Is new construction of small homes smart for rental?

[L R Wadsworth]

I went against the grain and built a tiny house to rent. I was able to squeeze a 512sqft 1/1 house in a $42k budget without financing. That’s land cost and permitting fees included. It was rented @ $550/month before the build was completed. Maybe I’m onto something or is this a shaky investment? Lots in this area are cheap and it’s near a large employment facility. It’s ideal for contractors with no long term commitment.

[Sue Hough]

@Lucia RushtonI strongly believe you are onto something wonderful! I am working on a small-home vacation destination in South Carolina and the numbers are remarkable.  And, I believe, the stability of these type of homes and the rental model you are working with will only solidify due to COVID and an impending economic short-fall for the following reasons;

1. Many American’s are learning to down-size and COVID is accelerating this mindset.

2.  If you needed financing, or if you are interested in selling the homes, banks are more likely to lend on a small scale project due to the low risk of default on such a small investment.  Interestingly enough, the profit for the builder/developer is very high, usually 25%-50% profit, as they can sell from $70,000 - $125,000 depending on location and amenities.

3. It is the largest growing vacation market in America.  Although, at present, the vacation rental market has been hit hard, it is only temporary.  Small-homes offer affordable opportunities to vacation in a very trendy model. In your location, the vacation rental opportunity for a small-home is between $50-$125 per night.

4.  Many single empty nesters are craving this style of living and purchasing multiple homes throughout the country.  This allows them many options without breaking the bank.

5.  Last, but not least, it is my personal favorite building model!  I love the unique “cottage” feel, low use of building materials so I can feel comfortable saving the planet just a little bit, and the price is my target.

Good luck and if you would like to shoot the breeze and bounce ideas, please feel free to message me.