Travel in a Tiny Home Blog

How Tiny Homes can be a solution for evictions and foreclosures

7/3/2020

Written by Lindsay Wood, Edited by Sharon

It's July 6th one day after rent is finally due. With so many across the US facing potential evictions or foreclosures this is a perfect time to share how Tiny Homes can be a terrific solution for this crisis.

Before Covid-19 Tiny Homes were gaining in popularity due to the existing housing crisis resulting in housing prices being upwards of 6x the average income. (Note housing prices in the 70's were about 2x the income)

Now with so much disruption from Covid-19, housing instability is even more of a concern and a reality for many. This housing eviction or foreclosure affects those who are renters but also homeowners where the banks typically "own" the home and require the mortgage to be paid.

So how can Tiny Homes help both?

The more cities and counties that approve Tiny Homes to be located in backyards where there is space for a Tiny Home, the more this gives both the homeowner the opportunity to earn additional income as well as a Tiny Home owner the opportunity for home ownership and lowered rent.

For example, let's take my friend Kristen in San Jose area. She currently lives in San Jose and her rent is $2,800 a month for a 980 sq ft apartment. She is not in love with her apartment as it's very dark and must turn lights on even during the day. She is also grown tired of her own clutter and wants to downsize and let go of stuff.

She wants to downsize and move into a 350-400 sq ft customized Tiny Home on wheels and her budget is $100,000. For the sake of this example let's assume her credit is not that great so her interest rate is 16% and she will pay that off in 10 years ( I know that sounds like a high interest and a low payback term, but stay with me). This monthly fee ends up being $1,675.

As of May 2020, the nearby City of San Jose and County of Santa Clara just approved "Tiny Homes on Wheels" as Accessory Dwelling Units (ADUs is the legal term many use to talk about Tiny Homes built on foundation in the backyard of a single family home. ADUs are often referred to as In-laws, granny units, laneway houses, etc.). A typical ADU built on foundation ranges anywhere from $300k-$700k in the San Jose area, is built to the state of CA building code, and takes about 12-16 months to get completed. Note: the price for a foundation built ADU is about 3 to 7 times higher in cost than a Tiny Home on Wheels and takes 2-3x the time to be completed.

Let's now say that Kristen finds a homeowner in the City of San Jose or the County of Santa Clara who has space in their backyard for a Tiny Home on wheels and who would like receive rent to help pay for the mortgage, send their kid to college, save up for retirement, etc. etc.

After applying for the permit, creating the plans, expanding the underground water, sewer and electricity lines to run out to the Tiny Home the landlord determines land rent will be $1,000. (This land fee is largely determined by the local rents. For example, in Sonoma County that may reach as high as $800 but meanwhile many RV parks are charging $800-$1500-$2000 per space in populated areas).

So let's sum this up...
Tiny Home loan $1,675
Land fee per month $1,000
Total per month $2,675

Based on her previous rent amount she gets to pocket $125 a month. That may not seem like much savings but the major differences are...

She's on the path to home ownership versus renting and building someone else's equity.
She gets to customize her home to the way she and her family like it.
She gets to downsize her stuff that has become a burden
She has access to a backyard and a place where she and her family can flourish (in some cases this is in areas that are less noisy than an apartment complex)
She has a home that can be moved to another property as she builds wealth or makes life choices.
She has an extra $125 a month to pay down her debt and own her home that much faster

Now, if Kirsten had great credit the loan term could be more like 15 or 20 years. Or let's say her future land fee is only $800 a month, then the numbers would look even better. I always like to play the conservative game when I run numbers so that way you can start with reality vs. fantasy.

So what is the alternative to this plan?

Continue paying rent for the next 10 years which will result in Kristen paying a total of $336,000 (assuming the rent does not go up which is unrealistic, even in rent controlled areas rent still goes up and up.) At the end of those ten years, Kristen will be nowhere closer to home ownership. Unless moving to another area of the state or country or moving in with family is an option, the only way to change this direction of her life is a Tiny Home On Wheels.

Ok so now let's say Kristen has $50,000 to put towards her Tiny Home and does not need the entire $100k. This makes her numbers even better...

Tiny Home loan $868
Land fee per month $1,000
Total per month $1,868

Now Kristen gets to choose whether or not she'll take the difference of what she was paying in rent to pay down her loan faster or put money away into savings, pay off higher interest debt, go on a vacation, send a kid to college, etc. etc. The key here is she has even more options.

For homeowners facing potential foreclosure what can Tiny Homes offer?

For homeowners who have enough space in their backyard, they can place a Tiny Home in their backyard and begin to collect rent from a Tiny Home owner. Getting anywhere from $500 to $1000 could be a game changer for a homeowner struggling to pay the mortgage. Additionally homeowners can provide multi-generational housing and bring family members onto the property providing a way for the entire family to support one another.

So what's the catch? It all sounds so easy?

Beyond the cities of Fresno, Los Angeles, San Luis Obispo, San Jose, and Santa Clara County there are many cities and counties who are still not allowing Tiny Homes on Wheels or Movable Tiny Houses...but that is changing and the more people learning how to advocate for this kind of change the more we all benefit.

The type of changes that will allow more Tiny Homes to populate our US soil include:

Tiny Homes on Wheels as Accessory Dwelling Units- creating a micro village type of opportunity
Pocket Neighborhoods located on marginalized land- Cities across the US have plenty of smaller lots that got discarded due to development that are simply collecting trash, weeds, etc. and these properties could have Tiny Homes as a pocket neighborhood
Planned Urban Developments- Plenty of properties could be rezoned to accommodate multiple Tiny Homes as Cottage Cluster Housing, just like our great grandparents were able to do in the 30's, 40's and 50's. Time to dust off the former ordinances and bring back this type of planning.
Tiny Home Villages- So many people desire to live in their own home but inside a community of like minded people they share common space with.

If you are eager to see your community, city, county or state legalize Tiny Homes as an ADU, or planned urban development, cluster cottage housing or a Tiny Home Village the best place to start is the...

Legalize Tiny Homes 2 Part Advocacy Training
Wednesday July 8th
5-6:30pm Pacific
Attendance $25

By joining on July 8th you will be part of a live Q&A with Dan Fitzpatrick, Lindsay Wood and Alexis Stephens with the Tiny Home Industry Association.

As a bonus you'll get a 1 year individual membership to the Tiny Home Industry Association which is working on behalf of its members to make Tiny Homes permissible as permanent housing all over US and Canada. Your membership will give you access to quarterly trainings, seminars or Q&A sessions.

To sign up for the Legalize Tiny Home 2 part advocacy training please click on the orange button below.

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