When it comes to buying a rental property, there are many options to consider. You could purchase condos, apartments, townhomes, multi family homes, single family homes, vacation rentals or even tiny houses. However, one often overlooked option in real estate investing is buying a manufactured home. Many people assume that since mobile homes are not as valuable as traditionally built homes, they cannot be a profitable real estate investment. However, buying a manufactured home for investment has become increasingly popular and has turned out to be a lucrative investment for many savvy real estate investors. A recent industry report by the Manufactured Housing Institute (MHI) revealed that 22 million Americans live in manufactured homes.
Related: US Real Estate Trends: Mobile Homes and Mobile Home Parks
So, What Exactly Are Manufactured Homes?
Also known as mobile homes, manufactured homes are a type of property that is built in a factory and then transported to a site. Mobile homeowners can place their structures on leased land or land that they own. The home could be made up of a single unit or several parts that are transported separately and then assembled on site. Connections to sanitary, water and power systems are also done on site. The building could be skirted by siding or blocks, or attached to a permanent foundation to appear like a traditionally built home.
Buying a Manufactured Home: Pros and Cons
Pros
- Affordability – Usually, buying a manufactured home is significantly more affordable than buying a traditionally built home. The report by the Manufactured Housing Institute shows that while the average manufactured home price is $49 per square foot, the average cost of a site-built home is $107 per square foot. Since such investment properties are affordable, you could find yourself paying a mortgage of only $200 or $300 per month.
- Versatility – Unlike traditionally built homes, buying a manufactured home allows long-term options for customization. Real estate investors can start small with a basic structure and add more upgrades as required. For example, you could upgrade manufactured housing with permanent foundations, site-built garages, decks, patio covers, and awnings. You could also change the exterior siding to stucco, hardboard or wood, vinyl or metallic.
- Quick Installation – While a traditionally built home could take 6 months or more to complete, a mobile rental property can be manufactured within 2 or 3 months. Since the home is built by a trained workforce in a controlled environment, the process of buying a manufactured home moves swiftly from one phase to the next. With materials already stockpiled, quality is assured and delays are minimized. The final installation on site only takes a few days and the investment property is ready for occupation.
- Safety – Manufactured homes for rent are engineered for energy efficiency and wind safety. Due to federal laws requiring limited combustible materials, escape windows, and smoke detectors, mobile homes are some of the safest housing options available in the real estate market.
Related: 7 Tips to Keep Your Rental Property Safe and Increase Security
- Eco-Friendly and Energy-Efficient – Manufactured homes are very energy efficient and environmentally conscious. The HUD code requires mobile homes to attain a high level of energy efficiency with on-demand water heaters, energy-efficient windows, an insulated skirting, and ‘belly wrap’, and insulation under the home and in the walls. Water-saving faucets and fixtures, energy-saving appliances, and energy-efficient lighting can help improve energy efficiency further.
- Low-Risk Construction – Traditional construction sites are prone to problems such as theft, damage, and delivery delays. With buying a manufactured home, such problems are minimized, thus saving money and time. Disappearance and misuse of materials are minimized, as well as construction waste.
- Acoustics – When built using separate modules, mobile homes can be much quieter compared to a traditional site built home. Sound transference is reduced drastically since each module is insulated individually.
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Cons
- Cost and Availability of Land – In many cities and towns all over the world, there is a shortage of land. Therefore, though the cost of buying a manufactured home is relatively low, finding land could be a challenge for a real estate investor. Even when land is readily available, the costs could be too prohibitive. In addition, some land title deeds only allow site-built construction.
- The Prevailing Stigma of Manufactured Homes – Though mobile homes and other alternative housing designs have become increasingly popular, they are still frowned upon in some areas. In some places, the zoning requirements do not allow manufactured homes. This leaves real estate investors with very limited options for buying a manufactured home.
- Strict Lender Requirements – Financing for manufactured homes can be a very complicated matter. Usually, lenders offer mortgages for purchasing ‘real property’ (structures permanently built on land). Mobile homes, even if set on piers or on concrete slabs, often don’t meet the requirement for a mortgage. However, if the investment property is placed on a concrete foundation or a basement, a mortgage is more likely to be approved.
- Long-Term Value – While traditionally built homes are likely to appreciate in value over time, manufactured homes are more likely to depreciate. In the short term, buying a manufactured home could be a blessing since the property tax bills will be equally low. In the long term, however, depreciation will reduce the resale value of manufactured homes for sale.
- Tenant Problems – If you decide to place your manufactured home in a mobile park, you are likely to attract tenants that are struggling financially. As a result, collecting rent on time could be a challenge. This could cause cash flow problems, thus resulting in defaulting on your mortgage.
Related: How to Deal with Bad Income Property Tenants
A Few Final Tips
These are just some of the manufactured homes pros and cons. Therefore, though buying a manufactured home could be the answer to your real estate investment dreams, think first before you leap. Ask yourself questions such as:
- How much do manufactured homes cost?
- How long do manufactured homes last?
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