If you are heading toward retirement — or already enjoying the retired life — you may be thinking about downsizing your home. But besides the emotional component of cutting back on your belongings and living space, the real estate market and elevated home prices may be intimidating.
It’s true that interest rates remain high for mortgages at the same time that the inventory of affordable homes around the country is low, and yet in parts of the country where you might want to retire, investors are turning small family homes into rentals. Because of this and other real estate market challenges, in an “everything old is new again” trend, the tiny house movement — which rose in popularity in the late 1990s and aughts — is becoming one way to combat housing market challenges.
If you are curious about tiny houses, you’re not alone. A recent study found that 73% of Americans say they’d consider living in a tiny home. And it’s not a trend that’s just for millennials: Nearly 40% of tiny home owners are ages 50 and older, says simple-living blog the Tiny Life.
Even if you aren’t ready to commit to a smaller footprint, the right tiny home could still be a smart investment for your future self or your retirement budget. Here’s what you need to know about tiny homes and the more permanent accessory dwelling unit — and how to finance one.
The tiny house movement in mainstream America in part comes out of a backlash against the rise of McMansion-type housing and the need for economic freedom after the 2008 housing crisis and the recession that followed. For some tiny house enthusiasts, the draw is economical and environmental, backed by a desire to live with less consumption.
There’s no universal size that defines a tiny house. Some folks consider anything from 150 to 400 square feet a tiny home, while others call their 800- or 1,000-square-foot home “my tiny house.”
One thing fans may agree on is that tiny houses are much smaller than the median size of a new single-family home sold in 2023 — 2,286 square feet, according to the U.S. Census.
While tiny homes take many forms, from prefab construction to RV life, accessory dwelling units — usually small second homes built on land with a primary residence — are also popular. Three of the most popular states for downsizing into tiny homes include Vermont, Wyoming and Alaska, but tiny home communities for adults ages 50+ are growing nationwide and can be found in Colorado, Florida and Texas.
Rising alongside tiny homes in popularity are accessory dwelling units — commonly called ADUs. ADUs are secondary, usually smaller residences on a piece of property with a primary home. They typically need separate entrances and amenities from the primary home to qualify as an ADU.
These permanent structures are fixed, not mobile, but in some cases they can resemble (or even be) tiny homes, which means they offer some of the same affordability factors as tiny houses.
In a recent AARP survey, 60% of adults ages 50 and older said they’d consider living in an accessory dwelling unit, and 62% said they would consider building an ADU on their property for a loved one who needed care or a family member or friend who needed a home.
These “tiny homes” are often affordable for downsizers who want to age in place, be near family and spend less on housing. “The benefits for seniors moving to an ADU are overwhelming, to be honest,” says real estate agent Erin Hybart, an affordable housing advocate and self-professed “ADU and tiny house enthusiast.”
“I love ADUs because they offer seniors a brilliant blend of affordability and independence. ADUs are typically more cost effective than traditional homes so that they can reduce housing expenses and maintenance costs,” Hybart says, adding that as the cost of elder care and nursing homes are rising, life in an ADU near family can help save money.
Hybart’s parents are embracing smaller living by moving into an 800-square-foot home (less than half the size of the family home) on her sister’s property. The reasons include saving money and being near family as they grow older.
“Selling their big house and moving into a smaller place will free up some of their income,” shares Hybart, who has a YouTube channel focused on tiny homes and ADUs. “[My parents] have lived all their lives waiting on the next paycheck and juggling credit cards to make ends meet. Having some of that stress finally off their plate gives them a sense of relief.” She says proximity to family was a factor too, which would become especially important if one parent were to die before the other.
Dig deeper: I'm a financial expert: What to consider when downsizing for retirement (and why it might not make sense)
Among the top reasons a tiny house can be a solid option for retirement is the low cost of construction and maintenance, among other benefits to consider.
Tiny homes and ADUs can be constructed or renovated with designs that allow for aging in place. Grab bars, lower cabinets, accessible storage and one-level living can make a tiny home easier to manage over time.
Adding wider doorways for wheelchairs or creating small outdoor greenspaces rather than a large lawn that requires maintenance are all ways to help people age in place.
By building a tiny home or ADU, you can create a “beautiful living space without the challenges and expenses of owning a primary residence or moving to a senior care facility,” shares Zander Diamont, cofounder of Minimal Living Concepts, an Arizona builder specializing in ADUs.
“They are typically one level, eliminating the need to navigate stairs. When built right, they are extremely functional, providing all the necessary space for a comfortable life without the extra maintenance of a larger property — a true lock-and-leave lifestyle.”
A tiny house could run anywhere from $30,000 to $70,000 or more, according to data from Home Guides, depending on the type of home, amenities and square footage. Considering the high costs of housing, a tiny home community or ADU on family property can be more affordable than retirement homes and independent living communities, which are out of reach for many older adults. And you can typically slash your utility bills with less space for cooling and heating.
“For seniors, purchasing a tiny home or ADU offers several financial benefits. First, these units often cost less than traditional homes, leading to lower upfront expenses and potential savings on utilities due to their smaller size,” says Sean Caldwell, founder of Forever American Mortgage.
In addition, if you build an ADU on your primary property, it will likely improve your home and property value when it is time for you or your heirs to sell it — maybe even up to 30%.
Trading down to a smaller home that costs less could also mean more money in your pocket after you sell it, if you’ve accrued significant equity over the years. The more equity in a home, the more cash you recoup at the time of the sale. You can use that cash, in turn, to buy a tiny house and pocket whatever you have left.
A tiny house or ADU can also become a moneymaker in retirement because some retirees, says Hybart, opt to rent out their larger primary homes while relocating to a smaller one to supplement their retirement income.
In addition to the financial benefits, there are other other reasons to downsize to a smaller home. Living in a tiny home or ADU on family property can help older adults retain autonomy while still having access to the warmth and care of family. This can be particularly helpful as you age in place or eventually need more care or supervision.
Hybart says there is a trend of older parents building and moving into an ADU or tiny home on their property while their adult children take over the main house. “This arrangement keeps loved ones close, allowing grandparents to be more involved in their grandchildren's lives and fostering family support. This proximity offers emotional security and practical assistance without sacrificing privacy,” says Hybart.
Diamont agrees, saying the majority of his clients building ADUs are doing so for aging parents: “The cost is a fraction of many senior living alternatives. Seniors appreciate being on the same property as their children and grandchildren but with their own private space and no shared walls.”
Like any type of housing, tiny living isn’t for everyone. Depending on your budget, needs and lifestyle, upfront and relocating costs could outweigh the savings.
While some tiny homes are affordable, the more amenities and special construction you want, the higher the price tag. And you can’t pay for a tiny home with a traditional mortgage, nor do tiny homes appreciate over time like a traditional home.
You can finance a small ADU with more traditional financing, but you may have to negotiate with family members on its purchase because the mortgage on an ADU usually must be in the name of the person who owns the primary home.
If you don’t already own property, you might need to budget for buying or renting a spot on which you plan to set up your tiny house.
Due to zoning regulations and the need for utility hookups, you may be limited as to where you can live.
If you want a tiny home on wheels and you don’t own property, you’ll need to make sure your car or truck can move it safely to a property you can rent or find places to set up camp.
When considering a tiny home, think about your mobility within it. What works for you at age 60 — say, a ladder and a sleeping loft, which are common in traditional tiny homes — may not work as well at 75. If your tiny home is on wheels and driving becomes difficult, you may not be able to easily move to other locations when you need to.
Also, if you plan on having guests, like grandchildren and other family members, you may not have the space to host them.
Last, tiny living can mean serious downsizing of cherished items; if you aren’t ready to get rid of your belongings, you may have to pay for a storage unit.
When you downsize from your family home or look to age in place with a tiny home, you may find yourself moving away from your community, including familiar healthcare facilities, social groups and recreational environments.
If you’re building a tiny home in a new state or an ADU on a family property, you should plan as you would with any move. Ask yourself the following questions to ensure your decision matches your long-term plans.
Make sure your new home is near the medical services you currently need or will need as you age. Learn where the local hospitals and medical centers are located and know how to get to them.
If you choose to live in a small ADU, you could be sharing a property with a family member. Discussing ahead of time with your loved ones how much or how little time you plan to spend together can help manage expectations.
A tiny home built for aging in place may look different from a tiny home built for a younger person. Space-saving designs and features — like Murphy beds and easy-to-reach storage — should be simple to operate and safe to use. You’ll want to be able to move around your tiny home, which may mean adding a little more floor space or square footage.
If you’re interested in downsizing, going tiny can make financial sense. “Downsizing to an ADU or tiny house can significantly reduce living expenses,” says Kenneth Yim, managing partner at pre-fab real estate company Owncondo. “These smaller homes typically cost less to build, maintain and heat/cool than traditional houses, which can free up money for other retirement living and potential healthcare needs.”
Yim believes that ADUs and tiny homes are affordable options for aging in place. “While a tiny home or ADU is a significant investment, it's often less than the cost of assisted living facilities or nursing homes in the long run,” he says. “Many cities are changing zoning laws to make it easier to build ADUs, recognizing their potential to address housing shortages and support aging in place. Always check local regulations before proceeding with such a project.”
Unfortunately, financing a tiny house isn’t as easy as applying for a mortgage, but you have several options when paying for the construction of your tiny home.
Personal loan. You will need very good to excellent credit to finance your tiny home. Some digital lenders offer personal loans specifically designed to purchase a tiny home. For example, LightStream advertises a tiny home loan for up to $100,000 with a seven-year repayment plan.
RV loan. If your tiny home can be certified by the RV Industry Association, a bank, credit union or online lender might be willing to offer financing through an RV loan.
HELOC or home equity loan. If you’ve built up enough equity in your primary home, you can tap into your equity to build a tiny house. You can also use equity to pay for an ADU.
Builder financing. If your home is designed and constructed by a tiny home builder, ask about financing available through their company or recommended lenders. For example, Mustard Seed Tiny Homes offers financing for its pre-fab homes.
Grants and tax subsidies. Depending on where you live, you may be eligible for financial assistance if you meet eligibility requirements. For instance, California’s CalHFA provides funding to low-income homeowners interested in building an ADU. Call your state’s housing agency to learn about available programs.
When it comes to an ADU, even one that resembles a tiny home, Caldwell says that “most are financed with a second mortgage,” like a home equity loan or HELOC. “This setup gives property owners the flexibility to use the ADU in different ways, like renting it out for extra income, housing family members or hosting guests.”
Dig deeper: Personal loan vs. home equity loan: Which is the best fit for your financing?
There are three main ways to buy or build a tiny home:
Buy plans online or from a tiny home architect and hire a contractor to build it.
Purchase one built specific to your needs or buy a DIY kit for delivery from a site like Amazon.
Create, convert or add to an existing structure — like a garage, carriage house or other building on your property — into a liveable tiny home.
Because they aren’t fixed to a property, platforms are popping up designed to connect aspiring tiny home dwellers to “used” structures — to buy or rent — such as Tiny House Listings and Tiny Home Marketplace, offering a wide array of information about tiny home communities.
It can be cheaper to build a tiny home from scratch or from plans than to buy a prebuilt home, but you’ll want to make sure you have the skills or a trusted team to rely on.
The cost of a tiny house depends on its design, size and construction — anywhere from $30,000 to $70,000 on average, according to HomeGuide, with customizations bound to increase total costs. It’s possible to buy a premade tiny home for under $10,000 from a retailer like Amazon or Costco, though it’s likely to also need customization — including utilities and hookups — for everyday living.
The cost of an accessory dwelling unit can range from $150 to $300 per square foot and all the way up to $600 per square foot, says Yim. “The average-sized ADU is between 600 and 1,200 square feet, but your building's size may vary depending on personal preferences.”
Tiny Homes in America: Latest Data on Alternative Housing Movement, IPX1031. Accessed July 11, 2024.
Despite Pandemic, Percentage of Older Adults Who Want to Age in Place Stays Steady, AARP. Accessed July 11, 2024.
Tiny House Infographic, The Tiny life. Accessed July 11, 2024.
Highlights of 2023 Characteristics of New Housing, U.S. Census. Accessed July 11, 2024.
How much does a tiny house cost? HomeGuide. Accessed July 11, 2024.
Maya Dollarhide is a journalist who has spent the last decade covering personal finance, from household budgets to homebuying. She's a regular contributor to Time Stamped, Investopedia and Bankrate. Her expertise has also been featured on CNN, New York Daily News, Yahoo Finance, MarketWatch, Lending Tree and Student Loan Hero.
