Why hasn’t the Tiny Home Movement taken off in California yet?
With real estate prices soaring in recent years, the tiny home movement has been a hot topic given the high housing demand, particularly in California. So why hasn’t the tiny home movement taken off yet?
I have periodically received inquiries from interested buyers on acquiring a plot of land with the intent to purchase a premanufactured tiny home, like these ones:
There are several reasons why this is a challenging process.
To start this off, financing vacant land is not a straightforward task. Not a lot of banks or mortgage brokers have financing programs catered to borrowing against vacant land. For one, appraisal for raw land is extremely difficult. Moreover, vacant land requires a much larger down payment percentage than a single-family home, typically ranging from 30–50% down.
After that comes the cost of purchasing a tiny home. They range anywhere from $50k-$150k. Sophisticated tiny home builders have financing programs just like what you would use to purchase an RV. However, two important issues potential buyers sometimes tend to forget are: 1) The transportation costs of the tiny home. If it comes from another part of the country, freight alone will cost you upwards of $10k. 2) The permit process: cities and counties may not allow tiny homes. Even if they do, city and county building codes vary, and not many places allow buildings that are not uniform to their existing neighborhoods. Moreover, there are fire egress codes, on-site and off-site parking concerns, and parcel zoning to take into consideration.
What’s more, there are impact fees on installing tiny homes. These include water and sewer hookups, site planning and excavation, utilities connections, etc. The cost ranges from $10k-$40k. And this part is not financeable.
To sum it up, the total cost for a tiny home, depending on the site, city, and model will cost anywhere from $200k to $400k with $80k to $100k out of pocket. And that does not include landscaping costs!
For many buyers, not only are these final figures not attractive, it also doesn’t make much sense for resale value. Can you imagine spending $300k on a tiny home, where the median home prices are $350k? When you sell the tiny home down the road, and you have to compete against regular single-family homes, your market of tiny home buyers will be very limited.
I don’t mean to burst anyone’s bubble. But if you ever wondered why the tiny home movement hasn’t taken off in California yet, it’s because the numbers don’t work!
About the Author
Danny Lau has set up several successful small businesses, he is a top real estate sales professional, and he shares real estate investment advices through his YouTube Channel.
Disclaimer
This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
