Yes, downsizing may be the most cost-effective way to cash flow out there – and here’s why

bigger is not always better, especially to that moment Home and mortgage payments. High interest rates and soaring home prices have developers, homeowners and investors considering downsizing to make big bucks.

“The monthly payment is more important than anything else, and builders have rolled out smaller, more efficient homes,” said John Burns, chief executive of the Irvine, Calif.-based company. John Burns Research & Consulting,Tell New York Times.

The same article shows that in 2015, the median size of new homes in the United States peaked at about 2,500 square feet. The current affordability crisis has further narrowed investment horizons, with many property investors already realizing they need to downsize their investment homes to increase cash flow.

What is a tiny house?

But first, what is the definition of a tiny house?

A tiny home generally refers to a home that is less than 400 square feet. many be built On a trailer, this makes them mobile. However, accessory dwelling units (bring) and other small homes, such as villas and in-law suites, can also be classified as tiny homes if they fit within the approximate dimensions.

The cost of building a tiny house

generally, The cost of building a tiny house At least $20,000about 4% of the average U.S. home sales prices. Custom home with add-ons can double the price of a tiny home Home,and a Home Prices on wheels typically range from $60,000 to $80,000.

It’s worth noting that if your tiny house is mobile and located in the garden of your main residence, you won’t need to pay the fee property tax. If it is a foundation on a separate piece of land, you going to need Factor the cost of purchasing the land and property taxes into your expenses.

ROI and cash flow

Expenses over $100,000, what type cash flow Can you make money from a tiny house as an investment? This depends largely on the location of your home. If it’s by a beach in a popular tourist destination, by a lake in a picturesque countryside, or in the back garden of a home in a big city, expect to earn high rents.

According to short-term rental analysis website AirDNAGetaway, a startup that rents out small prefab cabins for $129 to $299 a night, raised $41.7 million in 2021.

TechCrunch It was revealed that Gateway’s property occupancy rate is close to 100%. For convenience, numbers are rounded assuming Every house is rented At $200 per night, 300 nights per year, the total annual revenue is $60,000, which covers the cost of the cabin for the first year, leaving $20,000 for additional expenses.

Co-founder of Airbnb Joe Gebbia founded Samara in 2022, a company specializing in prefabricated ADUs. This is further evidence of the growing popularity of tiny houses as an investment. By placing an ADU in the backyard, homeowners can avoid real estate tax charges and earn extra income without letting strangers into their living space.

Cities are experiencing a tiny house explosion

Expensive cities see housing units as a way to ease housing crisis. Although prohibitive short-term rental laws mean they cannot be used In places like San Francisco, Los Angeles and New York, where leases last less than 30 days, they are a much-needed pressure valve for homes with traditional year-to-year renters or tenants. for Homeowners in need More space.

ADUs are great for homeowners in expensive cities

California passed a series of laws in 2016 making ADUs Easier Enable backyard homes by building beyond local zoning and land use restrictions in the state. Los Angeles also has Attempts to promote construction of accessory dwelling units By trying new financing methods and other solutions. The City will provide funding based on the ADU construction it funds Plus One ADU Plan No-interest or low-interest loans. Although a small house on wheels illegal in new york cityallowing the occupation of an ADU in the backyard of an existing home.

This could be a great way for homeowners to bring in Earn extra income in a high-rent city. As stated on the New York City Housing Preservation and Development website: “Accessory dwelling units can serve a number of different purposes, providing housing for family members or as an additional source of income for household expenses by renting additional units.”

However, in large cities, the cost of building an ADU increases significantly compared to the cost of building a small home. For example, Samara’s studio Started with $289,000, and one-bedroom units Started with $329,000, including installation.

multiple states There are laws in place for small, family-friendly developments including:

• california
• Florida
• Georgia
• Kansas
• north carolina
• Oregon
• Texas

However, tiny homes are illegal in the following states:

• Alaska
• Iowa
• Louisiana
• New Jersey
• New York
• north dakota
• west virginia
• Wisconsin

Foresight

If you are considering expanding your tiny home business right away, mobile home parks and trailer parks are a great place to start because the sites are already zoned and equipped with amenities suitable for tiny homes. small home. it is quite It’s simple to purchase land and replace your existing trailer with a tiny home that’s more modern, sustainable, and more livable than a trailer home.

final thoughts

whatever you want Reduce your living expenses To achieve financial freedom faster, move into a tiny house, significantly increase your investment capital by buying a tiny house for cash, or get a lower mortgage on multiple properties. The numbers don’t lie: Tiny houses are money-making Tool of.

Appreciation is often a big problem with tiny houses. Obviously, mobile tiny homes are likely to depreciate in value rather than appreciate, and do not have the same tax benefits as tiny homes built on separate land. The latter is true for smaller homes as well as for larger homes. The more valuable the land is and the more improvements you make to your tiny home, the more likely it is to appreciate in value.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.