7 Hidden Costs and Complications of Tiny Houses

What seemed like a fad of radical downsizing during a difficult economy has slowly become a movement. More people than ever are moving into tiny homes—houses that are less than about 400 square feet. And given the high cost of living in the United States, it makes sense.

According to the U.S. Census Bureau, when adjusted for inflation, the average home cost about $197,430 in 1973. In 2016, the average home cost $360,900. Despite the astronomical rise in the cost of homes, the median income in the U.S. has actually decreased by more than $700 when adjusted for inflation. This combined with the fact that the average household size has decreased from 3.01 to 2.64 seems to make tiny living more attractive.

“Housing prices are becoming so unaffordable we need to look at some creative options to help solve that problem,” says Jeremy Beasley, director of Small Is Beautiful: A Tiny House Documentary. “Tiny houses offer a great ability to help densify without having to build apartment buildings or knock down any existing buildings.”

But what many people don’t realize is that there’s no guarantee that living tiny is the more fiscally responsible route. Here, seven hidden costs and complications of building and owning a tiny home.

“Financing is one of the biggest hindrances of people’s ability to live in tiny homes,” says Zack Giffin, host of Tiny House Nation. Unlike buying a standard home, it’s very difficult to get a mortgage or a loan. Why? A typical tiny home is considered a modified trailer, Giffin explains. It’s very difficult for a bank or a financial company to quantify the value of that, and without being able to quantify the worth, getting a loan for the value of the home is almost impossible.

Prospective buyers can get around this by registering their tiny home as a certified RV (RIVA). But there’s more red tape for certified RV dwellers— RV loans often prohibit you from securing your home to a traditional foundation, and laws in the U.S. make it very difficult to find a place to park an RV for more than 30 days at a time.

Another option is a personal loan, though these types of loans often have higher interest rates and require the borrower to have very good credit.

If you’re hiring a contractor to build your tiny home, direct financing through the builder may be the most affordable option, says Giffin.

So you want to build a tiny house that stays put—one with a concrete foundation? Current legislation can make this quite tricky, says Giffin. “You have to get around the laws that make it hard to comply [with building code regulations]. Think head heights, whether a ladder can be used in a loft, railing requirements, and fire egress requirements.”

Choosing a mobile tiny home and registering it as an RV is a way to circumvent these regulations, but then you face the inconvenience of having to move your home every 30 days, says Giffin. Finding a spot to live is, unfortunately, often a Catch-22 for tiny home dwellers.

Giffin estimates the price of building a tiny home to be about $300 per square foot. In 2016, the median price per square foot of a contractor built house in the U.S. was $101.72. “The average cost per square foot is more because you’re consolidating everything into a small space,” says Giffin. “In construction so much of the costs are in the details.” And tiny homes require lots of little details to be fully functional. When you have 2,000 or more square feet at your disposal, wasted space isn’t as much of an issue.

When you’re trying to fit an entire home—and everything a person needs to live comfortably—into 400 square feet, you have to be much more conscious of design and function. “Any great design is a combination of form and function,” says Beasley. “A common one is having the stairs to the loft also double as storage. Or a couch that doubles as the bed, with storage as well. It’s about re-thinking the idea of home and how to utilize space.” But building these clever storage solutions often requires expert millwork—something you’ll pay a premium for.

The utilities—HVAC, plumbing, septic systems—are the most expensive part about building a tiny home by far, says Giffin. Because tiny homes are just that, the appliances that fit into these spaces are often energy-efficient, compact, and multifunctional. Since these are specialized appliances, you’ll pay a pretty penny for them.

Think you can hook your tiny home up to your car and hit the road? Think again. Well-built tiny homes on steel trailers are “absolutely roadworthy,” says Giffin. But those steel foundations are very heavy—too heavy for a standard car. In most cases, you’ll need a decent-sized truck to tow your home. And don’t forget to factor in the extra gas costs associated with a large truck and towing a heavy load.

Insuring a tiny home is more complicated than insuring a standard house. Even seasoned tiny home dwellers don’t have it fully figured out. “Insurance is kind of all over the place right now,” says Haley McCormack, owner of a 100-square-foot tiny home in Pennsylvania. “A lot of people don’t know how to handle it. Right now ours is mostly covered as part of a renters policy, but it’s not necessarily sufficient and something we are still working on.”

If a tiny home is on a permanent foundation, some insurance agents may provide coverage. Though there may be stipulations, like the tiny home cannot be your permanent residence, which would, in many cases, render the deal impossible.

If a tiny home is on a mobile foundation, the home may qualify for RV insurance, but an RV certification is usually required.

Because of the difficulties associated with securing insurance on tiny homes, there’s an emerging crop of companies—like Tiny House Insurance—that specialize in this area and strive to help tiny home owners protect their most important asset.

Whether you’ve had enough of tiny living or simply want a fresh, new tiny home, recouping your investment can be challenging. “You can’t really expect [a tiny home] to appreciate in the way you can expect property to appreciate,” says Giffin. But, still, the cost is worth it to many. “So many people look at their home as an investment. With tiny living, it really comes down to freedom from all the things you’re paying for that don’t contribute to happiness and doing things you enjoy.”