Why the Tiny House Movement Fails to Keep the Big Picture in Mind

by | BiggerPockets.com

Tiny houses are trending on TV, but do they really make sense in reality?

There are now multiple reality television shows focusing on the tiny house movement. More and more builders are stepping into the market trying to promote this niche. The ideal is great. The marketing is genius. Live simply and enjoy life more. Have less debt and take better care of the planet. Those are great things. Can tiny houses deliver? Or do they bring even bigger threats?

Tiny Houses Are for People With Big Wallets

If you build your own tiny house from the ground up with free recycled materials, you may really be able to free up your finances and time. However, many of the green or small homes and condos being offered today can cost tens of thousands of dollars. Some even cost a couple hundred thousand dollars.

Given the difficulty in financing a property like this, you’ll need a lot of cash. Most home buyers out there unfortunately are struggling to come up with 3% down for an FHA home loan. Never mind putting down $70,000 or more in an all-cash purchase. New data from the St. Louis Federal Reserve shows 7 in 10 Americans have less than $1,000 in savings. Even among those earning over $150,000, savings rates are pretty dismal.


Related: How Big Should I Aim for My Very First Multifamily Purchase?

Your Neighbors Don’t Want Your Tiny Home

Another major issue is actually finding somewhere to put your tiny home. There are micro-lofts and apartments in Miami and NYC. However, most building codes have minimum sizes and requirements, which preempt attempts to build tiny homes.

Neighbors may also be concerned that smaller, cheaper houses will bring down the value of their neighborhood and in turn their own home values and family finances. You can imagine they won’t be too pleased about that or welcoming to the idea. When it comes time to sell, there may be a very tiny pool of potential buyers. That’s bad news. The bigger your buyer pool, the more people to compete and bid up the price of your home. This is why experienced investors typically stick to bread and butter single family homes, which have the broadest appeal.

The Big Picture

Tiny homes may make more sense than McMansions. They may even be needed and may be able to provide the best type of housing in some communities where there are housing shortages and limited land. Yet it is also important for all of us to look at the big picture and long-term plan. What is going to happen in a decade or three? For a start, many young professionals are going to quickly outgrow those tiny homes and condos. They’ll start to feel claustrophobic or will have families. What happens when you have neighborhoods and cities saturated with studios, one bedrooms, and maybe two bedrooms? Especially when it is older inventory — and perhaps inventory that requires cash buyers?

Will the area be able to continue to attract and accommodate families, young professionals, and key workers? Perhaps not. That can lead to all types of problems from poor public services to lack of good schools, businesses leaving, diving property tax revenues, and more.


Are Tiny Houses Truly Green and Sustainable?

On the surface, the tiny home concept can appear to be green and sustainable. It can be. But if there ends up being a glut of these vacant aging units and they need to be torn down and replaced, that’s neither very efficient nor green.

Related: 5 Reasons the Midwest is Hands Down the Best Place to Invest

With over 1.4 million vacant homes in America, it is also worth asking whether it is environmentally friendly to build more homes. There are plenty to be remodeled. Fixing up an existing property could be far less damaging to the environment in some cases. It could be more efficient and provide access to more affordable housing. These homes can be financed and ultimately may open the doors to homeownership for more people. As a more affordable option, they may also help provide more freedom to residents.

Tiny houses are cool. Still, they may not always be affordable, green, or sustainable.

What do you think?

I very much would enjoy hearing input.

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.


  1. Tiny houses are not that interesting to me, honestly. You cite some great reasons. I get it, people want to minimize and stuff. But really, you can do this while still having a normal sized house that will still have a good resale value. Having open space and freedom is more important to me. Thanks for the great contradictory article.

  2. Christy Greene

    I have wondered after watching some of these shows, if they would do a follow up show of all these people who lived in the tiny houses for 2-4 years AFTER they have lived there. Would they still be there? Did some of them go back to living in an conventional home, especially if they had children? How realistic is it having teenagers AND their parents living in a tiny house? The tiny home movement is definitely a niche market. If you know that going in, then more power to you!

  3. Andrew E.

    Thanks for the interesting article.
    My question is are these tiny houses real built to last. What I mean is are they going to last the 20-30 years for a buy and hold investor? Not sure. Also if many of these homes are put on a patch of land will there be zoning density issues? We will see how the future plays out. Great read.

  4. Julie Marquez

    I guess I wonder what your definition of tiny house is? I think the tiny homes that can be pulled behind a truck and placed on a lot as an addition to the main home make a great studio or guest house or nightly rental for dense areas like Seattle, or in rural areas. That’s what I think of tiny homes, and I think their $25,000 price tag is reasonable.

  5. I enjoyed your article. I watch the tiny house shows and find interesting the people that think they can be happy with this lifestyle. I would love to check back in a year or two and see how they are surviving. 🙂

    I think that having a tiny home on a mountain or lake lot would be wonderful. Personally, I would not sign up for that lifestyle.

    I like your point about remodeling existing homes. That seems the best “green” way to go. Thanks for sharing your article!

  6. Addison Stone

    This article is a bit shallow. I am 58 and looking to retire within 7 years and yes, a tiny home is where I’m headed. The key is to find a place to put it that will give you pleasure while not having any neighbors around to complain. You sort of have to be introverted or as in my case I love animals, I love growing my own food, I love the self-sustaining lifestyle….and I am disabled. But I can still work and this opportunity is not worth passing up. If you are looking for a tiny home to be your last stop on the planet then you should find a way toget it done and yes, you do not have but about 10% of the monthly expense. So, I guess it boils down to what you like and your personality and all that.

    I’m even thinking of building a second tiny home in the backyard of a house I already lease out for extra income that I don’t even really need. But I just like it.

  7. Chris Newman

    The big BP-level REI opportunity that I see with mobile tiny houses is what I’ve dubbed “yard hacking.” Not unlike “house hacking,” where you rent out rooms. This is, renting out a corner of an SFR (or larger) yard as a parking place for a single owner-occupied tiny house.

    Here in Snohomish Co., WA (just north of Seattle), and depending upon the location, that’s an extra $500 – $700/month in net income, for a one-time investment of well under $1,000. This extra 30% or so in cashflow (around here) can turn a marginal buy-and-hold deal into an ongoing winner from the start. For a turnkey flip, this also puts the property value on a cashflow basis, rather than just the market value. Essentially, you’ve converted a 1-plex into a “1.5-plex.” A lot of the duplexes that I’ve looked a have good layouts for this, too.

    It should be simple to screen for high-quality tenants by only accepting tiny houses with architecture that compliments the surrounding neighborhood, and not manufactured RV’s. Most trouble-grade tenants will not be able to afford a TH.

    With an extreme shortage of private TH parking spots, strong-growing market demand and tenants who typically earn more than usual, they have both the ability and high motivation to keep the rent paid, as well as maintaining a quiet lifestyle.

    If you’re going to have problems with local authorities, they’ll probably start out as a neighbor’s complaint, so it’s important to not upset the neighbors particularly with privacy issues. This may or may not be a legal use in your zoning. If you see a lot of RV’s stored in people’s yards, the neighbors probably won’t be shocked with the addition of one more, especially if it doesn’t look like an RV.

    Not every yard or climate will be suitable. But, if there’s a back alley for access and a big back yard, it could work out very well. This “hidden value” is something to look for when analyzing the next purchase deal.

    The three main issues in setting this up are water, sewer and electricity. But,, going the “normal” route of permanent utilities will require costly permitting and new construction. Fortunately, these can also be accommodated without great expense with off=the-shelf UL-approved RV utility products that connect directly to the house without permitting and/or local professional services.

    To start, you need to have installed a 30 amp 110V outdoor outlet onto the main structure as close to the TH site as possible. If you can’t DIY this simple extra circuit, running one from the breaker box by a pro isn’t hard and shouldn’t cost much, and probably won’t require a permit.

    15 amps is usually more than plenty of capacity for this use, so 30 amps gives plenty of power, without risking tripping the house circuit breaker. A 30 amp plug has it’s own unique shape and is probably what’s coming out of the TH. If not, adapters of all kinds are readily available. Rather than an underground wiring run to the parking site, use a plug-in outdoor-rated extension cord, which doesn’t require permitting. Amazon sells quality 50′ 30 amp UL extension cords for about $100.

    In order to meter the power without the installation of a second meter on the building (costly, with more permitting), this can be handled with an in-line digital power meter that plugs in-between the outlet and extension. Yes, it’s possible to lock in the outlet end, so that the tenant can’t simply bypass the meter by unplugging it. This is especially important if the tenant uses electric heat and AC.

    It took a lot of research to find a plug-in inline meter, but I finally found the Meter Maid, made in the UK and which seems to be the only product made for this niche. The cost is about $245 and it should last forever. http://www.powermeterstore.com/P5650/metermaid_power_meter.php

    Providing water is easily accomplished with a white “food grade” water hose, the type that they use with RV’s and boats. Just hook it up to the house like a regular garden hose. Amazon sells a 50′ food grade hose for about $20. In cold areas, the temperature range can be extended with inexpensive water pipe insulation that slips over through a slit along one edge. There are a number of inline water meters available, although the typical TH owner isn’t going to use a lot of water.

    The biggest challenge, cost and permitting, is sewage. Around here, it costs around $10,000 just for the right to add a second outfall pipe to the sewer system and, if the residence is on septic, it’s probably already maxed out for its permitting. Besides,you don’t want to overload septic systems, which are costly to repair if they plug up.

    The simple solution is a holding tank. These are installed and serviced, at the tenant’s expense, by many of the same local companies that provide porta-potties. These don’t cost a lot and will typically be installed out of site near the left-rear corner of the TH, so the siting of the TH should keep this in mind, while allowing ready access for the servicing company.

    Some associates and I have been discussing setting up a full-service property management company for yard hackers who don’t want to deal with setup, tenants, rent collection etc. Besides pure investors, this should also be attractive to homeowners who want to bring in some easy extra income. The local market demand could easily grow into the 1,000’s of units with, typically, fairly trouble-free tenants.

    Is anyone else chasing this Tiny House parking yard hacking opportunity? Please share your thoughts.

    • Adina Edwards

      I am not actively chasing the tiny home investment market, but I do have some friends who built their own tiny home and live in Snohomish county. They have placed their house (which is mobile with a couple hours of prep work) in the backyard of a friend who owns a farm. They cook with propane and use solar panels and batteries to power their electronics. I can’t remember what they do for water and sewer. They love it to pieces (even keep up a blog about it).

      Given their situation, and the idea you outlined, I think you’re onto something. Tiny home investing certainly won’t work everywhere in the USA, but I think Snohomish is prime for that type of investment: it has the right culture (sustainable, hipster/yuppie, if you will), the right space (open, and yet close to dense urban areas), the right job market nearby and county laws that are fine with smaller dwellings.

    • Dani Z.

      Thanks for all this info, Chris (especially on the in-line power meter! I’ve had a hard time finding those too). You bring up a lot of great points, and it’s odd to me that the author didn’t reply, though he did reply to everyone else.

      Yes, I think the article is biased against tiny houses, and that tiny houses can be a great business model for many people in many areas. Maybe the author invests in an area where tiny houses don’t make sense, like in the rust belt where you can buy a 1000sf house that rents for $900 for $30k.

      That’s definitely not the case here in Portland. Here, tiny homes make a lot of sense from both a resident’s and an investor’s point of view, and there are a few people around town who are realizing that now. I did the math about a year ago and realized, if you can buy a THOW (tiny house on wheels) for $30k and rent it out for $900/month, that’s a 3% rule, which is essentially unheard of in Portland. Then I went one step further and thought, well if I didn’t have to buy the THOW myself but just rented space to someone who already had one, that’s about a $2k investment for a gross rent of about $450/month–a 22.5% rule–and no worries about damage to the unit or repairs.

      I set up the infrastructure for a THOW on one of my properties, which included grading, gravel, trenching, conduit/wiring, and PEX. No sewer hookup as the house plumbing is connected to septic, though some people with city sewer connections have their THOW guests connect to the main house’s cleanout. In my case, tenants can French drain graywater and many around here have composting toilets for blackwater. Or they can hire a service like Honeybucket to clean out their holding tanks every 2 months.

      The article outlines some “drawbacks” that apply mostly to the houses seen on trendy tiny house TV shows and/or in non-appreciating markets. Most folks who buy into the TH movement (and who buy a THOW) aren’t spending $70k to do so. About half of the tiny housers I meet are building their own, and the other half are buying from a builder at a cost of $30k-$50k.

      Tiny Houses on Wheels are designed to be moved and, if professionally built, are often made to *both* the IRC and RV standards. Any house that’s designed to withstand 100 mph winds and the stress of being towed on a highway (not to mention built within <1/8" tolerances) will almost certainly be better constructed than your average 3/2 tract house. Furthermore, they are often designed and built to exceed code in energy efficiency and insulation requirements, are inherently more environmentally friendly because of their small footprint and minimal/no additional infrastructure needs. In expanding cities like Portland where rents have been rising 14%/year, they fill an important niche of providing relatively affordable housing while increasing density and minimizing sprawl and its associated negative environmental/economic/social impacts.

      The author seems to suggest that tiny houses would be used in place of a bigger house on a foundation on urban and suburban residential lots, but this is simply not the case and is illegal in most jurisdictions because of minimum square foot rules. Typically, a tiny house will be auxiliary to the main house, often in a back yard out of sight from the street, and often built on a trailer bed with wheels. There's no blight or negative effects on neighboring property values.

      The single biggest downside to tiny homes on wheels is that they are illegal as residences in most cities. Building codes don't cover structures on wheels, so cities can't collect extra property tax and permitting costs associated with their use, and therefore many cities are waging a campaign to keep THOWs out of their backyards, both literally and proverbially. Some municipalities are more receptive to them than others, but save for a couple locations (one in Michigan and another in Texas), tiny houses on wheels must move if a neighbor complains that someone is living in one.

      In Portland, the planning department turns a blind eye to THOW unless a neighbor does complain, but the miseducation and NIMBYism of neighbors, plus sometimes nonchalant attitudes of some tiny housers who insert themselves into neighborhoods without playing nice, force people to move their THOWs. The biggest problem for people who own tiny homes on wheels (but not land) is finding a place to park.

      When cities can resolve this piece of the puzzle, especially growing and increasingly expensive cities like Portland, they will have solved a big piece of their problem of lack of affordable housing. The single biggest solution to a dearth of affordable housing is to increase housing supply (without simultaneously creating a sprawl problem, which brings with it a host of other issues), and in cities like Portland that consist of a high percentage 5000+ sf lots with backyards, tiny homes (in addition to ADUs and upzoning) are a matching puzzle piece.

    • Shay Reynolds

      Hi Chris,
      Excellent, “Yard Hacking” is the perfect term for what needs to happen to open the doors to this small house market movement. Thank you for providing so many helpful techniques to overcoming obstacles with small house living!

      I figured there would be someone else looking into the exact niche as me and my associates. Full-service property management company for yard hackers who don’t want to deal with setup is the idea we built our pitch deck upon. Many of the statements about small house development costs does ring true. The small additional dwelling expanding a residential property will be attractive to homeowners who want to bring in some easy extra income or for those who will need to provide independence for a college age offspring or an elderly parent. We are in the final stages of our proof of concept in the back of a residential .84 acre lot that has a 1492′ house. We also believe the local market demand could easily grow into the 1,000’s of units, typically with trouble-free tenants at an average rate of $1,000 per month.

      What areas of the United States will be your focus?

  8. Bradley N.

    Something smells very biased about this article. Sure Tiny Homes may not ever replace larger homes. But why use the word ‘fail’ in the name of your article? Maybe your assuming goals that the tiny house market never even considered? Sure you make a lot good points about ‘what happens when’ but everybody goes through different stages in life. People move a number of times in life for different reasons. Who buys a home and contemplates every phase of their life from graduation through death and says “Okay, this house will work for me my whole life and I can afford it at age 18 or 22?
    The point about my neighbors not liking my tiny house because it might bring down the value of their home? #1 The neighbors don’t pay my bills so that’s their problem if they don’t like the fact that my home is smaller than theirs, not mine. #2 There are many things that home owners can do to bring down the value of the surrounding area homes. You should have made a list of these things for context.
    Your points are valid only when examined through a very narrow lens. In the big picture, this whole article is a wash in my opinion. But at the end of the day, that’s all it is, my opinion.

  9. Ryan Johnston

    A tiny home doesn’t always have to be “tiny”.

    Tiny houses can range anywhere from 100sf (which is basically a bed in walls) and this solution is often offered to homeless people. Some they are even built by freelancers just trying to do some good. Tiny houses can also get up to 750sf in some places and 600sf in other places.

    The reason why they are called tiny houses is because of zoning or ordinances that require a house to be 750sf or bigger to be considered a house. Permanency is also an issue in some places. “If your house can move for the weekend, you can’t live here” kind of mentality.

    There are a few cities that allow tiny houses and are promoting them with certain partials of land in which they can move. Thus forming tiny house communities which is where this movement likely heading if housing prices keep going up and people are coming out of college with $60,000 in debt. There’s different opinions everywhere, but I do think they will become a part of society, just maybe not a big of a part as some people are thinking.

  10. Deanna Opgenort

    Tiny Homes have been “succeeding” for longer than Sterling has been alive LOL! They have been called different things (Guest Cottage, Pool House, Bungalow, etc). They are typically not the only house on a property, but are in the backyard, or there are multiple small homes on one lot (thus you are not generally financing a single tiny home on it’s own).
    Real world, Tiny homes as rentals; My parents have 3 small rentals (circa 1941) that were converted from “motor court” vacation cottages (I think all are 300- 450 sq ft). There is a constant market of single people (especially older renters) who strongly prefer a place of their own vs an apartment, but have neither need nor energy to maintain a 3bed/2ba house. My parent’s tiny cottages have extremely long-term stable tenants, and any time they do any sort of exterior work on the houses (ie painting) they have would-be-renters knocking on their door hoping the work is a sign that they might have a vacancy coming up (they haven’t had a vacancy in the cottages in years). Tiny homes need to be kept “cute & clean”, but they are a good business model for a smaller landlord.

  11. Shay Reynolds

    Sterling, I really enjoyed your article. Hearing an opposing point on early part of the tiny house sector helped me to see the bigger picture. I never would have entertained the impact that would enable people to trade small houses with each other without the use of big banks in 3-5 years. People would not need to gain a loan when most all small houses are similar value and without land ownership, a trade system like air b&b would evolve.

    There are 1.4 million vacant large homes that builders built in the wrong geographic areas due to struggling economies that could not support. The 30-year controlled mortgage is not of mainstream popularity anymore.

    There needs to be controlled residential development and small houses should be limited to using city provided utilities and power when used as a vacation house or ADU rental house. Otherwise, tiny house dwellers that are mobile should be able to use tanks and septic in (RV style) communities.

    Nothing is perfect! Small houses have always been an option and they will become more popular due to human expansion. We are advocates of the backyard small house that increases Sq ft living spaces on existing homesteads that were built as single family home sites.

  12. Michael Maloney

    The real problem with the beauty of the tiny house movement is honestly the lack of support that it’s receiving from the authorities. Despite all of the actual benefit you get from living in one, people’s perception and the actual ownership of one come with so many caveats OTHER than it’s sustainability that people are turned off by it! How’s that for bad marketing…

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