One of the methods that single-family rental home investors use to maximize their earning potential is to add units, specifically tiny homes, to an existing property. The tiny house movement began with individuals looking to better their lives by reducing their possessions and downsizing their living space. This movement has grown into a legitimate investment opportunity. But just because it’s gaining in popularity, it doesn’t mean that a tiny home is a good or legal option for all investors. So, don’t rush to the decision to build a tiny home in Broken Arrow. First, learn as much as you can about the movement, including the opportunities and the potential problems as well.
There’s no question that projects that increase your rental income while adding to the value to the property are worth studying. Initially, one would think that adding a tiny home to your rental property would be a good way to accomplish both. So, before we can go in-depth, we first need to know what a tiny home really is. A tiny home is usually defined as a detached dwelling under 400 square feet. They can have wheels on them, like an RV, or built on a permanent foundation.
There is a high demand for affordable rental homes right now due to the high housing prices across the country. When you combine this with a growing interest in a downsized lifestyle— fewer “stuff” and a smaller environmental impact— tiny rental homes are one housing trend that renters in many markets may welcome. When you construct a tiny home next to an existing rental house, your investors get to increase their rental income without having to deal with the costs of buying another property. And many times, 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 a few considerations you need to look at before you decide on adding a tiny home to your rental property. Probably the first thing to consider is cost. Regardless of being a smaller structure, tiny homes still cost anywhere from $30,000 to $180,000. This means that even just a moderately affordable tiny home will still be a large financial investment. To further complicate the matter, financing for a tiny can be difficult. Many lenders do not offer mortgages for tiny homes, and if you try other types of loans, you may be forced to go for a higher interest rate.
Besides the cost of building a tiny home, you must take the local zoning regulations and building codes into consideration. In many areas, there are strict zoning laws that prevent property owners from adding rental units to a single-family property. Some even have regulations that mandate how big a detached dwelling must be in order to be legally occupied.
Local governments can also be very strict about building codes. Many require that all dwellings are built on foundations and that may also mean that tiny homes have to meet the same requirements as any other house. There may also be more governmental permits, inspections, and utility service work required, adding to the cost of construction. That’s why researching city ordinances and building codes in your area is an absolute need.
It is additionally significant to take into account how your tenants feel about a tiny home. If you have long-term tenants in your rental home, they may not be so enthusiastic about a second dwelling on the property. Adding another unit adds people, cars, and increased activity around the property. It might also create disputes or other disagreements. Although these unfavorable reactions aren’t certain, you should still play it safe and take the needed steps to understand your current tenant’s needs before making your decision.
Finally, although tiny homes add value to an investment property, they don’t appreciate the way we would want them to. It’s quite different from how traditional houses appreciate. Particularly for tiny homes on wheels, these are deemed depreciating assets and won’t grow in value at the same rate that the land and other structures might. Tiny homes built on foundations tend to fare better on resale value but may still lag behind traditional homes.
With all these reasons in front of you, deciding to add a tiny home to your investment property should not be taken lightly. It’s a good idea to know a lot beforehand. This will prepare you for success no matter what decision you make. If you do move forward with these plans, be sure to take advantage of the valuable services offered by a Broken Arrow property manager. Give us a call at 918-532-7020 to find out how we can help.
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