Some homeowners who downsized to the extreme to simplify their lives find that it’s not always as cheap or easy as they thought. Reader’s Digest spotlights some of the hidden costs of tiny homes (often defined as 400 square feet or less).
The home’s foundation can increase building costs. Location isn’t the only thing that can make building a tiny home expensive. If buyers choose to build on a trailer versus a foundation, the cost can be $10,000 more (it may cost $25,000 for a foundation versus an estimated $35,000 for a trailer). Also, the cost will depend on the complexity of the building plans, how much the buyer plans to pay for out of pocket, and the materials selected. “You should budget at least $65,000,” says Ryan Fitzgerald, broker-owner of Raleigh Realty. “You might be spending $25,000 on building materials alone.”
Getting a mortgage for a tiny home is tough. “Tiny homes often do not qualify for mortgages due to their mobility and small footprint,” says Todd Nelson, a business development officer at LightStream, an online lending division of SunTrust Bank. Many buyers pay cash for tiny homes, while others may obtain unsecured personal loans through lenders.
It’s a challenge to insure a tiny home. “Tiny homes are absolutely insurable,” says Mike Schmidt, business development director at the Tiny Home Industry Association. “It just depends on who built it—like a professional builder or yourself as a DIY project—and whether or not it’s built on a trailer or placed on a fixed foundation.” The National Organization for Alternative Housing may make it easier to purchase insurance coverage for owners whose tiny homes are built on a foundation, Schmidt says. Tiny homes built on trailers need to have RV certification, says Laura Fuduli of Answer Financial, an online auto and home insurance resource.
Zoning laws can get in the way. Municipalities have different zoning, building, land use, and inspection laws. “Whatever you do, play by the jurisdiction’s rules,” says Rachel Preston Prinz, who owns an architecture firm. “Rural areas usually have more lenient laws, so choosing rural areas may save you money. But what you save here might get eaten up on connecting to the power grid.”
The resale value of tiny homes may not hold up. “Don’t expect your tiny home to appreciate like a traditional dwelling,” Fuduli says. Many tiny homes are customized to fit a person’s particular lifestyle, so ultimately, the home’s location may be its only real value. “If you purchased a tiny home in a highly desirable and dense area, then it should appreciate in the same way the market does,” says Fitzgerald. “Your land is going to have a much larger net of the total appreciation, since the structure is small. However, it should appreciate right in line with the local market.” A tiny home affixed to a foundation will likely have a better resale value. “If your tiny home is on wheels, try to think of it like an RV—which can depreciate like a car,” Fuduli says.