professionally built tiny homes could cost between $30,000 and $50,000 or more. On the more frugal end of the spectrum, a tiny home can cost less than $10,000.

Building Wealth

However, tiny homes are still a very small segment of the home purchase market. Less than 1 percent of all buyers have purchased a home under 1,000 sq. ft, according to the National Association of Realtors 2015 Profile of Home Buyers and Sellers.

In many ways, a tiny home can mean smaller expenses for the homeowner. Yet because of their special considerations, some tiny houses can also incur some large expenses that can offset the cost savings. Here are nine of the most common big expenses that can accompany the purchase of a tiny home.

Read: 10 Tiny Homes You Can Actually Afford

1. Land Purchase and Lease Costs

One of the most important factors with any real estate purchase is location, location, location. Siting a tiny house on a piece of land is no different. The only difference is that the lot size can be much smaller, depending on the owner’s preference for a large backyard or space for a garage.

Getting a great view is also nice, but often that comes at a premium — whether you lease or buy. Be sure you factor in land costs when you’re crunching the numbers for your future tiny home.

Building Wealth

2. Costs for Transporting Your Tiny Home

Getting a prefabricated tiny home to the home site requires special trucking, and often the use of a large crane to lift the structure to a specifically constructed foundation or building pad. Trailing a tiny house to a location often uses heavy machinery that gets about 8 miles to the gallon, said Greg Johnson, co-founder and president of tiny house advocacy group Small House Society, in an interview on NPR. One personal account on TheTinyLife.com estimated the truck rental to be $550 and fuel costs to be $500 to transport a tiny home 1,200 miles.

For those who want to travel the country with their tiny home on wheels, TinyHouseGiantJourney.com broke down the monthly trailing costs to pull a 10,100 pound tiny house, using a Ford F-250 Diesel 4?–4 that gets between 8 to 10 mpg:

  • Gasoline: $726
  • Truck maintenance: $294
  • Trailer maintenance: $55
  • Truck insurance: $95
  • Mobile internet: $130
  • Campground fees: $208 for eight nights
  • Propane: $12

This amounted to a monthly expense of $1,520. This did not include expenses for food, phones, health insurance, student loans, etc., since those expenses were constant regardless of living situation.

Building Wealth

3. Costs to Obtain Permits

Municipal codes and zoning for tiny houses also varies significantly based on location. For example, when a tiny house is mounted on a trailer with wheels, it is considered a temporary structure, similar to a camper, and this often meets local zoning requirements, according to Johnson.

However, because tiny homes are still a relatively new phenomenon, and each location deals with them differently, it’s important to do your research and obtain the proper permits upfront to ensure your tiny home is considered legal. Some cities, such as Portland, Ore., are changing their codes to accommodate pocket neighborhoods of tiny homes, Johnson said.

4. Design and Building Costs

Many tiny homes can either be custom-designed or chosen from various existing building plans. Design costs can vary based on whether the tiny house is mounted on a trailer or designed to be placed on a foundation. TinyHouseDesign.com estimated that choosing a professionally built home can more than double your costs, so it can help to weigh what features are most important to you if you’re looking to stick to a budget.

Building Wealth

5. Costs of Living off the Grid

If the tiny house is located in a rural area, you have to factor in the cost of transportation to your job or to go into town to stock up on food and supplies. If, for example, your job is in the city, Johnson said that getting a smaller apartment closer to work might be more eco-friendly and cheaper than an off-the-grid tiny house. Living costs can also be reduced if you live in a college town, where shared spaces, such as restaurants, laundromats, public transportation and gyms, are all located in a walkable neighborhood.

6. Costs of Financing the Purchase

Most people don’t borrow money to build a tiny home, but save for it, according to TinyHouseDesign.com. However, if you’re looking to finance one, it can be challenging to get a traditional mortgage for a tiny home because they’re considered a non-traditional real estate asset. When the tiny house is permanently attached to a foundation and meets all local zoning requirements, it might be eligible for a traditional mortgage.

Building Wealth

Since some tiny homes are on wheels, they could be considered recreational vehicles, and not real estate. This would require an unsecured loan, which can come with higher interest rates.

One possible way to secure financing for a tiny home is to join the Recreational Vehicle Industry Association (RVIA), and build your home to those standards, according to TinyHouseDesign.com. A $25,000 RV loan can have up to a seven-year term, with rates as low as 2.99 percent with auto-pay, from Lightstream, an online consumer lending division of Sun Trust.

7. More Expensive Building Materials

Many people consider tiny houses to be eco-friendly and, to a large extent, they can be. The house can be powered by solar panels or propane gas, or use a composting toilet, which are all available, but can be pricey upfront costs.

Tiny homes require more energy-efficient and compact appliances, and often specialized building materials, such as windows that are better insulated against cold and noise. Although you might use less of these materials on a smaller space, these materials can still be more expensive in terms of unit cost.

The average cost of constructing a tiny home is $200 to $400 per square foot, according to U.S. News and World Report. However, the cost of a traditional house is significantly cheaper, at just over $84 per square foot, according to the 2010 census. Even in the Northeast, the most expensive region of the country, the average per-square-foot cost for a traditional home was slightly more than $110.

8. Property Taxes

Taxes are an inevitable part of all real estate ownership, and tiny houses are no exception. However, there’s a differentiation when the tiny house is on a trailer and parked on a dedicated lot.

When this happens, the tiny house is taxed twice. Once by the state Department of Transportation, which bases the tax on the value of the metal trailer. The second tax is from the county or state that places a tax on the land, since the tiny house is considered an “extra dwelling,” according to Johnson.

Read: 10 Tiny Homes For Retirees

9. Energy Expenses

Energy is an unavoidable cost of living in any residence. Although the common belief is that living in a tiny home automatically reduces energy costs, that’s not always the case.

Johnson, who lived in a 140-square-foot dwelling for six years, said his heating bill in Iowa City was about $360 a year. This compared to a heating bill of about $200 a year for a 2,500-square-foot house also located in Iowa City.

“I was surprised when I found this out,” said Johnson. “But due to a number of factors, the larger house was cheaper to heat, so it’s not a certainty that you can save money heating a smaller space.”

Beware the Tiny Details

The benefits of owning a tiny home can be significant, in terms of cost, lifestyle and environmental impact, yet there are drawbacks to be considered. Nevertheless, as policies change to address the tiny home trend, it could become more prominent as a new real estate alternative.

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About the Author

Chuck Epstein

Chuck Epstein is an award-winning writer, who has held senior-level positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial.

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