5 Reasons to Invest in Tiny Homes Instead of ADUs

Over the past decade, real estate investors have been exploring alternative options to traditional rental properties. Accessory dwelling units (ADUs), such as in-law suites or accessory apartments, are an excellent choice for investors who want an additional income stream. But, have you ever considered how investing in tiny homes can be even more beneficial to creating your nest egg?

While ADUs are a popular option, tiny homes offer a variety of unique benefits that can make them a more lucrative investment. In our recent webinar with The Operative Group, Stanley Tiny Homes founder, Nate Stanley, had the opportunity to chat with Daniel Gandee about everything you need to know when it comes to investing in tiny homes!

What is a tiny home?

While there is no standardized definition of a tiny home, they are essentially mobile structures built like a traditional house. Tiny homes are almost always complete houses with a kitchen, full bathroom, laundry units, and a sleeping area. While they can be built as permanent fixtures, many tiny homes are built on wheels for homeowners who want the flexibility to travel and live in various locations. In some municipalities, tiny homes are known as Park Model RVs.

Why should I invest in tiny homes instead of ADUs?

Tiny Homes are Affordable & Non-Permanent

Tiny homes are the most affordable way to add livable space to your property. ADUs usually require a considerable investment in building materials, permits, and construction fees. However, tiny homes typically cost a quarter to half the price of traditional ADUs while offering similar net gains. Because tiny homes are a non-permanent way to add livable space to your property, you can avoid the substantial costs associated with foundation construction, permit requirements, and more.

Faster Turnaround

Building ADUs can take months of planning, preparation, and construction. Not only do they require various permits, but design and construction delays can lengthen the building process even more. Meanwhile, our tiny homes can be built in about 3-6 months. This quick turnaround allows you to see returns sooner through rental income. Additionally, since our tiny homes are built on-site, you can avoid construction noise and disruptions on your main property.

Higher Quality Construction

When building ADUs, many investors find that they have to make compromises on materials or design choices due to budget constraints. On the other hand, because tiny homes are only 200-400 square feet, you have more room in the budget to splurge on luxury appliances, innovative designs, and premium features. At Stanley Tiny Homes, we only use high-quality, sustainably sourced materials with as many reclaimed items as possible. Our homes are built to last 30-40 years with minimal maintenance to ensure a long-lasting investment.

No System Development Charges

System development charges (SDCs) are fees that usually come with adding livable space to your land. These fees cover utilities and infrastructure needed to support the new space. Many investors face SDCs when they are building ADUs, which can add thousands if not tens of thousands of dollars to the overall cost. However, in Portland and many other cities, tiny homes usually do not incur SDCs since they are not permanent fixtures. This allows you to bypass that cost and invest it in other areas.

Tiny Homes Offer Tax Breaks

ADUs are usually taxed as permanent additions to a property. Tiny homes, on the other hand, are considered personal property rather than real estate. Because of this, tiny homes add zero increases to property taxes. Additionally, the purchase of a tiny home can be written off by claiming it as a Park Model RV or personal property. These savings can be a lucrative opportunity for investors who want to maximize ROI.

Who can invest in tiny homes?

While there are various uses for tiny homes, they are starting to grow in popularity as an alternative to traditional ADUs and rental properties. Anyone who wants an additional income stream, whether through rental properties or short-term rentals, can take advantage of this investment opportunity. Typically, we see two primary groups investing in tiny homes:

• Property Developers – Tiny home villages are beginning to pop up all over the country. Villages with 20-30 tiny homes are inexpensive to build and require less construction than traditional ADUs or cabins.
• Real estate professionals – Tiny homes are affordable to build and don’t require very much space. They can be rented out as medium or long-term rentals for anywhere between $1,500-$2,500 a month. This offers an incredible benefit to folks who are middle-income but want to break into the property rental market.

Start investing today!

Tiny homes offer a creative and cost-effective alternative to traditional ADUs. Thanks to their affordability, quick build times, high-quality craftsmanship, and tax benefits, there are many reasons to consider tiny homes over ADUs.

Whether you’re a first-time investor or a seasoned professional, tiny homes offer a profitable and efficient way to diversify your portfolio. If you are interested in learning more, make sure to watch our full webinar with The Operative Group. In the video, we also discuss financing information, FAQs, and much more!