Almost half of renters spend more than 30% of their income on housing, the definition of cost-burdened. It’s not their fault. Years out from the 2008 financial crisis, consistent underbuilding continues to starve the supply of housing. As any Econ 1 student will tell you, growing demand plus supply constraints leads to price increases. Other factors have piled on, too, from rent algorithms introducing a type of landlord price-fixing, to property owners passing along their higher borrowing rates and skyrocketing insurance costs.
One way out of the grind? Build a tiny home – defined as 100-400 square feet – either DIY or by partnering with professionals. Becoming a tiny house owner frees you to use more of what you earn in ways that enhance your life. Read on for budgeting tips for a tiny home build.
You’ll want to create a reasonable budget for your tiny home, taking into account your current money situation. Then choose the building approach best suited for your finances, timeline, and skill set. Less money flying out the door each month, even owning your place outright, moves you toward a less stressful, debt-free life with now and future goals in reach.
Understand the Costs Involved in Building a Tiny Home
Start with Basic Building Items
- Plans for House: Size, style, structure, building materials, and instructions
- Basic Shell Materials: Standard house materials or shipping container
- Foundation or Trailer: Slab on grade, post foundation or alternative for a stationery home. Or a trailer for a tiny home on wheels (THOW)
- Insulation
- Wiring
- Plumbing
- Finishes: flooring, drywall, siding
- Fixtures: Attached to the house, these include lighting, doors, and built-in storage
- HVAC
- Appliances
- Labor: Yours and/or professionals
Include Legal, Land, and Insurance Costs When Budgeting for a Tiny Home
- Insurance: According to Progressive Insurance, if your home rests on wheels it may qualify for RV insurance, whereas a home on a lot might fall under mobile home policies
- Land to Build On or Park On: Consider purchasing land outright to avoid paying rent to a different landlord who owns your property
- Permits: Research zoning laws specific to your state, county, and city and attain any needed permits
Set a Realistic Budget
Start by Looking Honestly at What You Have Now
- Savings: Money you’ve set aside gives you a great starting place. Try not to tap into any retirement funds because you’ll pay a 10% penalty if you’re less than 59 1/2 years old. More importantly, you’ll need this money later in life, and retirement accounts grow tax-deferred – or tax-free in the case of a Roth IRA – which means a powerful source of compound growth.
- Income: Include current money coming in from all sources. If you’re saving up to build a tiny home, decide how much you can reasonably set aside.
- Debt: Keep in mind your need to continue to pay debt payments. Post-tiny home, this may be the first place you put any freed up income, into paying down your debts.
- Assets: If you’re fortunate to have a piece of land, you’ll be able to use this to park or build your tiny home. Homeowners looking to build a tiny house on their own lot might consider their house a source of collateral to reduce borrowing costs if needed.
- Resources: Friends, family, and colleagues might be sources of know-how, inexpensive loans, or even weekend help.
Compare What You Have With What You’ll Need
According to homeguide.com, total costs to build a tiny home vary depending on the size, location, and level of do-it-yourself labor you’re able to invest. Starting with a bare bones shell gives you more control over the cost of additions like finishes, fixtures, and appliances.
$4,000-$30,000: Buy a kit with all the materials and plans plus interior finishing, fixtures, and appliances
$15,000-$40,000: Buy a shell and finish it plus insulation, wiring, plumbing, finishes and fixtures
$25,000-$80,000: Buy a prefab fully finished house, finished inside and out, includes all fixtures and appliances
$50,000-$140,000: Hire an architect or design/build firm to create a custom-built tiny house – all included, could be on trailer or foundation, and might allow for two-stories
Decide What Items Are Needs vs Wants for You
The size of the home, level of finishes, and sophistication of appliances drives a great deal of the differences in costs. Decide what you specifically need. Requirements might include a main-floor bed if you can’t climb into a loft, or an efficient heater for winter cold in your state. Invest in things you can’t change later.
On the other hand, perhaps expensive flooring finishes or top of the line appliances matter less than a solar system that will pay for itself, or a portable wifi system.
Financing Options Fill the Gap Between What You Have and What You Need
Borrowing options for tiny houses include personal loans, builder or store financing, an RV loan if your home will be on wheels, or a home equity line of credit if you already own another home.
Do investigate mortgage options for the specific cost, size, and location involved in your own tiny house plans. Because many standard mortgages have a minimum dollar amount or minimum square footage requirement, or disallow THOWs, however, you may find it impossible to attain one.
Cost-Saving Tips for Tiny Home Builders
In general, the more personal labor and time you have to invest in your tiny home-building project, the less you’ll have to pay someone else to do it for you. Be realistic, however. Look honestly at your construction skills, how much free time you have, and how quickly you want to be able to live in your new home.
Talk to people, online or in person, who have built a tiny house and ask what they’d do differently if they were to do it all over again. Consider starting with a kit, a pre-constructed shell, or a shipping container. Once you have a plan, look into specific costs in your area.
Financial Planning Tips to Save Money for Your Tiny House Project
Buy a tiny notebook, make a blank note in your phone, or get a budgeting app. Jot down everything you spend money on for a month. Then study it. Divide up your necessities from things and services you merely want. There’s no one-size-fits-all budgeting approach.
Eliminate or swap out the wants – instead of eating out, take lunch to work. Thrift shop instead of buying new. Get a bottle of syrup to add to your coffee and a nice portable cup and bring your own fancy coffee with you. Go to the library or check out free books online. Drink less alcohol, especially out.
Looking for bigger savings? Get a cheaper car. Take a driving trip instead of flying. Camp and hike or fish instead of staying in a hotel. Move in with your parents for a bit and save money for your home. Get a roommate. Refinance your student loans or car loan.
Take a page from minimalism and learn to surround yourself with less. Having fewer things reduces decision fatigue, creates a more peaceful environment, and means less upkeep.
Then write something down when you want to buy it and wait 30 days to see if you still want it. Even if you do, don’t buy it if it doesn’t fit into your spending plans.
Found a great way to save money consistently? Set up an automatic transfer into savings for this amount, every week or month. Get a raise, a tax refund, or an unexpected windfall? Take a bit to celebrate. Then save the rest. If you never get used to the new salary level you won’t miss it.
Also, look around for safe but higher interest places to park your money like high yield savings accounts, money market accounts, and CDs.
You Can Do It
Doing the legwork to understand and plan the financial path to your new tiny home might take a bit of time. But the clearer you are about what you want to get to and how you’ll get there, the easier it will be to keep going and achieve your goals.
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