Planning to invest in rental property in 2021? Then you might want to consider buying a manufactured home.
Also referred to as mobile homes, manufactured homes are prefabricated structures built off-site in a factory. The buildings are then transported to a site where they are installed on a semi-permanent or permanent foundation.
Recent statistics from the manufactured housing industry revealed that about 22 million Americans live in mobile homes. And around 1.9 million manufactured homes are actually occupied by renters. So not only is there demand from buyers, but these properties work as alternative rentals as well and present an opportunity to own cash flow properties in the US housing market.
However, before investing in a mobile home, there are some things you need to know first:
#1. There Are Pros and Cons
The first thing to know before buying a manufactured home for investment is that it will come with some pros and cons:
The Benefits of Buying a Manufactured Home
Here are some of the advantages of purchasing a manufactured home:
- High quality and building standards – In 1976, the HUD established a set of standards for manufactured homes. The HUD code addresses aspects such as building material quality, construction standards, transportability, strength and durability, fire resistance, and energy efficiency. Therefore, manufactured houses are often better than site-built homes in terms of durability and quality.
- Affordability – According to ManufacturedHousing.com, manufactured homes cost up to 35% less per foot to build than conventional homes. Factories achieve economies of scale by buying massive amounts of appliances and materials at cheaper rates. This makes it cheaper to buy a manufactured home than a single family site-built home.
- Easy customization – Manufactured homeowners can easily customize the floors, counters, and fixtures as they desire.
The Risks of Buying a Manufactured Home
- Location limitations – In some cities and counties, manufactured homes are not allowed. Such zoning restrictions can limit your choices in terms of location.
- Financing – If you don’t own the land on which your manufactured home sits, you might not be eligible for a traditional mortgage.
- Stigma – There has always been a stigma attached to manufactured homes. This could make it difficult to find a buyer when you decide to sell.
#2. You Have a Choice Between Buying New or Used
One of the main advantages of buying a new manufactured home is the customization options. You can choose the exact layout and size you are looking for. In addition, you get to choose the features you want, whether it is a fireplace, custom cabinet, or walk-in closet. You can also customize the exterior with awnings, decks, steps, and more.
Buying a used manufactured home means you will spend less. However, you must ensure that the property is in good condition before signing on the dotted line. Be sure to check the condition of the doors and windows, insulation, flooring, walls, and anchoring system. It would be advisable to hire a professional home inspector to conduct a comprehensive inspection.
#3. You’ll Need to Decide Where to Put the Manufactured Home
Besides choosing what kind of manufactured home you want, you must also decide where you want to put it. When it comes to your investment property’s location, you have two options; your land or someone else’s land. If you want to place the property on land that you already own or are planning to buy, be sure to confirm if the local zoning laws allow manufactured homes. You should also consider other things like building, electrical and septic permit requirements, access to the property, site preparation, and soil stability and quality.
In case you don’t own land, you can place your structure in a manufactured home community. Such communities usually have everything set up that you will need when setting up your property. This could include playgrounds, parks, internet connections, and other utilities. In exchange for using their space, you will be required to make a monthly rent payment. The amount will vary from one community to another. However, moving your property into a manufactured home community comes with some risks. For example, the landowner could decide to sell their property or even increase the rent. Relocating your manufactured home or selling it can be a very frustrating and costly process.
#4. Be Sure to Budget for the Costs of a Manufactured Home
According to the U.S. Census Bureau, the average cost of a manufactured home was $81,600 in November 2019. There are 3 types of manufactured homes based on size; single-wide, double-wide, and triple-wide. The bigger the house, the more costly it will be. Buying a manufactured home on land will also cost you more.
However, the basic sale price of the investment property is not the only cost to consider. You must also factor in the cost of transportation to the site, property tax, insurance, HOA fees, and closing costs when buying a manufactured home. Don’t forget other bills related to owning real estate such as sewer, water, and utilities.
#5. There Are a Few Financing Options Available to You
Unless you are buying a manufactured home with cash, you will need to secure financing. If you decide to place your manufactured house on a permanent foundation on a piece of land you own, you could qualify for a traditional mortgage. In addition, you could access a Freddie Mac, Fannie Mae, or government-backed mortgage. The Federal Housing Administration (FHA) provides loans for manufactured homes through its Title 1 Program.
In case you have a poor credit score or bad credit, you could consider the option of a chattel loan. A chattel loan is basically a personal loan that is used to finance expensive purchases like airplanes, boats, and manufactured homes. Though such loans have quicker closing times and lower upfront origination costs, they usually have higher interest rates than traditional mortgage loans. The repayment period is also shorter compared to that of a regular mortgage.
#6. Real Estate Appreciation Is Not a Guarantee
A question of concern for many real estate investors is, ‘Do manufactured homes go up in value?’ You will only be assured of real estate appreciation if the investment property is placed on land that you own. Manufactured homes in communities usually lose their value over time.
#7. You Need to Analyze Manufactured Homes, Just Like Any Other Investment
At the end of the day, buying a manufactured home is a real estate investment and any investment you make needs to be backed by analysis. When you’re browsing factory sites or other sites that sell manufactured homes, you likely won’t get an idea of what kind of cash flow they can provide. So it’s best that you use Mashvisor’s real estate investment tools. You can easily add the address of a manufactured home to Mashvisor’s database. If there is still no address, you can view rental comps similar to the property in the location you’re considering. Either way, you will get an analysis that includes metrics like potential rental income, cash flow, cash on cash return, cap rate, and occupancy rate. You’ll even be able to see how the property would perform as an Airbnb rental property.
Although they are not the most traditional real estate investments, manufactured homes are a growing niche that you may want to consider. Just be sure you know what you’re getting into first.