Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
The keyword is “economic freedom.”
Who can argue with that? It’s something that we, as real estate investors, all on the hunt for.
True economic freedom is a situation where our income comfortably exceeds our bills, and we therefore have the freedom to do what we like with the excess without having to watch our pennies.
Unfortunately, the way that housing prices have risen, largely due to inflation over the past 20 years, is one force of nature that is working against us having economic freedom.
That’s not to say it isn’t possible to achieve. Not at all. But housing is working against us.
How so?
Well in many cases, the monthly payment necessary to own a home amounts to somewhere in the average of 35% of a monthly income. And when you tack on maintenance costs, utility costs, and yard maintenance, that figure can easily exceed 40% of a monthly income.
That’s obviously a significant hill to climb every month.
A lot of folks have taken notice of this and done something about it. And that’s lead to a boom in Tiny Houses.
What’s a Tiny House?
Well, according to an article I saw recently, they’re defined as:
"500 or fewer square feet, and range from primitive 96-square-foot huts to award-winning displays of sustainable architecture with elegant streamlined design. And while many are built on wheels to avoid regulations, mobility isn’t the main draw."
While that does sound small, the article stated that in the 50s, an average size home was just 983 square feet. And as a rental homeowner, several of my properties are in the 900-950 square-foot size, and I keep them rented to families with kids without any problem.
But 500 square feet? It’s certainly won’t accommodate more than probably two people. So the target market for these homes is certainly not going to include younger growing families.
But with the rate of people getting married declining, and those who do get married tending to wait longer, the number of one and two person households is increasing at a steady rate, and Tiny Homes offer the chance for ownership, and all the benefits that come from it verse renting.
The Cost Advantage
The article talked to a couple of people who had opted to build a Tiny house about their motivation to do it.
One of the people recently completed his custom-built dream home, sparing no expense on details like cherry-wood floors, cathedral ceilings and stained-glass windows – in just 164 square feet of living space including a loft.
The cost? $28,000 – 1/7th of the median price of single-family residences in his state.
He said:
“I wanted to have an edge against career vagaries, and a dwelling with minimal financial burden gives you a little attitude.”
He invests the money he would have spent on a mortgage and related costs in a mutual fund, halving his retirement horizon to 10 years and maybe even as soon as 3. He says that he’s “infinitely happier.”
Another person they interviewed put it this way about his 105-square-foot home he built on a friend’s farmland in the Berkshires and has lived in since August 2012.
“There’s a fallacy of limited options. You don’t need stellar credit, thick wallets or even a full-time job to own a house."
His residence runs on a car battery and energy from two solar panels.
The article went on to say that despite gains in the labor and housing markets, Americans choosing mini houses remain wary of tethering themselves to a mortgage. And that people want a more modest lifestyle now, and they don’t want to waste their time or be a slave to a house they don’t fully use.
The Community
Not surprising, there’s an online marketplace for these homes at TinyHouseListings.com.
According to the article, postings on it have increased in volume since 2011, while the site’s Facebook fan count hit 182,000 on July 8th, up 5,500 from the previous week. Google trends shows national interest in the search term “tiny house” surging since May.
The article also said that aspirants to the lifestyle tend to “skew female,” and that the largest share of inhabitants, 23%, are between ages 31 and 40.
So it looks like Tiny Houses are big – and growing.
And in many cases, building one from scratch can cost less than doing a gut rehab on an average size house.
Sounds like an opportunity to me.