If you rent your living space right now, would you really save money in the long run by building a small home about the same size as your current apartment?
The answer is yes — if you’re clever, scrappy, and up for an adventure. Here’s how you do it.
Make home ownership more affordable than renting
If you’re going to build your own house, you have to first compare the cost of home ownership with renting.
The cool thing about renting is that it’s easy. Real easy. Owning a house does come with a lot more recurring expenses and responsibilities (https://www.fool.com/retirement/2019/05/04/owning-a-home-costs-the-average-american-13153-a-y.aspx), all hassles that renters pay the landlord to take care of for them.
You should thoroughly familiarize yourself with these costs in your area before you make any purchase decisions. But keep in mind – the information available is typically for national averages. We’re not talking about a McMansion in California, or a trailer in Georgia. We’re talking about a sensibly small house in your area.
So how do you keep both your cost of purchase (or build) and your cost of ownership down, to levels that are competitive with the price of rent?
Determine your budget
Everyone has a favorite formula for calculating how much you should spend on a house. Here’s mine.
First, calculate how much you spend on housing as a renter each year. That’s your minimum construction budget. It really doesn’t have to get much more complicated than that. We get into trouble with housing when we buy a home that takes half a lifetime to pay for.
Think about it – if you buy a $500,000 home when you’re forty years old, there’s a good chance you could still be paying for it when you’re wearing diapers.
So let’s say you spend $700 a month on rent and all utilities. $700 x 12 months = $8,400. It is entirely possible to build a very small house for $8,400 if you do the work yourself.
Even if the yearly cost of ownership of your new house is 20% of the build cost each year, that’s $1,680 in expenses instead of $8,400. Your house will have paid for itself in barely over a year.
You can put the money you save toward paying off debt, starting a business, or a larger, more comfortable house in a few years.
Now, that’s an extreme example, but it is possible to build an affordable tiny house. The constraints on money help us do amazing things. It’s up to you to decide what you want to spend.
>> Learn how to list and calculate your monthly housing expenses
Location, location, location
It costs slightly more (just slightly) to purchase a home or God forbid, land, in New York City than it does about 60 miles deep into the New Mexico scrub desert. You can choose to live out in the middle of nowhere, and that sure would reduce your cost of living.
But there are deals everywhere, in every region. So if you don’t feel like searching the world over for the absolute cheapest land, then uprooting your entire life to live there, turn your attention to the next two biggest factors affecting the cost of home ownership: how big your living space is, and whether or not you pay someone else to build it.
Small home, tiny bills
Smaller houses cost less to build and maintain, period. Construction materials and labor; property taxes and municipal fees; utility bills and repairs all shrink with the size of the home.
Nobody ever said the American dream had to include a McMansion, unless you’ve got an enormous McFamily to fill it with a hundred McGrandkiddos, or whatever. For most of human history, sharing our roof with six siblings, grandma, the chickens, a goat or two, and the pigs was dream enough.
I could do without sleeping with the pigs and my siblings myself, but honestly, I wouldn’t mind the chickens. Chickens are a lot of fun to watch. Plus, they turn kitchen scraps into eggs! Magic.
Anyway – we should all be happy buying a smaller home. Or better yet, building it ourselves.
Buying or building
Buying a home or paying a contractor to build a home for you will cost you more money, but less time. Building your own home will cost you more time, but less money. A lot less money.
I’m a contractor myself, and I can tell you (in case you weren’t aware) that we like to get paid. And for what? I can’t tell you how many professionals I know, including me, who’ve learned half their trade on YouTube.
Contractors cost a lot, and much of the work we do is within the reach of a handy do-it-yourselfer—like you, perhaps.
Even if you’ve never held a hammer, if you have more time than money, a little ambition, and the drive to learn, then building your own home might be a great financial investment, not to mention a lot of fun.
Just don’t build a big one. And consider not putting the thing on wheels.
Small home, not tiny house (on wheels)
The biggest factor that makes any kind of home ownership worth it in the long run in the accumulation of equity — the fact that your home will likely appreciate in value over time, meaning you can sell it for considerably more than you bought it for.
There’s only one big problem with that idea: houses almost always depreciate, because over time they deteriorate through normal wear and tear.
In real estate, it’s the land that holds and (hopefully) gains value.
That’s why building a tiny house on a trailer, completely unattached to a static location, might be a great idea if you’re into a nomadic lifestyle, but it’s not a great real estate investment—because it’s not real estate. It’s a glorified RV, and it deteriorates and depreciates over time just like any other piece of equipment.
If you are looking at home ownership as a financial investment to build equity, building a mobile tiny house is likely not a great bet. Building a small home on a piece of property, so long as that property is or will become desirable, is a better idea.
You also may have a difficult time getting a construction loan for a tiny house for just that reason – many lenders still see tiny houses as a weird fad, for one thing, but they’re also wary of a depreciating asset.
Plus I imagine a lot of bankers are still half-stoned with avaricious glee from the tail end of the McMansion building boom in this country, and signing off on the puny amortization charts for what they see as a $10,000 RV just isn’t that great a buzz in comparison. Figures.
Cheap land (but not too cheap)
So if you need decent land to make building your own small home financially feasible in the long run, how do you go about finding it?
Homestead.org has an excellent article on finding cheap rural land especially land that is not listed for sale.
In cities, check city websites (or call and ask a human being) for a section on vacant lot sales. A few cities and small towns are even still giving away land for free or below market value, in return for a promise to develop the lot.
Auction.com is a huge marketplace for bank-owned and foreclosure deals where you can find land for dirt cheap. You can also call up local realtors or developers and ask them where to look for the best deals on land, especially auctions.
But beware – make sure land obtained from foreclosures do not have liens, past due taxes or any other hidden liabilities attached. And remember, besides hidden fees, there is usually a reason things are cheap.
Some time ago, I very nearly bought a parcel of land in a city in Upstate New York for a thousand bucks from an auction site, but wound up changing my mind. I told a friend of mine who happened to be a native of the area about it, and he told me I was wise not to build in a neighborhood “where the bullets fly.”
The screaming neighbors and the bombed-out factory around the corner didn’t bother me – but it wouldn’t have been great for my home’s resale value.
Look for land that’s a great value, rather than dangerously cheap.
Found materials and free labor
So now you have a piece of land. You’re determined to build small, and to build yourself. Now you need something to build it with.
If you buy land in the country, you should be able to harvest your own stone, wood or earth from the fields and forests. Why not? Everybody did that for 99% of human history before the industrial age.
Or if you buy land in the city, you can harvest a great wealth of materials from the dumpsters, Craigslist, and reclaimed building supply stores. Learn where the contractors in your area live. They give out the best goodies on garbage day.
Scavenging is a skill (Tiny House Build has a great article on this), one that improves with practice. For best results, obtain your land first; buy a cheap pick-up truck; then keep your eyes and ears open and collect materials over time as they pop-up.
On the topic of scavenging – labor can be free too!
In days gone by, building was a community endeavor that knit people together. Everybody built their own house, and their neighbors’ houses too. But today, building your own house has become so rare that anybody attempting to build any kind of house is automatically cool, daring, maybe even a little weirdly edgy.
Building your own house is an adventure undertaken by an adventurous person (you). People like to be involved in adventures.
So share about your project often and invite your friends in on the fun. If you have kids, press them into service under the guise of providing them with “invaluable life experience.” Be sure to reward anyone who does come to help with a safe work environment, free construction training, and a belly full of hot food at the end of the day.
