The tiny house trend has made headlines for its minimalist lifestyle and quirky appeal. More of a social movement than a fad, these small dwellings have also become a hot topic in the Australian property market.
Tiny houses are compact living spaces often built on wheels. They help people live debt free and are often more environmentally friendly than traditional housing. But are tiny houses a good investment?
Here’s what you need to consider before buying a tiny house investment property.
Buying a tiny house
Before you look to buy an investment property, you’ll need to assess your finances and calculate all the associated holding costs.
One of the key benefits of a tiny house investment is that the purchase cost is significantly less than a traditional home. Depending on the size and design, tiny houses range from $50,000 to $90,000.
Tiny houses offer a way for people to enter the property market without gaining a substantial mortgage. However, if financing is required it’s important to note that a tiny home with wheels will be legally classed as a caravan and issued with a Vehicle Identification Number.
Typical financing options for this type of tiny house include:
- caravan loan
- line of credit
- personal loan
- extension of an existing mortgage (you must have enough equity in an existing property to qualify).
Another important consideration is the legalities around living in tiny houses on private land. These regulations generally exist at a local council level so it’s necessary to research the laws specific to your area.
Short-term holiday letting is a good way to earn an income from a tiny house investment.
Holiday renting has become increasingly popular in recent years due to the rise of platforms like Airbnb. As a result, the rules surrounding short-term letting have also evolved.
For example, New South Wales legislation has specific planning laws for holiday letting. The law states that if the host is present, they can use their home for
short-term holiday letting all year round without submitting a development application to local council.
If the host isn’t present, that property can only be leased for up to 180 days per year in Sydney and 365 days in all other areas of the state. For this reason, it’s essential you understand the requirements of holiday letting in your state or territory.
Along with legislation, there are several expenses to consider when leasing a tiny house as short-term holiday accommodation. Many rental services and booking platforms charge a certain percentage per booking and this will need to be factored into your rental rate. You’ll also need to think about cleaning costs as guests will expect their accommodation to be cleaned to a high standard.
Be sure to consider all relevant costs when deciding a price to charge for your tiny house. For more advice on holiday rentals, read ‘Tips for buying a holiday rental property.’
Tiny house depreciation deductions
An income-producing tiny house may be eligible for thousands of dollars in depreciation deductions.
Owners can generally claim tax depreciation for the time a tiny house was rented or genuinely available for rent. That is, the property is given broad exposure to potential tenants and considering all the circumstances tenants are reasonably likely to rent the property.
It’s important to note that a tiny house is legally classified as a caravan, meaning tax depreciation schedules will adhere to rules and regulations relating to caravans, not houses.
A caravan, and therefore a tiny house, has an effective life of twenty years and can be depreciated at 5 per cent using the prime cost method or 10 per cent using the diminishing value method.
Assets within the tiny house such as flooring, blinds and even solar panels can be depreciated based on their effective life which is set by the tax commissioner and updated regularly through tax rulings.
To find out how much you could claim on a tiny house investment, Request a Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.