Sunrise Prairie Tiny House Project: Choosing to Build a Tiny House

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Disclaimer: The statements made in this post are the opinion of the author. They should not be viewed as financial advice. Please consult with a financial specialist before making any financial decisions.
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This is going to be a slightly different post, but I’m going to bring it back to person finance in a bit. So stay with me.

Recently my family moved to Texas. There are a lot of reasons for that which I’ll probably talk about in my next financial journey snapshot. See my first one here.

Part of that move involved us buying 5 acres that our house sits on.

With so much space what do you do? That’s right, build a tiny house.

Why Build A Tiny House?

There are a lot of benefits to building a tiny house, but there are other options. We could have purchased a mobile home, or moved an existing mobile home to fix up, or moved an actual house to our land, or built new construction.

But a tiny house has a lot of benefits.

1 Cost to Build

Compared with all of the options I listed, a tiny house is by far the cheapest. The smaller the dwelling the less materials you need.

If I went the new construction house route or a new mobile home my costs would sky rocket.

On top of that a smaller dwelling doesn’t need as much in the way of services. I don’t need as much water or electricity, I don’t need as big of an A/C unit, and it will be easier to maintain its temperature.

I’m also doing most of the work myself. With a full time job, a side hustle, and a venture into real estate, my time is precious. So the less time I spend on this project the better.

Will it still take a considerable amount of time? Absolutely, but not as much as a large project like rehabbing a run down mobile home.

As it stands, my cost to build the tiny house, which includes the huge cost of putting in its own septic tank, is between 20 and 25K.

2 Tiny Houses Are Trendy

I’ll be honest, I’m very resistant to new trends. It is just in my nature. So the word trendy itself makes me cringe a little.

But as a business person you have to go where the customers are and right now people like tiny houses.

I don’t see that trend going away, so I decided to build a tiny house on my land to tap into that trend.

Plopping a house from the 1950s on my land or a manufactured home just wouldn’t fit.

So tiny house it is.

3 Easy to Monetize Regularly

Tiny homes are popping up everywhere, but most especially on Airbnb and other short term rental sites.

Most often people travel and just need a private place to stay. Hotels are cramped and a full sized house is too big. Especially with the price tag to rent a full house.

By offering a cheap, private space for people to stay that is kept up well I can keep my Airbnb rented out consistently, increasing my profit margins.

On top of that I live in a college town, so that will continually drive occupancy.

So even though I’ll probably get less money for each transaction, I’ll get more transactions on my Airbnb which will increase overall profit.

The Financial side

Okay, so now that you know why I’m building a tiny house let me break down the numbers for you.

Sadly, it is hard to get exact figures on building right now since building materials prices are going crazy. But here is a general idea.

We decided to buy a shell instead of erecting a building from scratch. That cost about $5,800.

The septic tank will cost $4,700.

The cost to run water and electricity to the house is about $1,000.

The rough interior (running electricity, framing, plumbing, etc.) will cost about $1,000.

Finishing the interior (walls, flooring, fixtures, etc.) will cost about $4,000.

Miscellaneous interior thing will cost about $500.

And interior design (beds, shelves, table, etc.) will cost about $2,500.

Any of you quick math people will realize that that puts my estimate at $19,500 which is under the 20 to 25K I listed above.

But, anytime you’re building something you need to give your budget some wiggle room. It is going to need it. Guaranteed!

So let’s say I put 20K into the project, just for ease of math. The question is, is that a good return on investment?

According to airdna.co my area has about a 50% vacancy rate (it is a bit better than that, but we’re trying to make the math easy).

So if I can rent out my Airbnb for $50 a night (which is comparable to other small Airbnbs in my area) half the nights in a year that is $9,125 per year.

If I have an average stay of 2 nights (about 91 bookings) I can also collect the cleaning fee of say $20 (which is low for Airbnb) coming out to $1,820 per year.

So total revenue of $10,945.

After a few minor expenses, let’s say that comes out to $10,000 even in profit per year.

With our cost to build estimate being 20K, that is a 50% Return on investment!

For context, many investors try for 12-15% returns on investment.

That’s a big deal!

Tiny House Hacking

You may have heard of the term house hacking. If not, there is a whole article about house hacking on biggerpockets.com you should read.

But the general gist is that your house is a liability, but it is possible to turn it into an asset by doing things to make it cash flow.

The most common way is to buy a duplex, live in one side, and then rent out the other.

For me and my family, that just didn’t seem like an option.

By building the tiny house on our primary residence land we’ll be able to house hack while maintaining our privacy.

Here’s how the numbers work out.

At $10,000 per year, the Airbnb should bring in about $833 per month.

My current mortgage payment is $750 per month. So my Airbnb will effectively pay for my mortgage and we will be living for free (and making $80 per month on top of that).

In other words, building this tiny house is a no brainer for us.

I know some of you are interest in tiny houses, so be on the look out for more posts about the tiny house project. I’ll post about our progress and whether or not we are on track financially. Then I’ll run through how the numbers shape out when all is said and done.

What is a creative way that you could cancel out your mortgage payment? What other investments could give a 50% return on investment?

Tell me about it in the comment below.

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Definitions

A list of definitions used on this blog can be found here.

Short Term Rental: Any rental agreement that lasts for less than 30 days. Usually this refers to services such as Airbnb, VRBO, etc.

Return on Investment: How much money you get back, usually measured yearly, on the money you invest in something. For example, if you invest $1,000 and receive $100 back from that in the course of a year then you’ve had a 10% return on investment.

House Hacking: Anything that turns your primary residence into a a money making asset. Most commonly this is buying a duplex and renting out one side, but it can include AirBnB, long term renting out a room, etc. This can reduce or entirely eliminate what you pay into your mortgage personally.

Liability: Things that take money out of your pocket. This includes all of your monthly and yearly expenses. You will often hear that a home is your biggest asset (the opposite of a liability), but it takes money out of your pocket each month in the form of a mortgage, taxes, and insurance, so it is a liability.

Asset: Things that put money into your pocket every month (or year). Sometimes equity in your house is also included as an asset, but I prefer not to include it. A car loses value every year (depreciates) so it is NOT an asset.

Cash Flow: Money coming into your pocket from investing (either through stocks, real estate, or other assets). This is NOT the same as income because it doesn’t necessarily require you to work for it.

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