One of the methods that single-family rental home investors have 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 increasing in popularity, it doesn’t make a tiny home a good bet for all investors. Depending on the circumstance, it may not even be legal. So, don’t make the decision to add a tiny home in Ellicott City yet. Not before you do your research and learn all about it. Look for both the potential problems and potential opportunities.
If you have a project that increases both your property’s value and your rental income, it is surely worth looking into. And, at first-look, building a tiny home on your rental property does look like a good way to get both. So, what exactly can be considered a tiny home? It’s widely accepted that it is a detached dwelling with an area smaller than 400 square feet. They can be on wheels, similar to an RV, or built on a permanent foundation.
The high housing prices across the country is the main reason why a lot of people are looking for affordable rental homes. There is also a growing interest in a lifestyle of fewer possessions and a smaller environmental impact. When you put these two things together— the high housing prices and the downsized lifestyle— you can see why tiny rental homes are one housing trend that renters in many markets may 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 a few considerations you need to look at before you decide on adding a tiny home to your rental property. The issue you should consider first is cost. It may be a small structure but tiny homes still cost anywhere from $30,000 to $180,000. This means that even the inexpensive designs of tiny homes will still be a large financial investment. To make things worse, it’s not easy to secure financing for a tiny home. Many lenders do not offer mortgages for tiny homes, and other types of loans may force you to settle for a higher interest rate.
Going further than the cost of building a tiny home, you would need to take the local zoning regulations and building codes into consideration. In numerous cities, 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 could be permits, inspections, and utility service work required, all adding to the cost of construction. This is why doing some research on city ordinances and building codes in your area is important.
Another thing you need to consider is what your tenants think about an additional tiny home. If you have long-term tenants in your rental home, they may not be warm to the thought of having a second dwelling on the property. Adding another unit adds people, cars, and increased activity around the property. It may also lead to disputes and other issues. Although these negative reactions aren’t guaranteed, you should still act conservatively and take the necessary 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.
All these reasons show us one thing— that adding a tiny home to your investment property can be quite challenging. Hence, the more you understand ahead of time, the better equipped you will be to thrive and succeed no matter where your decisions take you. Whether or not you prefer to commit to these specific plans, you can make use of the benefits offered by an Ellicott City property manager. Give us a call at 410-415-1736 for more helpful information.
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