Your Backyard Could Become a Steady Income Stream—Here’s How

If you own a home with a yard, adding a tiny house to that space could earn you thousands of dollars a month in rental income. But building one takes money up front and a smart plan to make it stand out from other rentals.

What Is a Backyard Tiny Home?

A backyard tiny home is a small, stand-alone residential structure that sits in your backyard. It typically ranges from 100 to 400 square feet, and you can construct it on a permanent foundation or on wheels. 

Tiny homes have become a popular alternative to traditional homes due to their lower cost and compact design. 

“Based on recent sales data, the average price of a tiny home in 2024 was around $63,500,” Steven Harrell, Owner of Tiny House Listings, said. That’s about 15% of the price of the median U.S. house ($410,800). 

In addition to their low cost relative to full-size homes, tiny homes can be appealing due to their small carbon footprint and the minimalist lifestyle they afford.

The Costs of Building a Tiny Home in Your Backyard

To get a good return on your tiny home, aim for a low upfront cost. The less you spend, the faster you can recoup your investment.

However, tiny home prices vary widely depending on where you live and what your local zoning laws are. Here’s a look at how much your up-front costs could be:

• Permitting ($500 to $3,100): Not every jurisdiction allows tiny homes. Before building, check your local zoning regulations and building codes and obtain necessary permits.
• Utility hookups ($750 to $25,000): The utilities you’ll need to hook up to your tiny home can include electricity, water, and sewer/septic. The costs to start these services can range to more than $20,000, so be sure to call your local utility providers for estimates of how much it will cost to hook up services. 
• Labor and materials ($19,050 to $38,100): These costs vary widely based on location and the tiny home’s size, level of customization, and finishes. 
• Furniture and appliances ($400 to $4,000): After construction is complete, you’ll need to furnish your tiny home and install appliances, which, in some areas, might be the second-biggest expense you’ll have.

If you plan to finance your tiny home, you’ll likely have to make interest payments. There may be origination fees and other charges that you need to pay upfront. Keep in mind, however, that you may need to find a lender who specializes in tiny homes, as most lenders don’t offer traditional mortgages for tiny homes. Alternatively, you might qualify for an RV loan if the house is certified by the RV Industry Association (RVIA).

Turning Your Tiny Home Into Income

Once your tiny home is ready, you can rent it to long-term tenants or list it on short-term rental sites like Airbnb. Tools like Airbnb’s income calculator can help you estimate how much you might earn based on similar listings in your area.

Two of the biggest factors that impact your tiny home’s rental income are location and guest capacity, Harrell said.

“Guests seeking a quiet nature retreat want something remote and peaceful, while others may prioritize being close to restaurants and attractions,” he said.“Capacity matters too—families often search for homes that can comfortably sleep four. If your space only accommodates two, you may miss out on a large share of potential bookings.”

Finally, you can boost your tiny home’s rental income and return on investment with professional staging and photography that helps your tiny home stand out among similar online listings. 

“Remember, the biggest expense isn’t a piece of furniture or an upgrade—it’s the lost income from a booking that never happens,” Harrell said. “Making your tiny home irresistible from the first glance pays off in the long run.”