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In the long run, buying a tiny house can be cheaper than renting. It also has the added benefit of allowing you to build home equity. If you're considering buying a tiny home, you should first take stock of the total costs of owning one, which could include buying the land you live on, permits, insurance, utilities, external storage and more.
A tiny house is a home that's 400 square feet or smaller, according to the most recent version of the International Residential Code, a set of model code regulations in use in many states. Renting gives you flexibility and fewer upfront costs, but tiny houses may make homeownership a more feasible goal. Here's what to weigh when considering going the tiny route.
Typical Costs to Buy and Own a Tiny House
The cost to buy a tiny house varies greatly. To buy an existing tiny house, you'll likely pay between $10,000 and $150,000, depending on the size, whether it's new or pre-owned and other factors. You could also build one to your own specifications or choose a model designed and built by a custom builder. Some tiny homes can be as small as 100 square feet, and these will naturally cost less to buy and maintain.
If building a house from scratch, you'll have complete control over the quality and cost of materials and may be able to save on labor by doing it yourself. The long-term cost of owning your tiny home will partially depend on whether it's built on a foundation or a trailer. A home on wheels will generally depreciate in value just like a car, truck or SUV, whereas a home on a foundation can appreciate and be resold. When building a house on a foundation, however, you may have to invest in buying land, an additional upfront cost.
Complying with local zoning regulations and connecting to the local energy grid can add costs and complexity. You can get around some of these concerns by buying an existing tiny house on land where you plan to keep it.
Buying a Tiny House Vs. Renting an Apartment
Tiny house and apartment living both usually mean forgoing the space and luxury of a full-size home. But there are more differences than similarities between buying a tiny house and renting an apartment, and there will also be a lot of variability in your experience based on where you live. Here are the major pros and cons to weigh:
Buying a Tiny House
|Allows you to build equity, and the home could appreciate in value if it's built on a permanent foundation||Limited increase in living and storage space compared to apartments|
|Potential for mobility, including to avoid inclement weather or natural disasters, if built on a trailer||Home may depreciate in value, like a car does, if it's on wheels|
|Ability to change and upgrade the home without a landlord's approval||Upfront costs to build or buy home may require financing|
|Option to buy a plot of land and have more outdoor space||Additional costs for permits, land, specialty-sized appliances and maintenance|
Renting an Apartment
|Minimal ongoing maintenance costs||No option to take on ownership or build equity|
|Easy hookup to local utilities, some of which may be included in rental costs||Rent and utility costs vulnerable to increases according to the market and landlords' wishes|
|No depreciation or resale concerns||Limited control over upgrades to or design of the space|
|No need for upfront costs or financing||May be required to move due to circumstances outside your control—if landlord sells the building you're living in, for instance|
To decide whether a tiny house is more affordable than renting, identify where you'd like to live, then add up the costs to buy or build the home, buy the land or trailer and pay for utilities. Compare that with the monthly cost to rent in your location.
Let's take a 400-square-foot apartment as an example. In Queens, New York, you'll pay about $1,500 per month to rent 400 square feet, according to a March 2022 study from RentCafe, an apartment listings website. In Kansas City, Missouri, you'll pay about $512 per month. Utilities will also vary, but the average apartment dweller will pay $378 per month in New York and $398 per month in Missouri for utilities, also according to RentCafe.
At the top end of the range, buying a 400-square-foot tiny home for $150,000 will cost the same as renting in Queens for about a year and a half, and as renting in Kansas City for just over three years. If you plan to finance a tiny house, be sure to factor in the price you'll pay in interest as well. Paying less for a tiny house—either by building it yourself or opting for a smaller or less customized dwelling—will make an even starker difference.
While buying a tiny house probably sounds like a good deal, consider how long you plan to live there and whether you'd like to resell it at a higher cost, a common reason for renters to make the switch to buying. Given the smaller market for tiny houses, the resale value may not be as high as you'd expect—especially if you thoroughly customize the house to your needs. Plus, if you'd like for it to appreciate like a standard-sized home, you'll have to set the house on a foundation and consider the appreciation potential of homes in the local market.
How Credit Factors in to Buying and Renting
You may be able to avoid taking out a loan when building or buying a tiny house due to the low costs compared to larger homes. And it may be challenging to get a mortgage for a tiny house unless you're building on a foundation. But if you need financing, you can also look into personal loans, RV loans and financing directly from builders to help make your dream achievable.
When renting, landlords can decline to work with you if you have poor credit, or they can require you to pay a higher security deposit, which will add to the upfront costs that renting often helps you avoid. No matter whether you rent or buy, checking your credit regularly—for free through Experian, for example—is a crucial step in making sure you have access to all the housing options you may want.