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What is a tiny house, and how much does it cost?

Yahoo Personal Finance· Getty Images
Updated 7 min read

Reality TV shows like “Tiny House, Big Living” and “Terrific Tiny Homes” have popularized the idea of leaving your conventional life behind, downsizing to a tiny house, and embracing a simpler way of living.

But what exactly is a tiny home — and is it the right fit for your lifestyle? Here’s everything home buyers need to know about this untraditional housing option.

Learn more: 12 popular types of houses for buyers and renters

In this article:

As defined in the 2021 International Residential Code (IRC), tiny houses are dwelling units that are 400 square feet or less in floor area, excluding lofts. For context, the median single-family home is around 2,300 square feet. There are many types of tiny houses, but the most common ones are built on a foundation or wheels.

If you plan to build your tiny home on a foundation, you’ll need to buy land, which is an extra cost to consider. Tiny houses on wheels offer more freedom since you can bring them with you wherever you go. However, because these small houses on wheels typically fall into the category of recreational vehicles and not real estate, you may want to consider other housing options to build home equity.

While tiny homes offer an affordable and simplified alternative to traditional homeownership, they fall into a zoning regulation and safety gray area since they aren't considered legal housing in some states. So, though tiny houses follow a similar construction process to traditional homes, you’ll want to check with a local residential architect to see if zoning regulations apply.

The tiny house movement is a trend involving people — from young professionals to retirees — choosing to downsize and live in smaller, simpler homes. With living costs on the rise and minimalism gaining popularity, the tiny house social movement offers a sense of financial freedom and flexibility that can be difficult to achieve with traditional housing options, especially in pricey areas like California or New York.

Dig deeper: Why are house prices so high?

According to HomeAdvisor, building a basic tiny house can cost between $30,000 and $60,000, while customized ones with features like quartz countertops or fancy lighting fixtures may cost over $180,000. The average cost to build a tiny house is around $45,000.

Buying a tiny house rather than building one should cost less. If you stick to the bare minimum, you could spend as little as $4,000, not including the costs of things like setting up plumbing and electrical wiring.

But remember, like with traditional single-family homes, many factors — such as size, location, customization, material, permits, zoning, insurance, land preparation, and maintenance — can all affect the total cost of your tiny home. Since every tiny home is different, you’ll want to talk to a registered or certified tiny homebuilder to discuss your plans and better understand the associated costs.

Dig deeper: Is it better to build or buy a house?

While living in a tiny house may seem fun and exciting, it’s not all rainbows and butterflies. Consider these pros and cons of tiny living before committing to the lifestyle.

  • Energy-efficient. Since tiny homes require fewer supplies to build and less energy to power, they typically have a smaller environmental footprint compared to bigger houses.

  • Minimalist lifestyle. If you prefer to live more simply, downsizing your living space and moving to a tiny house is a great way to embrace a simpler lifestyle.

  • Affordability. Tiny homes can offer an excellent entry point to homeownership since they’re much more affordable than single-family homes, with most costing between $30,000 and $60,000.

  • Increased mobility. If you build your tiny home on wheels, you’ll have the freedom and flexibility to move it wherever you want since it’s essentially a vehicle.

  • Zoning and legal hurdles. Not all local building codes allow you to live in a tiny home, so you’ll want to familiarize yourself with your city's zoning and building codes before joining the tiny home movement.

  • Less storage space. A small home means less storage space for clothes and other household items. If you can’t find a place for your stuff, your tiny house can quickly become cluttered and suffocating.

  • Low resale value. Tiny homes — especially those with wheels — typically don’t build equity like traditional homes since they’re often considered vehicles instead of real estate. This can limit homeowners' ability to build wealth.

  • Limited financing options. Because of the gray area that tiny homes fall under, few mortgage lenders offer loans for these houses. Instead, you may need to consider a personal loan, RV loan, home equity loan, HELOC, or financing from your contractor.

Learn more: HELOC vs. home equity loan

Due to its unconventional nature, financing a tiny home can be more challenging than financing a traditional single-family house. So, unless your tiny home is built on a permanent foundation, costs more than the lenders' minimum for home loans, and meets zoning and building code standards, it likely won’t qualify for a traditional mortgage.

But don’t worry — that doesn’t mean you’ll have to pay for everything in cash. Alternative financing options like personal loans, credit cards, and RV loans are options worth considering. However, they may come with higher interest rates and more stringent credit score requirements than a regular mortgage.

It depends. If you’re thinking of purchasing a tiny home as a long-term investment, you may want to give it a second thought. While tiny houses are trendy, they tend to lose value over time, especially if built on wheels. In other words, tiny homes often don’t retain or gain value like traditional homes, which means they’re not the best way to build equity.

However, if you’re sold on living small and earning a return on your investment isn’t your top priority, tiny home living may be worth considering.

A tiny house might be perfect for your lifestyle, or there could be a better fit out there. Here are some more housing options to consider:

Tiny homes could appreciate in value over time depending on factors like the property's location, market conditions, and home improvements. For example, building your tiny home in a high-demand neighborhood will result in a better resale value than a tiny home built in a remote area. Whether your tiny house is built on wheels could also affect its resale value since ones on wheels are often treated as recreational vehicles, which means they’ll depreciate in value just like cars and trucks.

Yes, you can live in a tiny house full-time if you’re fine with downsizing and minimizing your possessions in exchange for a smaller living space. But before committing to tiny house living, just know not every state is tiny-home-friendly, so make sure you understand your area's building codes and zoning laws.

Your tiny home's lifespan depends on things like the type of material you build it with and the overall construction quality. Location can also play a pretty big role. For example, if you live in an earthquake- or hurricane-prone region, these natural disasters can shorten your home's lifespan. But generally speaking, tiny houses can last as long as traditional homes, which is between 50 and 63 years, according to MIT Architecture.

This article was edited by Laura Grace Tarpley