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 began with people aiming to make their lives better by minimizing their living space and possessions, has grown into a legitimate investment opportunity. But despite its growth in recent years, it doesn’t mean that everyone should build a tiny home. It still may not be a good— or legal— option for the moment. So, don’t make the decision to add a tiny home in Richmond yet. Not before you do your research and learn all about it. Look for both the potential problems and potential opportunities.
There isn’t any doubt that improvements made to your property that increase both its value and rental income are really worth looking at. And, at first-look, building a tiny home on your rental property does look like a good way to get 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. They can have wheels on them, like an RV, or 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. When you add to this the growing interest in a downsized lifestyle of fewer possessions and a smaller environmental impact, then its clear that tiny rental homes are one housing trend that renters in many markets will welcome. When you add a tiny home next to an existing rental house, you are offering investors the opportunity to increase their rental income without 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 things you need to look at before building a tiny home on your rental property, however. The issue you should consider first is cost. Even if it is a small-sized residence, 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 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 areas, there are strict zoning laws that prevent property owners from adding rental units to a single-family property. There are cities with regulations that instruct you on how big a detached dwelling should be in order for it 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 likewise, tiny homes 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. This is why learning the city ordinances and building codes in your area is a must.
It is even vital to take into account how your tenants will 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 house. It could also result in disputes or additional concerns. 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.
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. Specifically for tiny homes on wheels, they are believed to be depreciating assets and won’t grow in value at the same rate that the land and other structures probably will. Tiny homes built on foundations tend to fare better on resale value but may still lag behind traditional homes.
All these reasons show us one thing— that adding a tiny home to your investment property can be quite challenging. When you equip yourself with knowledge beforehand, you’ll find that your future is bright with possibilities. Whether or not you prefer to commit to these specific plans, you can make use of the benefits offered by a Richmond property manager. Give us a call at 802-861-6468 to learn more.
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