One option to maximize the earning potential of single-family rental home investors is to add units, specifically tiny homes, to an existing property. The tiny house movement, which started with individuals looking to simplify their lives by downsizing their living space and their possessions, has grown into a legitimate investment opportunity. But just because it’s becoming more and more popular, that doesn’t make a tiny home a good or legal option for all investors. So, before deciding to build a tiny home in North Haven, make sure you learn about it, especially about the opportunities it holds and about the problems you may encounter.
There’s no doubt about it. Improvements that increase both your property’s value and your rental income are projects truly worth considering. And, on its face, it does seem like adding a tiny home to your rental property is a good way to attain both. So, what exactly is a tiny home? The widely accepted definition is that a tiny home is a detached dwelling that is under 400 square feet. Some homes have wheels, like an RV, and some are built on a permanent foundation.
There is a strong demand for affordable rental homes right now because of the high housing prices across the country. There is also a growing interest in a lifestyle of fewer possessions and a smaller environmental impact. When you put these two things together— the high housing prices and the downsized lifestyle— you can see why tiny rental homes are one housing trend that renters in many markets may welcome. When you build a tiny home next to an existing rental house, you are giving investors the opportunity to increase their rental income while sparing them the costs of buying another property. And usually, adding structures to the property will increase the property’s appeal to renters needing multiple units as well as add to the property’s overall value.
There are some considerations you need to go through before you add a tiny home to your rental property, however. The issue you should consider first is cost. It may be a small structure but tiny homes still cost anywhere from $30,000 to $180,000. This means that even the relatively cheap designs of tiny homes will still amount to a large financial investment. To make things even more difficult, it’s not really easy to get financing for a tiny home. Many lenders do not offer mortgages for tiny homes, and if you apply for other types of loans, you may have to pay a higher interest rate.
In addition to the cost of building a tiny home, you’ll have to contend with regulatory issues as well, which means taking the local zoning regulations and building codes into consideration. In many cities across the country, there are strict zoning laws that prevent property owners from adding rental units to a single-family property. A few even have regulations that mandate how big a detached dwelling has to be in order to be legally occupied.
Local governments can also be very strict about building codes. Many require that all dwellings be built on foundations and that even tiny homes should have the same requirements as any other house. There could be permits, inspections, and utility service work required, all adding to the cost of construction. This shows the importance of doing a little research on city ordinances and building codes in your area.
Another thing you need to take to account is how your existing tenants view a tiny home. If ever you have long-term tenants in your rental home, they may be neither glad nor eager about a second dwelling on the property. Adding another unit adds people, cars, and increased activity around the house. It could also give rise to disputes or several nuisances. Even though such a result may not happen, you must take measures to understand your current tenant’s needs before making your final choice.
Although a tiny home might add some value to an investment property, they usually don’t appreciate the same way that more traditional houses do. This is true especially for tiny homes on wheels. These homes are considered depreciating assets and won’t grow in value at the same rate that the land and other structures likely will. Tiny homes built on foundations tend to fare better on resale value but may still lag behind traditional homes.
As a result, choosing to add a tiny home to your investment property might not net you the results you want. When you know more ahead of time, you’ll be able to succeed in any venture you find yourself in. If you have decided to commit to these plans, keep in mind that a North Haven property manager can offer you valuable services and tools that will help you be successful. Give us a call at 203-821-7303 to learn more.
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