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Tiny Home Air BnB Investment: Calculating ROI

by Courtney Simmons | Apr 22, 2022 | Blogs, Resources

ROI is essential when considering any investment, and a Tiny Home Airbnb is no different. With more Americans working from home than ever before, it’s no surprise that Tiny Homes are a hot commodity.

We all want the same thing- more financial freedom, time with our families, the flexibility to travel, a smaller economic footprint, and, if possible, to avoid a 30-year mortgage.

Tiny homes are among the fastest, most clear-cut paths to financial freedom, a straightforward investment opportunity for anyone who wants to get into the host share space.

This article will break down the return on investment (ROI) that you can expect with a Tiny Home Airbnb.

The Typical Investment

On average, a Tiny Home costs $75,000 and requires a $15,000 down payment. This calculates to $500 a month (not including utilities). If a full solar and septic setup is needed, this could run an additional $20,000.

When placing the Tiny Home on already owned land, there are no new property taxes; however, if there is a need to purchase land, the investor is looking at an additional cost for land and property taxes. Also, consider the cost of insurance on the property, and what extra insurance could benefit an Airbnb.

If the funding is available, a Tiny Home Airbnb can have a massive impact on financial freedom. Once an investor is ready to move forward, there are several essential questions that a potential builder should be asked, including:

Can the Tiny Home be customized? What can be added to ensure the home is energy-efficient and short-term stay-ready?

ROI Cost Breakdown of a Tiny Home Airbnb

Let’s look at an example of the ROI that one can see on a Tiny House Airbnb. Consider that, on average, the cost to rent a Tiny Home is $125/night. With a 75% occupancy average, the owner is looking at bringing in $2,812.50 a month. Take out the $500 a month payment for the loan and $300 for utilities and insurance, and it is providing a $2,012.50 profit!

Imagine if a community was built on an already owned piece of land: Placing five homes together would increase your ROI and be a quick way to financial freedom, bringing in $10,062.50 a month.

Next, let’s look at the same scenario if someone needs to purchase land. Say the land costs $100k, and a community is created, including ten lots on the land. Then the owner allows people to park their Tiny Home for $650 a month, excluding electricity. You have now paid $10k per lot for the chunk of land, and the investment for your Tiny Home Airbnb community will be made back in less than two years.

These numbers will fluctuate based on if the investor owns their land or if the land will be an additional purchase.

So how do you break down these numbers as compared to another deal? We like to use the tools available on the Bigger Pocket website.

Cash on Cash – How soon will the investor get the down payment or hookup money back? The answer is about a year at $2k positive cash flow a month.

Net Operating Income (NOI) – Monthly revenue generated ($2,012.50)

Cap Rate – Assuming you paid cash what percentage return could you expect. ex. $80,000 = (2,012.50 x 12) = $24,150 a year = 30% cap rate

1% rule – If you rent for 1% of your total cost to purchase property = good deal. With our $80,000 example, making $2,812.50 a month, you are looking at a 3.5% deal. This percentage would be nearly impossible with a traditional rental property.

Pros of Investing in a Tiny House Airbnb

There are many pros to investing in a Tiny Home Airbnb:

Setting up a home as an Airbnb is pretty straightforward, as the website walks through what needs to be uploaded and provides all the tools required.
One of the biggest pros is that Tiny Homes are in high demand, and are holding more value than ever before. Another pro is that the homes do not take much upkeep and can last just as long as a traditional stick-built home.
Airbnb alone has over 14,000 Tiny Home listings, with more being added all the time.
Tiny Homes can be incredibly energy-efficient, especially when using SIP panels to build them. These lightweight, self-supporting panels keep the air from escaping creating lower usage of heating and cooling systems.

Cons of investing in a Tiny House Airbnb

The biggest cons to be aware of when considering a Tiny Home Airbnb investment would be:

Regulations in some towns can be strict or limit the number of days someone can stay in a rental location.

Financing can also be an issue for some banks, but most builders have companies to work with to create ease of financing for clients.
We partner with the best financial firms in the industry, contact us today so we can connect you.

What to Consider Before Buying a Tiny House

Before purchasing a Tiny House for an Airbnb, some factors need to be considered.

The first step is typically to contact the city to get information about the zoning and land use laws. determining if the land can be divided to include more lots.

Next is looking at the laws and restrictions of the area you’ll place your Tiny Home Airbnb investment. If creating a community with several lots, the cost will need to be calculated on the price for each site and what utilities/amenities will be on-site (laundry room, bathrooms, showers, etc.).

Extra tips to boost your profit

Starting with one rental and growing is the best way to get your feet wet in the host share space. Here are just a few extra things you can do to increase your profit:

Build Communities – create a community with amenities, spaces that homeowners can purchase, or areas with tiny houses as long-term rentals.
Use your own backyard – if you already own land, even a residential home, you can still add a tiny home for supplemental income in most cities.
Influencers – working with influencers who are videographers, photographers, or bloggers is an excellent way to build attraction to the rental. It is a perfect advertisement for both parties, and many Airbnb owners have seen an even higher ROI when partnering with influencers.
Create a one-of-a-kind experience for the guests. If your property is prime for camping and stargazing, provide firewood, s’more makings, books, and games; think Disneyland type of experience.
If you’re near a beach, provide good towels and adequate floor mats, or transform your tiny house into a beach cottage. Give the renter something to talk about and share with others.
Provide the amenities that give the rental a homey feeling—coffee pot or Keurig, creamer, cookware, blankets, towels, bathroom, and shower items. Make it feel like a home away from home.

Tiny houses are a highly versatile investment with several potential uses. Overall, the ROI of a Tiny Home Airbnb can be pretty high, a short path to financial freedom.

With options to customize and create a unique home, Turn Key Fabrication can build something that stands out and is highly desirable for your upcoming guests, so contact us today and let’s get started! The quick path to financial freedom with an Airbnb business can lead to retirement funds, an increase in a savings account, allow for further investment or expansion of business, or just allow for more financial freedom for traveling!

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Tiny Houses as Airbnb Rentals

by Courtney Simmons | Apr 18, 2022 | Blogs, Resources

Is a tiny house Airbnb a wise choice? Let’s take a look! Long gone are the days when people want to stay in a hotel with noisy neighbors, elevators, and very little privacy. Airbnb has become the new way to stay when seeking a vacation or even a long-term place for out-of-town work. A tiny house Airbnb is a terrific investment because of the affordable purchase price, high demand, and low start-up costs.

Other than the standard rental, unique spaces on Airbnb’s website are campers, school buses transformed into RVs, treehouses, tiny houses, and more!

Here is everything you need to know about owning a Tiny House as an Airbnb or host share rental.

Cost

There are several aspects to determining the price of a tiny house. Aside from the initial purchase price, insurance, energy costs, maintenance, and customizations are all things to consider. Working with the builder to confirm that they use energy-efficient materials such as SIP Paneling will help keep monthly utility costs lower.

On average, purchasing a tiny house is 87% cheaper percent cheaper than a traditional home.

Legal Entity

To protect the tiny house Airbnb investment, it is essential to create a legal business or limited liability company (LLC). These options lessen the owner’s chances of becoming personally liable and vulnerable to potential lawsuits.

Other options are a business bank account to keep funds separate from a personal account, insurance, and business taxes and accounting.

Tiny House Rental Types

Stationary Tiny House

A stationary tiny home is a perfect option for investors who already own land. If the land is part of a community check for amenities like clubhouses, swimming pools, or gardens that guests would appreciate.

Other ideal places to plant your stationary tiny include near popular attractions, especially national parks, or near a beautiful natural landscape.

Legislations and Restrictions

Before investing in a tiny house, Airbnb, it is critical to understand the zoning laws for your specific state and city. Some states require additional fees for short-term rentals, and others have restrictions on if a rental or business can be placed on private land.

Here’s How Much Money you can make from an Airbnb Tiny House Rental

What is Airbnb Smart Pricing?

Airbnb Smart Pricing is a tool on the Airbnb website that collects and analyzes data about demand and supply, tourist activity, similar listings, and trends. This handy tool provides a suggested price for hosts or investors to determine their nightly rental cost.

Determine the nightly rental cost for your Airbnb:

The Airbnb Smart pricing tool is a great place to start. The bare minimum for determining the nightly rental cost would be to add up the mortgage, utilities, cleaning fees, etc., and divide by 30 days to see the lowest nightly rate. Just ensure that the items below are being added in and check out comparables to see if the calculation seems right.

Basics: Items such as towels, sheets (plus the cost of laundering them), or extra toilet paper are basics that hotels offer and have become standard, even in an Airbnb or host share.

Amenities: If extras such as beverages, snacks, and candy will be provided, the host will need to replenish them before each guest’s arrival.
Weekday vs Weekend / Season Pricing: Most rentals charge more during weekends and peak seasons, so adjust your pricing depending on demand.

Service Fee: With each rental, Airbnb charges a 3% fee of the total rental (sometimes more, depending on the full rate). Read the entire policy here.

Security deposit: Decide what amount the customers will pay the homeowner to cover any damages.

Guest reservation fee: Guests are charged a service fee of 6-12% when they reserve their tiny house.

Cancellation Fee: This is especially important when considering that last-minute cancellations can increase your vacancy rate and decrease that month’s profit.

Extras for your Tiny House Airbnb

Creating a memorable experience for renters is a great way to get a 5-star review or have them recommend the tiny house Airbnb to others. Some excellent ways to uplevel their experiences are:

Local Recommendations: Create a guide of things to do in the area. Best restaurants, close-by grocery stores, date places, family-friendly places, hikes, etc. This is a personal and memorable touch for guests that are unfamiliar with the area.
Streaming Services: Although Wifi is essential, streaming services like Netflix or Hulu are nice touches.
Coffee and Tea: Having a Keurig or coffee pot touches on the familiar comforts of home. Coffee pots or Keurigs toe the line between essential and extra, so make sure to have at least one coffee option.
Snacks and drinks: Everyone loves a little sweet treat! Some people might not make it to the store before visiting, so it’s a nice touch to have a little something to grab and nibble on when they get there.
Firewood: If there is a wood stove or fire pit in the tiny house, having already cut wood is a functional touch that adds to the aesthetic.
Games / Books: A small section of non-electronic activities is always appreciated, even if they don’t get used. The phrase ‘it’s the thought that counts,’ applies here.

How to Market Your Tiny House Airbnb

Tiny houses and unique places are popping up on Airbnb, so making the home stand out is essential! Here are some tips on what people look for in desirable places to rent:

Photos: Make sure the images are high-quality and capture the uniqueness of the property. Pictures should be clear and bright, with no blurry or dark photos. If you’re having trouble with images, see the below tip about working with influencers.
Description: Set the scene. Explain what is unique, what the views are, extras, and amenities you provide and include positive reviews.
Location: Provide information about nearby activities, grocery stores, attractions, etc.
Name it: Give your rental a fun name to make it stand out.
Social Media Marketing: Create an Instagram or Facebook for the property. Instagram is best for showing off your themed interior, incredible scenic views, or anything visually pleasing about your rental. Pinterest is also great for visual marketing. Facebook, along with your website and Google Account, is your business’s online storefront- where people will find the basics of your rental- location, amenities, and the like.
Work with influencers: Collaborate with influencers (photographers, bloggers, and videographers), to get credited images (or even better, a blog post) in exchange for a free or discounted stay. Last-minute cancellations or off-seasons are ideal for influencer collaborations. Read more about what Airbnb has to say about influencer partnerships.

A tiny house Airbnb is one of several ways to make a profitable investment. The Airbnb website is a helpful third party that allows easy booking and is popular and accessible. Tiny homes and the nomadic lifestyle have never been more desirable.

A unique or themed tiny house makes it stand out from other rentals! We have solutions for all of your needs; contact us, and let’s get started today!