AdvocacyReal Estate InvestingThought Leadership 8 mins read

Boom or Bust? The Tiny House Vacation Rentals Phenomenon

By June 7, 2022 June 8th, 2022 No Comments
featured image for tiny house vacation rental post

The trend for tiny house vacation rentals shows no sign of slowing—yet. According to Airbnb, demand for tiny house rentals rose by 85% from 2019 to 2020. From a sustainability and carbon footprint point of view, tiny houses make complete sense. But is this just an over-hyped fad for the Instagram generation, or are they a realistic longer-term income stream for the vacation rental business?

Environmental sustainability in the vacation rental business

Modern vacationers look for environmental sustainability as part of an overall trend. As per National Geographic, renters are increasingly interested in staying closer to home in eco-hotels or rentals, and carbon offsetting. Tiny house vacation rentals offer the perfect solution to this demand by:

  • Offering properties that use less material in construction.
  • Being energy efficient if built well, with smaller spaces to heat or cool.
  • Using renewable materials in construction, like wooden buildings.

The cost savings benefits of tiny houses for vacation rentals

These savings can be passed on to guests as amenities like welcome baskets or eco-friendly products. In turn you’re much more likely to receive 5-star reviews and receive bookings through personal recommendations.

Other benefits of a tiny house vacation rental property

Lower upfront costs is one thing. There are other benefits to operating tiny houses as vacation rental properties:

  • Higher ADR: Since they are cheaper to furnish, you can buy high-end or luxury furniture and finishes. You can then increase your nightly rate and increase your profits.
  • Lower operating costs: Your cleaning staff has a smaller square footage to clean and turnover. On top of that, you don’t have to heat and cool a full-size property.
  • Densify and centralize: More tiny houses can be built on the same plot of land. This has tons of benefits. Your cleaning crews don’t have to travel large distances. You can also offer amenities like a communal pool, well-equipped gym, lake or beachfront, etc that would otherwise be cost-prohibitive.
  • Fewer bad guests: Due to their small size, you won’t run the risk of bad guests booking a tiny house to run an illegal party, conduct fraudulent or criminal activity, or invite undeclared guests. There’s just not enough space for it!
  • Cheaper tech integration: Tiny houses are cheaper to integrate with smart tech. They require fewer devices than larger properties. For example, a single smart thermostat or smart speaker is enough to service the entire property.

It’s still a big call (for a tiny house)

Not every guest books a tiny house for environmental reasons. Some might be thinking about building a tiny property for themselves and want a taste of what they’re like. Maybe they’re just keeping up with the latest trends. Others might book a tiny house because they’re all the rage and want to be in on the trend. The point is, there are many reasons why they might be popular now, but it’s important to think beyond the trend and into the longer term.

Tiny houses are cheaper to build than traditional properties, but they’re still going to cost between $30–60,000 each. That’s a substantial investment for any owner, especially a vacation rental business that may be building several of them. To make sure you maximize your return on tiny house vacation rentals, getting the marketing right is essential.

Tiny house vacation rental marketing 101

For the listing itself, it’s important to focus on explaining not just the environmental benefits of tiny house vacation rentals themselves, but your whole sustainability philosophy. Customers are more likely to buy in if they believe that you’re doing more than just using green marketing phrases. They want to know that you’ve made a serious commitment to environmental sustainability in your vacation rental business.

One way to do that is to offset your carbon emissions. This not only makes a positive environmental impact, it’s an important marketing vertical and can make a real difference to your bottom line. Coupled with dynamic pricing, you can really boost revenue and decrease vacancies.

As for distribution, it’s essential to list on all the major channels like Airbnb, Vrbo, and HomeToGo. The main vacation rental business distribution channels receive millions of site visits per month. So by having a presence on all these sites, you’ll maximize your chances of putting your niche property in front of the right potential guest. In the end it’s a numbers game: the more potential chances you give your properties a chance to book, the higher the likelihood that’ll happen.

But it’s not just about huge numbers—you also have to list your tiny houses on websites frequently visited by eco-tourists. For that, you’ll need a Channel Manager that integrates into your Property Management Software (PMSs).

Make things easy: integrate a Channel Manager

If you invest in tiny home vacation rentals, paying the extra monthly expense for a Channel Manager will be a good return on investment. That’s because most PMSs allow you to list on the major listing sites and OTAs with millions of monthly visitors, but not the niche ones with fewer but extremely loyal visitors. It’s on these niche sites that you’ll find potential guests most likely to be willing to pay more for a tiny house. Not only that, those smaller sites also have less competition. If you apply the best practices for popping up on the first page of Airbnb, you’ll do well on niche listing sites.

A vacation rental business handling multiple reservations from a wide range of marketing platforms—sounds like a recipe for double bookings and other problems, right? The right Property Management Platform is the answer. Philadelphia-based Urhip came to Hostfully for Property Management Software that could handle their daily operations and multi-channel distribution at the same time.

In general, by integrating your PMS with a Channel Manager, you’ll get the following results:

  • Lower vacancy rates with extra visibility and a bigger potential client pool.
  • Bookings from multiple sources come through the same portal.
  • Experimentation with different descriptions and marketing strategies across the different channels.
  • Average Daily Rate discovery without increasing vacancies.

Tiny house vacation rentals’ market durability

Of course, even if you get the marketing right, utilize a Channel Manager with your PMS, and capitalize on what’s popular right now, you still need to keep a close eye on market trends. Hostfully reports on the latest in vacation rentals in the monthly Future Bookings Report, helping you capitalize on shifting trends. You can also use services like AirDNA, AllTheRooms, and Key Data to get unique insights into your local markets

So if you move into the tiny house vacation rentals area of the market, how do these properties stack up if and when tastes change? What about if something completely unforeseeable, like the COVID-19 pandemic, disrupts the market completely? It depends on the type of property, but as we’ll see below you should always apply real estate best-practices.

The tiny house vs micro cottage value proposition

If the current popularity of tiny house vacation rentals proves to be a passing fad, it’s the type of property that’s going to determine how you come out of it. A mobile home, for example, will depreciate in value at around 3.5% per year. So a home bought for $50,000 will be worth $41,000 six years later. And good luck selling the tiny house if it was built on a trailer that hasn’t moved in a few years.

On the other hand, a micro cottage built on a real foundation is real estate, not personal property. It’s an asset that can always be resold at market value later, if you decide to change your business model. The right house in the right location may even offer a capital gain, after taking rental income from the property while tiny houses were in demand for vacations. In the end, a micro cottage can be marketed for vacations as a tiny house. So you get the benefits of resale and marketability.

Tiny houses are a niche real estate market, making them a risky investment if profit from their sale is your ultimate goal. Costs per square foot can actually be higher in tiny houses than traditional properties, and insurance for them can be difficult to get. So they may not be an easy sell, for all their charm. Ultimately, part of your due diligence will be to look at the real estate market in your area. If this type of construction isn’t common and likely wouldn’t appeal to buyers, you’re increasing your risk exposure if tiny house vacation rentals end up being a bust.

Tiny house vacation rentals are here to stay

While you’re probably better off not building trailers, there will always be a rental market for tiny houses because of high demand at lower price ranges. So capitalize on the trend, if that’s what it is, knowing that you’ll still retain an attractive asset for sale when it fades.