How to Cut Costs with Tiny Living

Tiny homes aren’t just a fad anymore — what started as a way to lower mortgage payments and utility costs following the Great Recession has developed into a worldwide movement. And Google searches for “Tiny House for Sale” have grown a whopping 900%.

If you’re looking to purchase or build a tiny house of your own, there are a few decisions you’ll need to make: Where do you want to put your tiny house, and do you want to rent the land or purchase it outright? Are you looking to build your house on a foundation, or do you want to put it on wheels and travel from coast to coast with your home in tow?

When compared to a traditional or big house, tiny houses could save homeowners a lot of money. But exactly how much you’ll save comes down to the type of living situation you want. We’ve taken a critical look at the choices that aspiring tiny homeowners often have to make, and how much each option costs when compared to living in a traditional home on a one-month to five-year scale.

Big house vs. tiny house

Here’s a hypothetical:

Kate wants to build a tiny house, while Tyler wants a traditional home. They decide to shop around, find the best options, and see how they compare:

  • Both want their house built by professionals
  • Both want to use existing utility systems (power, water, sewage, etc.)
  • Tyler wants to take out a mortgage, while Kate wants to take out a personal loan.

Here’s how their costs stack up:

Tiny houses infographic

Property Prices

It doesn’t matter if you’re looking to build or buy — the land underneath your structure will most likely increase in value over time, and it’s one of the best investments you can make. So even before construction begins, you have to decide where you want to live, and what you’re willing to spend on ownership of your land.

According to a study of land prices by state conducted by the Lincoln Institute of Land Policy, the average land value across all 50 states (as of first quarter 2016) comes to approximately $106,893. And the closer you are to a city, the more likely you are to see that number increase at an exponential rate.

Additionally, between 1978 and 2016, the American house grew 950 square feet, while individual lots have shrunk to 0.19 acres. That’s not a lot of property.

There are a number of factors that go into determining the value of a piece of land: Proximity to major urban areas, the potential for economic growth, and the market value of the land itself. Because this value varies widely from area to area, whether rural or urban, it’s difficult to estimate the average cost of land.

Generally, prospective homeowners face two options when it comes to property pricing: Lease a plot of land, or buy the land outright. Tiny homeowners have a third option: Turn their home into an RV or mobile home, and use their tiny house to travel across the nation.

Whichever you decide, be sure to look up your state and local government’s zoning laws and building codes before you shop around.

Leasing or Buying Land

It’s not uncommon for tiny house owners to live on plots of land owned by friends and family, and pay rent directly to them.

Aspirant homeowners can also seek out properties with an existing accessory dwelling unit (ADU) agreement, which enables homeowners to build a second, smaller dwelling on their property. ADUs often come with system development charges (SDC), which are additional fees that vary from city to city.

But if you prefer more privacy, or you can’t find anyone willing to share their property, you might have to rent a plot of land.

But again, before you do, make sure that local zoning allows the construction of a home on your intended plot. For many locations, the minimum house size is 900 feet.

Websites like Zillow, Realtor.com, or LoopNet can help you find vacant lots available for both sale and lease. Another option is to utilize classified sites, like Craigslist or private social networking services like Nextdoor, to publish inquiries or check for rentals.

Parking a Mobile Tiny House

If you’re looking to bypass land costs altogether, plenty of tiny house owners place their homes on wheels instead of a foundation and make their home mobile.

Mobile tiny house owners face a different set of challenges than their stationary peers. For example, mobile home owners that prefer constant travel are still required to establish a permanent address — which they can do via RV friendly states or mail forwarding services.

It’s easy and cheap to find somewhere to park your tiny home on a temporary basis.There are plenty of RV camps across the nation, and on average rent is about $20 per night. But many states limit the maximum amount of time mobile homeowners can stay in one place.

However, many RV camps throughout the U.S. and Canada are showing growing acceptance of long-term, mobile home parking, allowing for longer stays at reasonable costs.

Purchase & Building Costs

The U.S. Census publishes a monthly update of average sales prices of new (traditional) homes sold within the United States. In September 2017, the Census found that the average sales price of a new home was $385,200 — that’s up almost $20,000 from just one year ago.

Building your own traditional house could be an even costlier venture, with average building costs coming in at $286,909, and that’s before the price of land.

However, the average cost to build a tiny home is only $23,000, before labor costs and not counting the price of land, as we’ve already covered. And the median cost for a professionally pre-built tiny home, complete with amenities comes in around $59,884. That’s an impressive savings, to put it lightly.

So once you’ve figured out where you’re going to live, the next decision you’ll have to make is whether to hire professional builders or do it yourself.

Hiring professional builders

There’s a number of professional construction companies that specialize in tiny houses, including 84 Lumber, New Frontier Tiny Homes, and Tiny Home Builders, while local builders can be found via a quick Google search.

Each organization offers a wide variety of floor plans and models, as well as itemized lists of materials and basic home shells, should you decide to go the DIY-route.

Buying a pre-built tiny house means you’re getting a complete home with all appliances pre-installed (which includes microwave, refrigerator, etc.). You’re also able to customize your home just as if you were building it yourself, designing in tandem with the builders.

Though this is the most expensive option available (again, median costs hover just under $60,000), you’ll know exactly how much you’re paying, the cost isn’t as volatile, and you’re guaranteed a professionally built home.

Building your own home

The do-it-yourself spirit is very strong among tiny house advocates: There’s no need to pay for labor costs, and with the right materials, you can reduce building costs to $20,000, on average.

If you do choose to build your own tiny home, and you’re able to build it yourself or get family and friends to provide (volunteer) labor, the only variable in cost will be the quality of materials you choose. The cost of materials varies from area to area, but for an outline of the essentials, check out this list from Tiny House, Giant Journey.

Many tiny home experts encourage aspiring builders to use reclaimed or salvaged building materials — such as reclaimed lumber, wood, or metal for your house’s exterior. Reclaimed materials are often cheaper and sturdier than if you purchased new. Habitat for Humanity ReStores can be a great source for quality recycled building materials, appliances, and more.

Building your own tiny house creates an opportunity for total customization of your home — so if you feel this is the best option for you, be sure to design and plan ahead.

The biggest downside of doing it yourself is that you’ll also have to set up your own utilities. That includes electrical wiring, waste disposal, and more.

If you’re more interested in the personal touches and would like to just build the facade of your house, many tiny house builders offer pre-built kits or shells for sale. Kits give builders everything they need to assemble their house, whereas shells deliver a completed foundation. With a shell, all you have to do is provide the finishing and decorating. Kits can cost anywhere from $2,000 to $35,000, while shells can range from $5,000 to $60,000.

Loans

There’s no way around it: When it comes to borrowing money for traditional housing, you need a mortgage.

With the average price of a house at $385,200 as reported by the U.S. Census and the current mortgage APR of 4.061% as reported by Wells Fargo, the average American owes a total mortgage of $666,926. That’s almost an additional $300,000 in interest.

It’s no wonder that the comparatively miniscule pricing of tiny houses — again, on average anywhere from $20,000 to $60,000 depending on labor costs — is so appealing.

Still, $60,000 is a lot of money. And though you may be planning to build your own tiny home, you may still have to pay for a plot of land. Even if you plan on turning your tiny home into a mobile home, you’ll still have to pay for upkeep and licensing fees.

Most banks consider tiny homes too small to qualify for a traditional mortgage, but if you need money to make your tiny home dreams come true, there are other options: Personal loans or RV loans.

Personal Loans

A personal loan is money borrowed from a bank, credit union, or independent lender for a non-specific purpose. This means personal loans can be used to finance a house, pay off debt, start a business, etc.

Like mortgages, personal loans offer fixed interest rates and flexible payment plans. Most personal loans are unsecured, meaning that unlike a mortgage, they don’t require collateral. And some may come at a lower rate.

LightStream, an offshoot of SunTrust bank, is one of the most highly regarded lenders for funding tiny house construction. Not only is it one of our top picks, but it’s recommended by tiny house builders 84 Lumber and Tiny Heirloom.

If you’ve financed your home, but still need money for land, you may be able to take out a “raw land loan.” Because it’s easier for borrowers to walk away from land without property, raw land loans require higher credit scores, down payments, and interest rates.

RV Loans

If you’ve opted to put your tiny home on wheels instead of a foundation, you might qualify for an RV loan. RV loans are personal finance loans available for the different classes of RVs and motorhomes.

RV loans are often unsecured and come with the same general interest rate as a personal loan. In addition to their personal loans, LightStream also offers an unsecured RV loan that covers anywhere from $5,000 to $10,000, as well as a secured motorhome loan for anywhere from $54,601 to $1,500,000.

RV loans tend to come with higher interest rates, averaging around 4-7%, as well as a 20% downpayment. In addition, RV loans aren’t designed for primary residencies — so you’ll need a permanent address to apply.

Utilities

Like mortgages, utilities (such as water, power, and waste) are one of the main areas where tiny homeowners can save when compared with traditional homeowners.

Electric costs average approximately 13 cents per kilowatt-hour, or $118 per month, and average water rates go for $68.14 per month. Often, traditional homes don’t have a say in utility prices. But, if you’re an aspiring tiny homeowner, you have two options when it comes to utilities: Plug into an existing grid, or become fully self-sustaining.

Often, location is the primary factor: The more rural the homestead, the more difficult it is to hook into existing municipal systems. But, even urban tiny home owners may choose to go the self-sustaining route for ecological or economic reasons. There are advantages and drawbacks to both.

Using an existing grid

If you choose to plug into existing power and water grids, you will have monthly utility costs — but the good news is utility bills will likely cost under or around $20 per month.

Before you build, be sure that your chosen property has traditional hookups, allowing homeowners to splice into the network with ease. If you’ve opted to stay at an RV park or tiny home neighborhood, you should be able to reach those hookups without any issues.

However, if you’ve chosen to live in a more rural area, there’s a chance those hookups may not even be on your property. You may have to run heavy-duty electrical cords for miles, which can be both dangerous and illegal.

If you do choose to hook into the grid, call your local power company beforehand. It’s the best way to find information on power requirements, costs, and where to hook in. Often electrical companies will charge a flat fee for a certain distance, (ex. 5 miles), and then add charges for anything over that distance.

You may also have access to electricity via electrical co-ops, which are smaller, member-owned power companies. Once you’re hooked in, you become a member and part-owner. However, electrical costs remain on par with traditional housing.

When it comes to bringing in water and removing waste from your home, the grid is your simplest option. If you’re in an urban area, you can splice directly into existing water and sewage systems.

If you’re in a more rural area, be sure to research your local water district for more information on where to hook up into the water network. Again, utility costs may be comparable to those of a traditional house.

Becoming self-sustaining

One of the biggest benefits of owning a tiny home is the ability to generate your own power, water, and waste disposal, living entirely off the grid. Not only does this save almost entirely on monthly utility costs, but it’s one of the most ecologically-friendly living options available today.

There’s another advantage: Choosing to set up self-sustaining utilities is possible no matter where you decide to call home. It’s equally applicable to both urban and rural living situations.

There are a few general disadvantages as well. Upfront costs are likely to be fairly high, and although you won’t be paying a monthly bill, these systems do require monthly maintenance.

Solar power is by far the most popular choice for bringing off-grid power to tiny houses. But there’s more to solar power than just the panels. You’ll also need batteries, a battery bank, and a DC-AC converter. (Plus, a backup generator might be helpful, just in case the clouds stick around.)

The price of solar panels can run anywhere from $340 to $20,000, depending on the size and complexity of the system you choose.

When it comes to bringing water into your tiny house, rainwater collection is a legitimate option. However, storage comes at a considerable cost, and it may not rain consistently enough to meet all of your water-based needs.

Another option is to install a tank-and-pump system in your tiny home, in order to collect, circulate, and pressurize water. The system is relatively inexpensive, water tanks can be found for under $100, and hoses for under $50. Installation and heating may cost a pretty penny, but so long as you refill your tank consistently, you’ll never have to pay another water bill.

There are two different types of wastewater: Greywater, which is water drained from sinks and showers, and blackwater, which is another word for sewage.

Greywater can be collected via a portable greywater tank and dumped whenever your house is connected to a utilities grid. If you prefer to stay off-grid, greywater can also be filtered and reused to water gardens or lawns.

Blackwater, on the other hand, must either be disposed of at pump stations or via a special composting toilet. This is one of the most cost-efficient aspects of a tiny home — simply sprinkle sawdust over your waste, and add it to a compost pile.

There are also composting toilets that will do the work for you but can cost anywhere from $900 to over $2,000.

Conclusion

Tiny homes are one of the most cost-effective living situations available to homeowners today. Owners can choose to live on-grid and reduce their mortgage and other daily expenses, or they can go the self-sustaining route, becoming an eco-warrior while cutting their living expenses to a fraction of the original cost.

Whichever you choose, living in a tiny home is not impossible. There may be higher upfront costs when compared to a traditional house, but within a few months those costs will begin to even out. And in just a few year’s time, you’ll be amazed by how much you can save.

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