A Tiny Home Investment

Notice – this article about a tiny home investment is longer than my usual posts but there is much valuable information for you.

Buying a tiny home provides for so many opportunities. However, for purposes of this article the focus will be on creating your investment portfolio using the tiny home model.

Why a Tiny Home?

One of the main, if not the main, considerations for a tiny home investment property is price and purchase costs as it relates to return on investment, ROI. For the individual who wants to get into real estate investing, in its simplest form as a solopreneur, ROI is defined as an approximate measure of an investment’s profitability and is presented as a percentage.

The simplest formula to determine ROI is net return on investment divided by cost of investment. Your net return is calculated by taking your gross income less your expenses. And for purposes of this article we will use real estate investment examples only.

The return on investment calculation will most likely yield a ratio of less than one. To show as a percentage you multiply the results of your division by 100. Percentage values are generally easier to understand than a ratio value. When it is a positive cash flow, the results will be positive. Alternatively if the results are negative you need to do something to turn it around. Unless you are looking for tax write offs you will always want a positive return a positive cash flow.

As a beginner investor many times the objective is to have a positive cash flow. And oftentimes starting with one rental unit leads to two, then 5, then more. This continues until you are able to live 100% of the time on the income from your rentals. This is known as passive income.

Passive Income Opportunity

With rental units in your portfolio the ability to live off your investments is very real. Imagine the kind of life you could have if you don’t have to punch a clock if you don’t have to be on the job Monday to Friday 9:00 to 5:00. Your schedule is mostly your own, especially if you’ve hired a property manager to oversee your properties.

One property manager works very well for your properties that are in the same geographical area. For a variety of geographical areas, you will need multiple property managers. And, here’s a perk for you…in some areas of the world if you need to travel to meet with your property managers as part of your business you have tax write offs. You reduce your tax load and can take vacations at the same time.

Why Should You?

If you are a young person or a young couple, starting with an entry level rental is an ideal way to start building your rental income / passive income portfolio. Find a property you like and do your calculations. If you are mortgaging the rental unit your mortgage payments and carrying costs are factored into the total cost. If you pay fully for the unit then the cost is only factored in for the first year because after the first year the rental unit you own the unit outright. And this is where the true value of passive income reveals itself.

Here’s a real life example of what a fully owned unit ROI would look like:

Purchase price plus closing costs = $130,000

Price per night = $85

Occupancy rate = 100%

Gross profit = $ 31,025

Total expenses = $7,300

Net profit =$23,725

Using the ROI formula presented earlier with net return which is your profit divided by the cost of your investment you come up with

[23725 divided by 130,000] 100 = 18.25% return on investment

So the second year your expenses will drop because you have no mortgage payments and this is where the numbers grow.

More Good Reasons

Now, yes, these numbers can be manipulated. For example, the nightly rate can be higher or lower. The occupancy rate will be less than 100%. This tiny home investment model doesn’t account for the costs associated with using a property manager. So, you can see there is no one-size-fits-all. Find one or more units in a destination with good and increasing tourist numbers and in a place where you want to visit and start your passive income business.

Now to get back to the original premise of this article – a tiny home investment opportunity. Having a tiny home investment as your first investment property could be a good move. And here’s why.

Tiny homes cost much less than a full-size home mainly because of their size. Another reason for it to be a good opportunity is because their lower price tag also represents a lower barrier to entry into this potentially lucrative business market. This means it’s easier for younger people, just starting their careers, to start on the road to passive income.

When Should You?

You don’t have to wait until you are established which could take years.

You don’t have to wait until the kids are grown and gone.

And you certainly don’t have to wait until your mortgage is paid.

Here at Princess Realty Belize we’re partnering with Vanilla Bean Inn which is a tiny home community. We have units already built or you can do a payment install for a unit sometime in the future. Check back often as changes are happening regularly as we continue building out the community.