Chapter 3 - Economics of Tiny Houses
The economy of a tiny house is one of the reasons why people find the idea so appealing. There are so many aspects of home building and home ownership that cost less if you are building a tiny house, as opposed to a conventional home.
Initial Cost
If you have built a home or worked with a developer in the past, it will be easier to compare the smaller costs associated with building a tiny house. From smaller lot size required to fewer materials and fewer hours of labor, you will find the costs much lower with tiny houses.
Many people ask tiny housers how much it costs to build a tiny house. As with any house, it depends on the type of materials being used, whether you use a professional builder or do it yourself with friends’ help, and what fixtures you use. Lot size can vary a lot, too, depending on where you are building.
Suffice to say that the cost depends on many things, but it will almost always be substantially less than building a conventional home, unless you use high-end materials or find a very expensive lot on which to build.
The time involved also affects the total cost. If you have time to do the work yourself in your free time, your house will cost significantly less than if you are in a hurry and need to hire helpers to complete your house.
No Mortgage Interest – Short Term Loans
Many people save up money and pay cash for their tiny house. If you want to finance your tiny house, you probably won’t qualify for a conventional mortgage. That doesn’t mean you cannot get a loan, though – people get loans for mobile homes every day. Tiny houses are not much different. Whatever type of loan you get, the amount financed will be much smaller than a mortgage. If you are still living in a traditional house, you may be able to get a home equity loan to pay for your new tiny house.
How Do the New Tax Laws Affect Tiny House Buyers?
The new federal tax laws decrease the amount that the government will subsidize for interest payment on mortgages. This has raised questions about the best ways to borrow money for tiny homes, or refinance them, while still capitalizing on the lower rates.
If you just check out the new law, it appears as though the tax savings reductions in home mortgages may encourage homeowners to keep their debt as low as they can, and to sign up for loans with shorter terms.
The popularity of 15-year loans indicates that the attitude of consumers toward debt may be changing already. However, finance and tax specialists state that in most cases, a reward for paying off a mortgage more speedily is not so much financial as psychological.
Tax experts have argued that the new law should not make short-term mortgages so attractive to borrowers, because the tax savings for homebuyers are still substantial. The new tax laws allow you to deduct mortgage interest paid, but the option is worth less. Only three tax brackets fit into the 33% bracket. The old bracket covered 50% of top borrowers. So, even though many homeowners will experience lower tax bills, they may also have higher carrying costs on their mortgages. Tiny home buyers usually only have to finance an amount much smaller than people purchasing conventional homes, so they save money under the old and new tax laws alike.
Lawrence Kaplan, a partner with the Kenneth Leventhal Company, says that everyone has their own view on the new tax laws. He said he would not make any decision based solely on not saving as much on your taxes. The tax structure may well be changed before homebuyers see the end of their 15 or 30 year mortgage term. Many people who are not buying tiny houses are priced out of worrying about the new tax laws. To be able to afford a home, they must take out a long term, large loan. They won’t have to do that if they purchase tiny homes.
Financial planners state that short-term loans can help a family save for retirement or collage. But they may be money ahead to have a smaller amount to finance, as is the case with people buying tiny houses.
When you do make mortgage payments, the principle is going into your equity, although this is not always the case with tiny houses. The money you save from borrowing less can be placed in a 401(k) or other plan, to earn money that is tax-deferred. You will have a great deal more disposable income and retirement monies if you are financing a tiny home.
If you plan to keep your existing house and are buying a tiny home for a vacation house that can be rented out when you’re not using it, you can make money off your new house. In this way, the vacation house will save you money on your family trips, and make money for you the rest of the year.
Saving on Utilities, Including Going Off-Grid
When you buy a tiny house, you will reduce your needs for electricity. Even if you don’t use any alterative methods like solar or wind power, your bills will still be substantially lower. This is because you will be heating and cooling a much smaller space. Your appliances may well be compact, too, which saves more on energy costs.
Many tiny houses are built or placed on lots outside the city limits, which means that you won’t have to pay for water or sewage. You will have the initial expense of a well and a septic system, unless you use a composting toilet. However, once those are paid off, you won’t have a water or sewage bill.
If you are like many tiny housers, your desire for a sustainable way of life, and your social conscience, will be in your mind even before you buy or build your tiny house. Find an appropriate lot that has access to sun and wind, if you plan to go off the grid. You can also make more immediate changes that will reduce your dependency on electricity.
Changing to Solar Power
The best way to get rid of your electric bills is by going solar or using wind power. Solar panels feed into batteries that you will use power from, to replace the electricity that you normally use. The size of solar panels you need will usually be somewhat smaller if you are just collecting passive energy for a tiny house. You can always upgrade to a larger system if yours does not give you enough electricity to run everything you would like it to.
The energy conserving appliances and solar powered lights you purchase for your home are suitable for use on the grid, as well. You can reduce carbon emissions while you save money on your electric bills. Even if you only have supplemental solar power when you first move into your tiny house, it will allow you to have lighting and some basic essentials in your home working, during storms or other times when the electrical supply to your home is disrupted.
Saving Money in the Winter
During the sunny months, there isn’t an end to the free solar electricity usable during daylight hours. Your kids can play video games and you can watch TV. If you want to use more solar power than power from the grid, you’ll want to turn off the power guzzling video game console and other appliances early enough in the evening that your batteries will have time to charge before dark.
This is totally different in the winter months, if you live in an area with defines winters, as opposed to Florida or California. You won’t have the same luxury of using power until evening time, if you want to subsist mainly on solar power. Winter is not as forgiving when it comes to electrical demand. It does, however, bring its own benefits.
During the winter, there are other ways to save power. If you have a refrigerator that is designed for use with electricity or LP gas, it can even be turned off in the winter. Fit a large and covered area with a window opening, and use it like a refrigerator door in the winter. Place in this cupboard anything that needs to be kept cold, and set it in the area where your winter window is located.
There are some solar powered appliances, like torches and lights, that may receive enough light to charge up through a closed window, keeping out the cold but letting in the sunlight.
Appliances and Lights to Help You Live off the Grid
Your monthly electricity bill is influenced directly by how much electricity you are drawing from the grid. So, every appliance or light that you don’t use the grid for will lower your electric bill.
The easiest place to look for immediate electrical savings is in your lighting. Hand-powered and solar-powered lights don’t need power from the grid. You can charge them with electricity if you need to, though. Otherwise, you’re saving money for the power they don’t use. Rechargeable batteries are excellent backups for these types of lights.
Lighting Your Home Off the Grid
If you check your lighting solar panels in low light, you may note that they still charge even when not in full sunlight. The best lights with solar panels can last for years. Every tiny home should have a solar panel that comes with a longer lead to a battery pack, which then leads right to the two lights. You can turn these lights on or off, so they are usable as lighting for your desk, kitchen workspace or nightstand. Leave the solar panel in a window, so that it can gather sunlight whenever there is any, and the extra long leads extend to anywhere in that room where you might need them.
Newer units of this type have USB ports, so you can use them to charge iPhones, cameras, etc. It works quite well as a gift for teens who never remember to turn anything off when they leave the room.
Lower Property Taxes
Tiny housers are often asked building code questions. Tiny houses do not fit into the standard building codes of most communities. Many consider tiny houses as acts of rebellion. There are not very many municipalities that have any legal definition for tiny houses yet, so you may have to be “creative” in building one, or in finding a site. Once you establish your location, the property taxes will be similar to those assessed on modular homes, rather than conventional homes.
The owner of one tiny house building company, MiniMotives, was asked for her professional advice on building codes as they relate to tiny houses. Her name is Macy Miller. She is a tiny house builder and also works with her city. She states that the best place to learn about your local codes is your City Hall. Inside this government building, you’ll find a planning department.
These planners are there to help builders of all types of houses to make sure that they are constructed to code. They must adhere to zoning regulations, as well. If you’re speaking to someone in the planning department, make sure that you don’t mention “wheels”, even if you plan to build your tiny house on wheels. Then you would be transferred to the Department of Motor Vehicles, which is another whole problem. The problem there would be that the DMV will not be able to help you with building code questions.
Speaking with building code officials may not always help, but Ms. Miller still advises people to talk to them. This will help you and future tiny house builders, since planning departments will become more aware of tiny houses and the need to revise building codes.
If you go the way of some tiny housers and build or buy “under the radar”, you may not have any taxes at all.
Saving on Materials
It’s exciting to contemplate making that decision to build a home for you or your family. You may spend many hours designing it, revising various details, from light placement to counter space to bathroom size. You might spend months collecting materials, to ensure that you have whatever you need, before you start building.
Once you begin construction, you’ll be pleased at the money saved on materials, as compared to conventional homes. You’ll probably spend a lot of money, energy and time but the house will be a labor of love. After you have completed your house, you will be able to relax, and then the realization will hit you that you still have to set it up on your lot. This might include towing it on interstates and rural roads before you set it up on the lot you have chosen. It may not even be a permanent lot, which will save you even more money on taxes.
You can anticipate that people will ask you what the most difficult part of designing and building a tiny home is. It’s a fair question to answer, because you may be able to entice others to join the tiny house movement. They won’t commit the time unless they realize that they can overcome any challenges they might face. Your time spent in thought may be either about building or about moving your house. Most people who build their tiny homes in one place and then move them will find people with large enough trucks to make the move without a lot of money out of pocket.
Saving on Moving Costs
Some tiny house owners buy an inexpensive vehicle to tow their home to its new lot, although this is not always necessary. It’s a good idea to build as close to your eventual site as you can, so that you won’t have a long-distance haul when the house is complete. You can take vacation trips with your tiny house, and, as long as you can find RV parking, you’ll usually have a place to park.
One Family’s Story of Saving
Could you live in 300 square feet or less? What if you’re sharing that small area with three other people? Tiny house families do it every day. When a family wants to save money and live free of a mortgage, they may buy a parcel of land and build a tiny house.
One family purchased land in the Blue Ridge Mountains and used materials bought from Craigslist to build a new tiny house for only $12,000. They enjoy a home that they do not owe any money on, which allows them to live off one person’s salary and save the other’s for vacations and other dreams. Their tiny house includes a sunny kitchen, a loft for sleeping and a lovely porch.
This particular tiny house has plenty of privacy, with separate lofts, and areas of the home dedicated to living, dining, eating, sleeping, and office working. They have a 12-gallon hot water heater, an apartment-designed range, a small refrigerator, a couch built in, a kitchen sink, a hand sink, a shower and a toilet. The full-light door and multiple windows bring in plenty of natural light and allow the family to feel like they live partially outdoors.
Why Did They Decide on Building a Tiny House?
Building a homestead that is mortgage-free fit into the family’s long-term plan. After saving the money and buying the land, septic and well, they didn’t have a lot of money left. They began building on a flatbed trailer, and since they were building tiny, it was fairly easy for them to find leftover, overstock and salvaged construction materials.
How Did They Keep Their Prices Down?
This family kept their costs down by using salvaged materials and handling all the labor themselves. They found on old trailer from a mobile home for a foundation. A neighbor donated the kitchen sink, since they were remodeling their conventional home. The oak used on the interior was salvaged from a local home that was being demolished. The refrigerator and lights were recycled from a closed restaurant. The materials for framing, along with the flooring, windows, stove and insulation were bought on Craigslist.
Do Families Feel Cramped in Their Tiny Houses?
On rainy, cold days, it may seem like tiny houses shrink. There is no option to go outside, so sometimes family members will feel cramped. They usually become accustomed to it after a year or two. Some tiny housers say that their key to not being cramped is to stay in the present and put everything away.
Advice for People Who Want to Live Small, Off-Grid
The first step for people who want to go off-grid and live small is committing to what will be a completely new lifestyle. Possessions must be pared down. Wardrobes must be, too. The tiny house should be designed around your regular activities. If you plan to cook all your meals at home, you’ll need a larger garden and a full kitchen.
Avoid the temptation to compromise on facilities or fixtures. Organize your belongings and plan shelves that allow you to see everything on them. If you are married or have a family, practice asking for things you need respectfully. You may want to build a shed to store recreational gear and canned foods, and perhaps a washer and dryer.
Be sure you have plenty of outdoor space for living. A big deck will work well in good weather. A covered deck will work in the rain, as well. Install a fire pit for winter evenings. Lastly, make sure that your whole family is committed to the new adventure, and always be clear about why you are living as you do.