The News
Tiny homes, prefabricated and dropped into backyards across America, could solve two great shortages in the US economy: Housing and cash-generating investments.
The CEO of Samara, which spun off in 2022 from Airbnb and makes apartment-sized housing units, from 420 to 950 square feet, that fit in people’s backyards, said the easing of zoning regulations and an appetite among investors should make tiny homes a financeable asset that gains in value over time.
Banks “understand the mortgage of the front yard very well. We’re trying to create a different asset class” in the backyard, Mike McNamara said on Semafor’s Compound Interest show. “It’s income generating,” he said. He said about half of Samara’s customers in southern California, one of its biggest markets, rent out their tiny homes, which are officially known as “accessory dwelling units.”
California has seen permit applications for these homes increase from about 2000 in 2016 to 30,000 in 2024, the last year for which data is available.
It’s still hard to get financing to build these homes, but McNamara points to rooftop solar as a roadmap. The installations generated savings that service the loans used to install them: “It moved into being very financeable because it had a predictable income stream.” With tiny homes, Fannie Mae and Freddie Mac could be the first unlock, he said, noting that the government-backed mortgage giants recently began recognizing income from these units when purchasing primary mortgages from banks.
For now, Samara is providing the financing itself. McNamara said the company will offer a loan for 100% of the cost of a unit if the main house has enough equity built up — as many do, after years of boomers aging in increasingly valuable homes. McNamara declined to say where the company is getting the money, but says Samara has a “low cost of debt” and is looking for financing partners.
“We love it as an asset class,” he said.
Liz’s view
So will Apollo, I half-joked to McNamara about all the firms hungry for things to invest in, when we first met in 2024. Since then, the race has only intensified on Wall Street. Huge swaths of commercial activity have been transformed into predictable cash flows that investors prize. Private capital, I wrote in October, has turned into liquid sand, “molding itself into whatever money-shaped hole is in front of it.”
A mortgage attached to a potentially appreciating asset with the ability to generate rental income will be catnip for investors who have turned sushi delivery, online impulse buys, semiconductor manufacturing, Keurig coffee pod licensing agreements, and much else into cash streams that fit their yield specs.
Whether these units can solve the other, more urgent shortage — of homes — depends on how customers use them. California’s elite putting up their nanny or private chef in a backyard pad — or renting them out as Airbnbs — will do little for the economics (or politics) of the housing crunch, but will help around the margins. McNamara said Samara customers in northern California are more likely to use its units as in-law suites, smaller structures often used for parents or family members.