The Disadvantages of Renting Out Tiny and Container Homes | The STRR Podcast #105 | Tim Hubbard

Welcome to Short Term Rental Riches where we'll discuss investing in real estate, but with a specific focus on short term rentals to help you build wealth faster with as little headache as possible.

Today we're going to dive in a little deeper into the subject of tiny homes and container homes. I think they both kind of fit in the same category. I talked about them briefly in a prior episode comparing luxury rentals with unique rentals which these would fit into. And then your plain Jane normal urban rentals, which is kind of like what I do. But I want to dive a little deeper into this because I'm constantly learning too. I don't have these types of rentals myself, but there is a gentleman on YouTube that has a lot of them and he has a really great YouTube channel called Robuilt and he is talking about the downsides after having built them themselves. So I just want to bring this to your guys attention. I don't want to discourage anyone from getting in the short term rental world because I think it's fabulous and it's here to stay. But I just want to bring it to your attention that different types of properties have different risks. So we're going to talk about some of the downsides this week. Let's get right into it. Well, for one, a tiny house or a container home, I'll try to separate these two. But a lot of this kind of blends together. It's tough to finance. That's just the truth because lenders are not as familiar with these types of properties. I guess we should compare this to a normal single family home in a suburb. You have way more financing options with that than you would a container home, especially one that you're trying to build. It can be very difficult to get financing for these types of properties. And if you're paying all cash versus paying 20% down, potentially maybe less on a typical property, well then you gotta factor that in your overall return. You might not be doing as well as you think you are. So financing can be difficult also because there's probably not gonna be a lot of appraisals, right? There's not gonna be a lot of comps for these types of properties. So if you're trying to get a loan, a lender's not gonna have too much to go off most of the time. And your rates if you do get a loan are probably going to be a little, a little higher and probably not as good of terms. You got to keep that in mind. Next segment of tiny homes. Hopefully this doesn't come as a Surprise to you. But yes, they are tiny. They are tiny. And a lot of things come along with a tiny property and that's that you've got to have special furniture. Probably you're over the counter furniture from Ikea and stuff like that might not always work. You're probably going to have more built ins and stuff like that. So, yes, tiny homes are tiny. That also means you can't fit as many people. So if you're putting a tiny home in a place where you think it's going to be really well suited for vacation rentals, where families might be going, well, you're going to need more tiny homes. Right, because you're not going to be able to fit as many people.

So they're a little harder to design. The permitting can definitely be a lot trickier. And from Robuilt's videos, he said that was one of the most challenging parts and permitting and the design. And all this leads into the fact that tiny homes might not be as cheap as you think they are. In fact, the tiny home that he built, I think this was also in Joshua Tree. It was $543 per, per square foot. That's really, really high. That's some of the most expensive real estate you can find. And of course that's because it's very tiny. But you've got to keep in mind that you still have to put in a driveway that's probably the same size. You still have to get permitting for electrical. And the permit prices probably aren't going to be that much different. You still have to get water and electrical plumbed to your property. So a lot of those things aren't going to be less expensive just because your home's tiny. So you got to keep that in mind. And I think the reality is a lot, a lot of us want to get into tiny homes and these types of properties because we think that they're, they're cheap to get into. Oh, you're right. And when you're right, you're right. And they can be, but only really if they're off the grid, if you're not having to go through harsh city regulations and permitting processes. And if you happen to be. That's super handy and you can do it by yourself off the grid, well, then yes, you could very likely build one of these for less money. I know I stayed in one in Columbia a couple years ago. It was awesome. A friend recommended it to me. I know that they probably maybe spent 20 to 30 grand on that property and they were charging almost $100 a night. So that's a really good return. But from the example from this YouTube video is 543 square foot tiny home cost them around $165,000. Not that this can't be a good investment. I just want to bring this to your guys attention. If you're trying to do this in a place where the permitting process is difficult and there's not a lot of contractors that are familiar with tiny homes then or architects, that's another piece of it too. Just keep that in mind. It might not end up being as cheap as you think it could be. Next, let's move on to container homes which are kind of similar. Right? Container homes can be tiny, although they can be very big as well. And again, Robuilt has a great video on this. So we'll link this in the resources. I'm all for you guys. Just find as much information as you can to make the best decisions possible. And again, I don't want to discourage you from getting into this, but container homes, I would say they're kind of trendy. They're kind of trendy, right? Just like tiny homes. And so we've got to ask ourselves, trends usually kind of fade. I'm not saying that they're going to. And especially with people being able to live and work virtually, that adds a lot to this type of property. But I still think they're a little trendy and we can see that kind of in some of the pricing that's going on too. So on to container homes. The permitting is going to be very similar with these. These are different types of projects that people that work with the city are just not familiar with or as familiar with depending on the city you're in. Maybe the city's never even seen one. You call them up, they're not going to know how to handle the process. Well, I'm sorry, but I don't know what you're talking about because they just haven't done one before. So that could make it more difficult when you have to do your safety inspections.

Is a safety inspector going to know how to inspect a steel container home? Probably not. They're probably not trained on those. Right. So that, that could really shake things up. Again, architects are going to have a little less experience. And there's also this chance that the containers, they have a history. Right. Unless you're buying a brand new container. And the cost of containers have gone way up, by the way. Remember when they used to be, you know, $1,1500. I was looking into this. I kind of look into any type of real estate I can get my eyes on because I just love real estate and, and I also like to diversify. So I remember when they were really cheap. I was talking with my friend in Brazil yesterday actually who runs a mine down there. They mine copper and he's shipping large containers of copper all the time. And he told me that the cost of containers for him has more than doubled. So this is kind of worldwide thing, especially after the pandemic, the supply chains have just gotten crushed and they're having a hard time. So prices are going up now to actually fabricate a container home. There's a little bit of misconception here, right? We're not just going to live in this steel container. We're going to cut windows out, we're going to cut doors out. And yes, a solid container is very structural. That's how they're built. So you can stack them on top of each other, but they're not as structural when you start cutting pieces out of them. So we've got to have account for that. And again, this is. If we're not doing it off grid, if you're doing it off grid, well then you might be able to get away with some of these things. But if you're in a city where you're going to have this permitted and a safety inspector comes in and something's not engineered correctly, well, maybe you have to get a structural engineer in. Their metal is not cheap to fabricate. So again, I think a lot of us think that we can build these container homes inexpensively, but the reality is they can be very, very pricey. One of the other examples in the YouTube videos, someone that already built these, and again, this depends on where you're at, but they can easily be in the six figure range for a small container home. So keep that in mind. Financing, again, a lot of these two categories have a lot of the same similarities. Financing is going to be hard. You're not going to see a lot of appraisals on these. What's going to happen when you try to resell it and you don't have any comps to go off of. It's going to make things difficult too. So I just wanted to break down a few of these ideas, get you thinking a little bit if you're headed down this path. Not saying it can't be really lucrative. I know that it can. I have friends that are doing it very, very well. But let's factor in our whole return here. If we can't get financing and we have to put all this up in cash. That's going to be hard to beat a property where you only have to put 20% down, right? And then in the long run, the thing that I love about the types of properties that I talk about on this channel all the time, that they have good backup options. So does your tiny home or does your container home, does it have good backup options? Can you put a long term tenant in there if for whatever reason you need to and are you still going to have a good return there? Are you going to be able to get your financing? Just keep all these things in mind. Don't want to discourage anyone. I love the short term rental industry so I hope you jump in. Just want to present some new information that I uncovered. So until next time, ponder that, give it a little more thought and have a wonderful day. Have a wonderful week.