• Matt Crandell

The Math Behind Short-Term Renting Your Tiny Home

By Matt Crandell


In today’s economy finding investments with good and consistent returns is really difficult. If you want safety you can put your money in a savings account, but be prepared to earn a rate substantially lower than the current rate of inflation. In effect you’re losing money. You can put money in the market, but it goes without saying that the market could be poised for a significant drop after years of substantial gains. Sales of existing homes appears to be at it’s peak and the seller's market is likely to shift to a buyers market within a year. With the significant inflation we’re experiencing right now, and the high price of homes, it’s very likely that new home buyers and existing renters will have to remain renters. Rates are likely to increase. For those with a substantial amount of available cash it might be time to consider buying rental properties. In a reasonable market owning a $300,000 rental home outright could provide a consistent additional income of $1,300 per month net of expenses. If a mortgage is required, with good credit and 20% down, that $1,300 per month could cover the mortgage and you could be building equity for your retirement.



I’d like to offer an interesting alternative. You may not be aware, but a significant number of tiny home buyers have figured it out. At least 50% of our buyers aren’t buying Homestead Tiny Houses to live in, or even as personal vacation homes. They’re renting them out short-term with AirBNB. They’re doing it because the math works. Let me explain how it’s done.


I’m going to use a fictional couple named Susan and Tony to demonstrate the principles. Let’s assume Susan and Tony are able to acquire a one acre piece of property for $20,000 in a rather scenic rural area 25 miles outside of a medium size metropolitan area like Omaha. We’ll assume it’s inside a small incorporated city, although it could just as easily be in an unincorporated area subject to county governance. I’m going to skip the important discussion about zoning and circle back around to that once I’ve established that the math works.


Let’s also assume that Susan and Tony have $60,000 to establish their AirBNB business. Thus far they have spent $20,000 of that money to acquire the property on which they will place their tiny rental home. Next up they will need to do some site prep. Assuming they have selected a property with water and electricity available from the road, and anticipate they will need to add septic, a gravel road and a gravel pad for the house, we can project that they will need anywhere from $10,000 to $15,000 to make these improvements. As an example, that’s $3,000 to grade and lay a gravel driveway and pad, $4,000 for the installation of a septic system, $1,500 to tap into the water line and run it to a single spigot, and $3,000 to add a meter panel and 50 amp service for the tiny home. Additional items could include landscaping, irrigation, landscape lighting and a small deck. Using $15,000 as our cost of improvements, that now leaves them $25,000 from their original investment for purchasing and staging their tiny rental home.


Our 24 foot Aspen model is a perfect tiny AirBNB model with an entry price of $62,950. Assuming $3,000 for upgrades like the instantaneous hot water heater and range/oven, Susan and Tony could expect to spend approximately $73,000 for their tiny home including upgrades, loan origination fees, taxes and delivery. If they have good credit, they can work with our mortgage lender and expect to pay 30% down, or $22,000, on a 15 year mortgage with a monthly payment of approximately $430. With the remaining $3,000 of initial capital, Susan and Tony can stage the home with mattresses, a couch, TV, microwave, shades and curtains, pictures and curios, linens, pots and pans, dishes and utensils. Their fully outfitted tiny home and property has required a $60,000 investment to be rental ready.


So, how much money can a tiny home generate as an AirBNB? We actually have a development company that has built a short term tiny house rental community in Williston, Florida. That’s a central Florida location within 45 minutes of Florida’s Nature Coast, 20 minutes from Gainesville, and 25 minutes from Ocala. The bulk of our customers come to stay for long weekends exploring the nearby springs or for the numerous equestrian facilities that are in the region. Our average occupancy rate during the 2021 thus far is about 61%. Our average stay is priced at $90 per night. We charge a $45 cleaning fee upon checkout. Our average revenue per home per month is approximately $2,000. That’s after AirBNB fees and taxes.


Let’s do the math on Susan and Tony’s tiny house rental:


If Susan and Tony rent their house for $80 per night with a $40 cleaning fee (which is about the industry standard), and they maintained the same 61% occupancy rate we get in the city of Williston, and if they had a similar tax structure to central Florida’s, they would generate approximately $21,333 in annual revenue or $1,778 monthly on their tiny house AirBNB. At 365 rentable days and 61% occupancy, at an average stay of 2 days, you can assume they would have to clean the unit 111 times. If they hired someone else to clean they could expect to spend $30 per cleaning, which takes about 30 minutes and includes both labor and supplies. That’s $3,330 for a year of cleanings. They could expect to pay $125 per month for utilities, $50 per month in maintenance (like paint touch ups), and perhaps another $50 per month for insurance. AirBNB actually provides a million dollars of additional coverage with each rental. With their mortgage included, the total monthly expense for their little business would be approximately $932.50. If they did their own cleaning the monthly expense would go down to $655, thus their income could be as high as $1,123 per month if they handle the cleanings.


Let’s do a cash only comparison between the $300,000 house for long term rental versus the $70,000 tiny house for short term rental.


A few of things to note:


  1. 61% occupancy is not as high as you can expect, especially if your tiny home is near a big city or popular vacation spot. We have had customers that are getting up to 80% occupancy near cities where Millennials work.

  2. $80 per night for a 2 night stay will bring your customers' cost in at less than a standard room from the 2 biggest US hotel chains.

  3. Tiny homes located near popular locations can rent for as much as $200 per night.

  4. AirBNB is your marketing arm. In fact, AirBNB considers a tiny home a “Unique Listing” and they are displayed in a special area of the booking site.


A bit about zoning


Every city and county is different. Some are putting together zoning specifically for tiny houses. Some let you put them on your existing property. Some let you put tiny homes on property designated as an RV park. Some let you establish a “motor lodge” on commercial property. If you can’t find a zoning board or planning department that will work with you in the cities you are looking at, consider asking local RV resorts or campgrounds if they would allow you to rent a slip for your unit. There are also a number of tiny house communities already operating all over the country. Just do a search online for “tiny house communities” and you’ll see numerous offerings. Considering the return can be 3 times what you’ll get from a rental home, it’s worth making a few phone calls or visiting a couple city halls. Just ask for someone in the zoning or planning departments. Most cities, even small ones, have a city planner that will be happy to speak with you. The first city planner I visited actually brought a book about tiny house developments to our initial meeting and then worked side by side with our team to make our tiny resort a reality. Almost everyone in the entire community was behind us and even the naysayers came around once the project was completed. For the initial investment equivalent to a 4,000 square foot rental home in Atlanta, we were able to buy a small parcel of commercial land and build an entire resort with 7 tiny homes, each with their own parking spot, a tiny coffee shop, and some very nice common areas.


If you’re an entrepreneur, and you're interested in speaking to someone here at Homestead about our tiny homes, please contact our sales department at 470-448-3480 or www.homesteadtinyhouse.com.




Short Term Renting Your Tiny Home
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