Property Investment
8 min read
Tiny homes are gaining in popularity, simply because houses are expensive … there’s no doubt, they are more affordable than traditional housing options.
Since property prices and rents are going up, it’s easy to see why some people might consider them, but are tiny homes a good investment?
In this article, you’ll learn what tiny homes are. We’ll cover how much you can borrow to buy one, and whether they’re the right fit for you.
Typically, a tiny home is a small, transportable house on wheels.
Some people also use the term for minor dwellings or smaller homes. People can say ‘tiny home’ and mean anything from a renovated shipping container to a small house.
So, there is generally no single answer to the question, “What is a tiny home?” Because tiny homes are often heavily customised.
Tiny homes typically have all the features of a house e.g. bathroom and kitchen, but on a much, much smaller scale. In this article, we’re focusing on those transportable homes. In other words, small homes on wheels.
Most tiny homes are around 40 square metres in size. That said, just because it has wheels doesn’t mean it’s a vehicle under the Building Act.
Tiny homes can be customised, which means pricing them is difficult.
Absolute Tiny Houses says their most popular tiny house is 10.8m x 3m. It costs almost $80,000 and comes with a kitchen and bathroom. But you can find a two-storey tiny home for around $190,000 from the same company.
Both are cheaper than the national average property price of around $900,000. Given this cost difference, it’s easy to see why tiny homes can be more appealing.
This is where things get tricky. To banks, tiny homes are classified as vehicles rather than houses. This means traditional banks won’t give you a mortgage for one the same way they do a house.
However, some lenders offer specific loans for tiny homes.
For instance, Squirrel Money offers a specific loan for tiny homes:
However, Squirrel Money will only lend up to $100,000 on a tiny home. So, if you’re eyeing a $130,000 tiny home, you’d need a $30,000 deposit to cover the difference.
There are ways to reduce the need for a deposit.
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There is a limited range of lenders you can go to if you want finance for a tiny home. Here are our top 3.
The first option is Squirrel Money. As mentioned, they will lend up to $100,000 to buy a tiny home.
But keep in mind that, unlike a normal mortgage, you need to pay off the loan within seven years. Compare that to a normal house, where you can typically pay off the mortgage over 30 years.
As stated, you need a 5% deposit if you borrow over $70,000 through Squirrel Money. But, there is no deposit needed if you borrow less than $70,000.
Just keep in mind that a 5% deposit on an $80k tiny home is only $4k. That’s far less deposit needed compared to a 20% deposit on an $800k property ($160k).
So, a tiny home is much more achievable for some would-be buyers.
The interest rates range from 9.95 to 15%, for both the 2-3 and 5-7 year loan terms.
However, the maximum loan from Squirrel is $100k. This can be a bit short for some tiny homes, depending on what you’re looking for.
UFinance is a privately-owned New Zealand finance company; they just focus on tiny homes. The interest rates are a bit more expensive.
Usually, their rates range from 15.9 to 17.9%.
And you’ll need to pay some additional charges, like an establishment fee. But they’ll often lend you more than Squirrel, and you can pay off the loan for up to 10 years.
Oxford Finance also lends money to buy a tiny home, but only if you buy through HouseMe.
But remember, if you get a tiny home loan from any one of these lenders you might be limited if you want to refinance.
You won’t be able to refinance with the likes of ASB, ANZ or Westpac, because they don’t lend against tiny homes.
Short answer: Probably, yes.
Let’s say Andy is considering a tiny home because he can’t save the 10% or 20% deposit for a traditional home.
With Squirrel Money offering 7-year loans, he’d face weekly repayments between $305 and $340. This depends on interest rates. This is cheaper than the high cost of rent in many areas.
However, Andy will need to park his tiny home somewhere, and that adds cost.
If he decides to rent space in a friend’s paddock, the ground rent might cost an extra $100 to $200 per week.
Just how long you can park your tiny home on a piece of land depends on the location. That said, he’s still more likely be paying less if he stays in a tiny home compared with renting.
Traditional properties tend to go up in value over time. Tiny homes, on the other hand, tend to depreciate over time. It’s similar to vehicles.
Anecdotally, Squirrel reckons tiny homes lose 30% of their value as soon as they’re purchased.
So, if you buy a tiny home don’t expect it’s going to go up in value by 7% a year. That said, like a car, there’s never going to be zero value in it.
There is an active second-hand market for tiny homes on Trade Me, where prices for used homes can be as low as $60,000. But expect your tiny home to depreciate over time rather than increase.
What if you want to rent out a tiny home? Here are the factors you’ll need to consider.
Tiny homes must still comply with the Residential Tenancies Act if you want to rent them out.
This means they need to meet Healthy Homes standards. This could require things like heat pumps, insulation, and fire safety measures.
If the tiny home has a long-term tenant it may still be considered a building under the Building Act. Yes, even if it’s on wheels.
Some councils may need building consent, depending on the area and how the tiny home is used. This is an important factor to consider if you’re planning to park the tiny home on land you own or rent.
On top of that, connecting infrastructure like power, water and sewage can add to the overall cost.
If you are renting out your tiny home you will need to discuss your insurance options with an adviser.
And you will likely need landlord and contents insurance if you have furnished it. Depending on the structure, building insurance may also be required.
Remember, they still face all the same risks from weather, accidents or vandalism.
Buying a tiny home to live in will likely be cheaper than renting a normal property. That’s even if you have to pay for ground rent.
But you will be living in a very tiny space ... it’s a tiny home after all.
So, unless that type of minimalist lifestyle appeals to you, you could find yourself a bit cramped. But at the same time, you might think, “I own this home.” And many people will see that as an upside.
However, the tiny home itself is unlikely to go up in value and it’s going to be quite hard to switch lenders down the line.
While a tiny home might offer short-term savings, particularly compared with renting, they’re unlikely to increase in value.
If the minimalist lifestyle suits you, it could be a good choice, but it’s important to weigh the pros and cons before making a decision.
15 years’ experience in the industry. Active property investor with $6 million+ portfolio. Financial adviser at Opes Partners.
Lance has over 15 years’ experience in the property industry. He became a property investor at 22, and has since built a personal portfolio worth over $6 million.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
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