What's Better: Remodel My Garage or Replace It With Prefab Tiny House?

Weighing the pros and cons of remodeling a garage versus demolishing it in favor of a tiny house constructed off-site.

Question

I want to make better use of the space my detached garage is located on. The garage has fallen into disrepair and is just used for storing junk. I have narrowed my choices to either remodeling the garage or replacing it with a prefabricated tiny house on wheels. In either case, I want to rent the new space to a residential tenant. Which is better?

Answer

Which option is better will depend on a number of factors. In cases like this, those factors can include the health of the local real estate market (including the rental market), construction costs (if remodeling), purchase price (if buying a tiny house), and what, if any, return on investment you are looking for.

Additionally, local zoning ordinances and building codes what building is permitted.

Some benefits of remodeling the garage include the following:

  • Less onerous building and zoning requirements. Building and zoning requirements for converting a garage to an accessory dwelling unit (“ADU”) are often less burdensome than getting approval to use a tiny house as a dwelling. There are a couple reasons for this. First, because a garage conversion will use the footprint and shell of an existing building, obtaining a building permit can be more straightforward than a permit for a new building. Second, while not all residential areas permit ADUs, it is more likely that an ADU will be approved as part of a garage remodel than as a tiny house. Tiny houses have yet to find widespread acceptance for residential use among zoning and building authorities, so in many locations, residential use of tiny houses is prohibited.
  • Return on investment. An ADU is part of the real property it is built on and will typically add to your resale value if well constructed. On the other hand, a tiny house, like a car, will depreciate in value over time. And because tiny houses are personal property (not real property), they will not add any value to the real property (although you can always sell a tiny house separately). So while the rental income from either an ADU or tiny house may end up paying for the investment in the long term, garage remodels typically hold their value longer.
  • Financing opportunities. People looking to finance a remodel can readily obtain a home remodel or home equity loan. Since a tiny house on wheels is personal property, a loan for a tiny house will be more expensive; the interest rates will likely be higher and the repayment term shorter.
  • Livable size. Some tenants may not want to live in a tiny house. A 900-square-foot ADU is more traditional and will be more popular with some potential tenants than a 400-square-foot (or smaller) tiny house. Although tiny houses have become popular in recent years, many people are still not willing to downsize that much. It may be easier to find a tenant for the garage conversion (and charge more rent for the larger size).

Some benefits of demolishing the detached garage and buying a prefabricated tiny house include:

  • Lower price. A prefabricated tiny house can cost you less overall than a garage remodel. Additionally, a prefabricated tiny house should be easier to budget for. With a remodel, it is possible that the condition of the old garage is worse than anticipated, and only after beginning the remodel will it be possible to know the full extent of the work (and money) necessary. On the other hand, the price of the prefabricated tiny house will be more or less fixed once it is ordered. Of course there will be other charges, like delivery, seup, and permitting, but most of those can be anticipated in advance and budgeted for.
  • Long-term flexibility. A tiny house on wheels allows the owner to be flexible. For example, if you have a small backyard and are not sure you want an ADU taking up most of the space, or think long term you might not even want a tiny house in the back, a tiny house on wheels can be sold and removed relatively easily. A garage remodel, on the other hand, cannot be resold or moved.
  • Project completion time. A tiny house can be delivered, set up, and lived in quicker than a garage conversion, and with less dust, noise, and mess. For example, if the tiny house you want is already constructed, it is just a matter of having it delivered and hooked up. Even if you order a new tiny house, some companies tout the short build time. Converting a garage into an ADU can take a long time depending on how much work is required and whether you plan to do it yourself or hire a contractor.
  • Low utility expenses. Monthly utility expenses for a tiny house, due to its small size, will be less than with a garage converted to an ADU.
  • Small footprint. A tiny house will take up less space in your yard than a garage remodel. This leaves more room for outdoor living and activities.

In a case like yours, the first thing to do is confirm what uses are lawful. If you do not, you may find after you have started the project that either your garage conversion or the tiny house is illegal.

Review the building code and zoning ordinance, talk to staff in the local planning department, and if you have questions, talk to a land use or real estate attorney. And, talking to a local real estate expert about the local rental market will help you understand what type of living space will be most popular with tenants, as well as the rental rates you will be able to charge.

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