Tiny Home Air BnB Investment: Calculating ROI
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!