How Buying a Tiny Home Could Be a Viable Option for Building Wealth

Updated: Aug 15, 2018

Forbes published a thought-provoking article in 2016 by Jarrod Randolph and JP Ackerman under the header “A Plea From One Millenial To Another: Build Wealth, Stop Renting.” After attending the recent Home & Garden Show in Orlando, FL, I would have to agree with them, especially when we have the tiny homes option that has become much more accessible.

Tiny homes solve the problem of mobility which is usually one of the top reasons millenials choose renting over buying. Now with the addition of Noah as the certification and financing resource for the industry, it is much easier to purchase or even build on your own. The FICO score that you need for them to work with you is 600 and up. Interest rates start at 6%.

How does that work out in the long run financially? Keeping in mind that tiny homes actually hold their value and using a similar analysis as the 2016 Forbes story, if you compare a simple 155 sq ft tiny home that was listed for $42,060 at the expo with the average one room listing at the lowest $400 per month to rent in Orlando, the renter gives up $7,300 in wealth created in the first year ($4,800 in rent paid plus about $2,500 in equity created through principle paid, assuming appreciation at 2%). Assuming a 15 year pay-off term, the opportunity cost would be $138,500 (a sum of about $55,500 in wealth built and about $83,000 spent on rent payments). Buying becomes cheaper after only one year.

Not only does the tiny home help create wealth, but it also helps make travel more affordable. As one of the builders, 3GB LLC, at the trade show suggested, the unit can be used as a vacation getaway home. You could tow the home and stop at an RV lot that will be much more cost-effective, not to mention comfortable, than booking an AirBnB or a hotel and giving up some of your privacy in the process.

Now the best part of owning a tiny home is that you can, of course, customize it to the extent that your imagination will allow you as mentioned during the tour of one of the homes by Rooted Tiny Homes. Four hundred square feet's the limit! Sources: Notes:

Assume a 15-year term at 6% interest with $2,060 as a down payment in cash. Home appreciation and rent increase are estimated at 2%. Room for rent lowest price was estimated based on a Craigslist search for 150-160 sq ft rooms for rent. Average rent in Orlando, according to Yardi Matrix, as of August 2018 is $1,256 for 932sq ft.

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