Why Do Custom Tiny Homes Cost So Much?

By night I am the masked vigilante known as The Tall Man in the Tiny House – righting the tiny wrongs and advocating for the rights of the little guy (puns intended). My day job is much lower key. If you emailed Wind River Tiny Homes and asked us to build you a custom tiny house, I’m the guy who would put a price tag on it.

I’ve spent countless hours staring at an excel spreadsheet pricing out some pretty amazing tiny homes and consider it an honor to help people take a step toward making their tiny house dreams a reality. I’ve noticed that the price tag is usually one of the first things on people’s minds when they start thinking about going tiny and we certainly get asked a lot of questions about it. Once I finish a quote, the comment or question that often follows is some version of, “Why is it so expensive?” Read to the end of this post and you will have the answer to this question.

But first, a word on not comparing apples to oranges…

I have heard some ludicrous comparisons by people who are trying to make a point about the “outrageously high cost” of custom tiny houses.

More than once I have seen people cite click-bait articles online touting an amazing tiny house that costs “less than [$5,000, $3,000, $1200 (or some other equally absurd price)].” Then when you click on the article and look at what one would get for that amount of money, it turns out to be (no surprise) a glorified storage shed (sometimes an actual storage shed) with minimal or no interior finishes. Let me be very clear. An unfinished storage shed is NOT a quality custom built tiny house. Can you buy a storage shed, finish it out and live in it? Yes you can and I wish you the best of luck. (Alternatively, you can also order an unfinished tiny house shell from Wind River)

We’re talking about this… (The Rook – Wind River Tiny Homes)

rook-exterior rook-interior

Not this… (The Casita – Better Built Portable Storage Buildings)

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I also see people citing DIY tiny houses that only cost $XXXX (some number well south of $10k) as a comparison to professionally built tiny houses. And while I absolutely love and encourage DIY tiny house building, this is also not a valid comparison to make for the simple reason that these people are not counting their own labor in the cost of the house. Even without counting labor, people that build tiny houses in the sub $10k range are doing so using a significant amount of “free” reclaimed materials.

Now, I also love second hand materials, but in reality they take a ton of time to reclaim, refinish, and reuse in a practical build scenario. If you’ve got all the time in the world and are building your tiny house yourself, it’s all gravy. In my experience, however, if you are paying someone else for their time, implementing reclaimed materials usually ends up costing more than a store bought material in the long run.

Again, we’re talking about this… (The Chimera – Wind River Tiny Homes)

wr_3_31_2016-7 chimera-interior

Not this… (Pallet Home 1, Pallet Home 2)

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*Disclaimer: I am in no way disparaging DIY tiny houses or storage sheds, they are both amazing, are we clear?

**Second Disclaimer: The numbers I will be sharing below apply to a basic custom built tiny house. More specifically this means a bumper pull tiny house (20′-24′ long x 8.5′ wide x 13.5′ tall) with a single sleeping loft and single storage loft. This also means that there are at most 1 or 2 simply built custom furniture pieces in the home and standard appliances and finishes (a gold-plated, solar-powered, self-cleaning, multi-use couch/bed/toilet located on the wall isn’t in the budget I’m afraid).

The real cost of custom

There are several great breakdowns of what the individual parts (materials, appliances, etc.) of a tiny house actually cost. Here are three great examples: Tiny House BuildTiny House Giant JourneyDIY House Building. Read any of these three posts and you’ll understand that if you plan to purchase most of your materials new, the cost will be somewhere between $20,000 and $30,000 (let’s say $25,000 average) for just the materials and simple appliances.

My goal here isn’t to rehash these “cost breakdown” posts for self-built tiny houses. My goal is to give you a peek under the hood of a custom tiny house construction company and give you an idea of the real costs associated with building your home.

One word could sum up most of the costs of a custom built tiny house. Labor.

Labor is the single most expensive item in any tiny house that is built by a company. Let me elaborate. Beautiful custom tiny homes require between 500 and 1000 man-hours to complete, depending on the size and complexity of the house. Each custom house is a unique build from the ground up. At Wind River Tiny Homes there are usually 3 to 5 people working on a house for the duration of the build, not to mention the subcontracted labor (which for us is generally only insulation as we do most things in-house). For the sake of a specific illustration, let’s set up some conservative parameters for what the labor cost on a build might look like.

Let’s say an average of 4 people are working on your house in a full-time capacity and average hours to completion is 750 (these numbers are conservative in my experience). Let’s also say that 2 of those workers are considered “general construction labor” (Average pay $14.85/ hr) and 2 of them are considered skilled carpentry labor (National average $20.24/ hr). Now it’s time for some math, which I’m not terribly talented at, but here goes nothing:

$14.85 (2) + $20.24 (2) = $17.55 Average Hourly Labor Cost (This is VERY conservative as I know may tiny house builders that pay their labor much more.

$17.55 x 750 (hrs for a build) = $13,162 as a baseline for non-subcontracted labor only.

Most tiny house builders will subcontract a few things out on the tiny house so we need to account for that. Usually we subcontract out the spray foam insulation and sometimes the tile work. I would conservatively average this amount per build to be $2000 of labor.

So where are we at? Let’s add it all up.

$25,000 (materials) + $13,162 (base labor) + $2000 (subcontracted labor) = $40,162.

“So your saying that basic tiny houses should only cost around $40,000 right?” …Wrong.

Your custom tiny home builder of choice has expenses that the average DIYer doesn’t have. For instance: a warehouse or barn with either a mortgage or monthly rent, utilities, insurance, replacing tools, accounting costs, a professional website to run, social media to update, phone calls to answer, gas to buy and business taxes and licenses. All these cost collectively are called “overhead” and also have to be accounted for in the cost of your build.

Finally, if the custom builder working on your house isn’t a 501c3, they are ostensibly interested in making a little thing no one likes to talk about called profit. Profit is supposed to be what a business makes above ALL it’s other costs of doing business. It is what allows a business to grow. It is the reward for taking the risk of starting a business building custom tiny homes. It is necessary.

I think I should stop here for a second and explain the difference between markup and profit as it pertains to running a construction business. Markup is not profit. Markup includes profit, but it also is intended to cover all the expenses above the “hard costs” (labor and material) of building a physical structure. These are collectively called “soft costs” and I mentioned many of them two paragraphs up. By the time these soft costs are covered a builder is lucky to have 7-10% of actual profit above all other expenses. In reality if the builder has to fix a mistake, runs into unexpected delays, or underestimates a project (which often happens with a custom build), the builder could easily wind up with zero profit or even go into debt on a particular build. If this happens on a few builds in a row, that builder will go out of business. This is why it is so critical to calculate enough markup into every build.

Every builder has a different formula for calculating markup (profit + overhead). This is because every builder does things a little differently and has different base costs depending on a whole bunch of factors (where they are located, how many employees they have, how many houses they build annually, how much profit they want to make, etc.). These calculations can get quite complicated and most builders actually don’t understand them as well as they should. For the sake of this blog I will use a range for markup of between 20% and 30% (average 25%) of the hard cost of the home. As I stated above, not factoring in a high enough markup is the number one reason a builder goes out of business and, in my experience, if a tiny house builder is marking their houses up less than 20% they are probably going to go out of business sooner rather than later.

Okay, back to the math. $40,162 was where we left off with the hard costs of the home.

$40,162 (.25 markup) = $10,041 + $40,162 = $50,203. This doesn’t include shipping the tiny house (about $2.25 per mile at the time of writing), land to park the tiny house on, monthly utilities or any of the other associated costs.

So there you have it.

$50,000 is a base cost for a simple 20′-24′ tiny house built by a custom tiny home builder.

I’ve got news though, most people don’t want a basic tiny house. Especially after watching a show like Tiny House Nation or Tiny House, Big Living. They want hand-crafted pizzazz! Reclaimed sparkle and light! And why shouldn’t they? Some of the houses swirling around the internet are downright amazing. Just take a look at our gallery for an idea of a few of the homes we’ve built. Part of the allure of building tiny is the ability to have nicer stuff in that tiny space because you’re buying much less material.

The Triton is one of my favorites, but it has also been one of Wind River’s more basic builds to date. The final cost of this home was around $57,000.

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The Triton by Wind River Tiny Homes

When you start to add in some of the high end features in many of the gorgeous tiny homes you see in your Instagram Feed, on Pinterest, or in that Tiny House show you watched, the costs add up quickly. Here are a few of the most requested examples:

These custom finishes are what turns a basic house into a functional work of art that matches your unique personality and lifestyle. And they are also what can take the cost from $50,000 to $80,000 to $100,000 quite quickly.

In a future post I hope to dive into the specific costs associated with some of these custom home finishes as well as give you the skinny on what I think are some of the best materials, appliances, and finishes you can have in your tiny home on a cost to quality comparison basis.

Do you agree with the cost I laid out? Do you have questions about custom built tiny houses you’d like answered? Ask in the comments below and/or head over to the Tall Man Tiny House (TMTH) Facebook page and ask your questions there.

If you want to dig into this subject a little further, here is a book I recommend picking up. (Click the image).

4 thoughts on “Why Do Custom Tiny Homes Cost So Much?

  1. Jeremy, I had no idea you did this. Very well written and informative blog post. This was an good read. I run a small real estate investment company and I’m always looking to grow in knowledge. I will be keeping and eye out for more of your progress. I would love to catch up via email.

    -Brian Dent from metro SDA in Michigan

  2. Jeremy your points are on que and very ligit. We run into the same questions and concerns with some customers on the same topics. These units are more affordable than a standard mortgaged home but to build properly certified units base or custom requires experienced labor and some of the parts we purchase to fit “Tiny” are twice the price of stslandard sized components. Thank you for this article. It explains alot of what we say everyday. It truly explains our costs in building,overhead,labor,material planning, drafting, etc etc.
    Rich @Titanium Tiny Homes.

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