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What to Consider When Adding a Tiny House: From Building Codes to Financing


Although tiny homes are all the rage now, they've been around since the '70s. Even back then, smaller spaces appealed to artists and those wanting to live simpler lives. In 2008, when the economy crashed, these tiny abodes experienced a surge in popularity. Currently, many areas of the country are experiencing a rental shortage. Because of that, some homeowners are considering adding a tiny home to their property for additional rental income. Those needing more space can get the extra square footage they need without selling and rebuying a larger home. Read on to learn about this unique and exciting topic and discover if building a tiny home is right for you.

Two Types of Tiny Homes

There are two basic types of tiny homes.

  • On wheels — considered a recreational vehicle (RV) legally.
  • Built on a foundation and legally considered an accessory dwelling unit (ADU).

In this article, we're going to focus on tiny homes built on a foundation on the property you already own. So, we won't be counting the cost of land.

Just like with any home, you can plan to build it yourself, hire a contractor, buy a new or used structure and have it delivered, order a prefabbed house, or build one by reusing something like a shipping container. Unless you're a skilled contractor, you'll most likely need the help of an experienced builder — at least for some parts of the project. If you can, it's worth your time talking to a few tiny home builders.

How much does a tiny house cost?

The cost of tiny homes can vary just like anything else. The main factors are size, material quality, and labor. Are you building the home yourself or hiring a contractor? What about using recycled materials?

If you've watched any TV shows like Tiny House, BIG LIVING, Tiny House Nation, Tiny House Hunters, or videos on YouTube, you know how creative some people can get when building tiny homes.

If you want one already built, you can get a basic, stripped-down version for anywhere from $10,000 to $85,000 and up. The best place to start is with:

  • Purpose of the house: Extra space, permanent rental, vacation rental
  • Local building codes: These can have a major impact on your budget
  • Zoning regulations: Make sure you can have a tiny home in your area
  • Your budget: How much are you willing to spend?
  • Financing: Are you going to pay as you go or get financing?

Local Building Ordinances

When it comes to building codes and ordinances, every city is different in what they consider a tiny house. The International Code Counsel describes a tiny house as 400 square feet or less. That includes the floor area, but not any lofts. Your local building department will have its definition of what they consider a tiny house. So, before you start shopping — take a trip to the building department and see what the rules are.

According to the National Fire Protection Association, although there are no specific provisions for tiny homes in the NFPA 5000, Building Construction and Safety Code, since it is a residential unit, there will be some safety codes. These may address:

  • Room size
  • Ceiling height
  • Means of escape
  • Egress width
  • Stairs
  • Smoke alarms
  • Carbon monoxide alarms
  • Electrical and lights
  • Ventilation

Your county will have similar rules covering required space, size of sleeping rooms, and minimum ceiling height.

What states will allow tiny houses?

According to Tiny House Society, the friendliest tiny house states are:

  • Texas: Although tiny homes are regulated by city and county, they're well accepted.
  • Maine: Regulations vary by city and county, but statewide a tiny house is less than 400 square feet.
  • Oregon: The rules are very specific in some areas, but this type of dwelling is very popular
  • New Mexico: Rules vary by city and county, but all tiny homes must be on foundations
  • Michigan: Regulations and rules vary by location, but zoning is tiny house friendly
  • New Hampshire: Rules vary by county; an owner is required to live on the site
  • Pennsylvania: Rules vary by location but must have one room at least 120 square feet.

Although it might take a little work to find out the exact rules, zoning, and codes — consider this vital research that will help make your project successful.

Build or Buy Pre-Fab

Part of the fun is shopping to see what's the best fit. Do you want to build from scratch or get a prefab structure?

Pros of Building vs. Buying Pre-Fab

  • You can create the house exactly as you want
  • It can match your current main home
  • You can be certain of the material quality
  • You can customize the interior and exterior

Cons of Building vs. Buying Pre-Fab

  • It takes longer than a pre-built home
  • Getting the design right can be challenging
  • It can cost more if you don't stick to a strict budget
  • Building codes can be confusing

Renting Out Your Tiny Home

While you're at your county or city offices, find out who to talk to about rental rules, landlord, and tenants' rights. There are most likely different rules for long-term rentals vs. short-term rentals.

For example, some areas are very strict and prohibit Airbnb rentals. You'd want to know that ahead of time if you're considering renting out your tiny house. Parts of New York and California are good examples of where Airbnb may not be an option.

A common restriction is that the owner needs to live onsite. And make sure that no matter what type of rental you're considering — you have good liability insurance.

For Personal Use Only

If you have enough room on your property but are short on space in your home, a small separate structure could be the perfect solution. Some of the most popular options are:

  • Home office: With more people working remotely, having space away from the hustle and bustle of the main house is getting more essential.
  • Artist studio: Having a private studio that's peaceful yet convenient, can get the creative juices flowing.
  • Writer studio: A quiet space is vital for a writer. A tiny house is a solution when you live and work in a noisy house.
  • Man cave: This is for guys needing their own space to hang out with friends, play video games, or work on hobbies.
  • Girl cave: This is the perfect place to rest, relax, and have some alone time or have girlfriends over. Add a TV and enjoy watching some rom-coms.
  • Private gym: Whether you love weightlifting or yoga, having a private gym is convenient and keeps you in shape in the privacy of your own home.
  • Extra bedroom: Having an additional bedroom away from the house is good for teenagers, visiting family, and friends.
  • Granny suite: A little more than just a bedroom, a granny suite can provide independent living for aging relatives.

Tiny Home Designs

Two of the reasons tiny homes are so popular are because they can be affordable, and you can create a unique space that expresses your personality. If it's built as a vacation rental, you can design an oasis getaway that your guests will fall in love with and want to revisit.

There are several sources for tiny house plans for those DIYers. And if you just want to scan some pictures for ideas, visit Pinterest. Here are some of the most popular designs:

  • Modern tiny homes featuring decks, large windows, minimalist design with sleek lines.
  • Luxury tiny homes on foundations are similar to a luxury RV (without the wheels), where the sky is the limit. Amenities are only as limited as your budget.
  • Glamping mini accommodations are perfect if you have a beautiful piece of property city dwellers would love to visit.
  • Tiny beach homes are a smart pick for those lucky homeowners living close to the beach or in a beach town. This could be a profitable endeavor.  

Built-In Storage — Vital Necessity

No matter your home's purpose or design, make sure you have enough storage. Every square inch of space is valuable. Here are some space-saving ideas:

  • Built-in bookshelves for books and essentials
  • Under ladder storage for easy access
  • Under-bed storage for items you don't need right away
  • Shallow floor storage if you have the room
  • Above toilet shelving for towels and toiletries
  • Shallow kitchen storage for spices

Tiny Home Financing

Since tiny homes are much less expensive than full-size homes, it's extremely hard to get a regular mortgage on one. That's because most mortgage lenders have minimum loan amounts starting around $50,000. Plus, to get financing — the structure has to be on a permanent foundation. No rolling homes allowed.

Depending on your budget, you have several options if you can't pay with cash. Using home equity for home improvements and additions is a cost-effective way of upgrading your property.

A cash-out refinance could be the answer if your mortgage interest rate is higher than current rates and you have enough equity.

Home equity line of credit (HELOC) is another option. With a line of credit — you have a specific limit and can access funds as you need them. That could be a good option if you're building it yourself.

Personal loans are another solution. However, the rates will be higher than any type of conventional mortgage loan.

More Sources of Information

Take a look online and locally, and you'll most likely find a vibrant group of tiny home enthusiasts willing to answer questions and give valuable tips. Search for tiny home forums, Facebook, and local groups.  Tiny homes are here to stay. Your options are unlimited — have fun planning!

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