What is a Manufactured Home?
Manufactured homes (formerly referred to as mobile homes) are prefabricated homes that are built in a factory and then transported to the home site when they are completed. Manufactured homes can be used as primary residences, vacation homes, or as rental properties. There are advantages and disadvantages of investing in manufactured homes, which we will explore in this article. By the end, we hope you have a better answer the question, “are manufactured homes a good investment or not?”
Advantages of Manufactured Home Investing
We’ll start with advantages. Here we discuss 11 different benefits of manufactured home investing over traditional investing. These are in no particular order.
Manufactured homes are designed to be affordable – they are mass-produced in factories, which keeps the costs much lower when compared to similarly-sized homes that are built on location. This brings down the initial investment cost for you, but you can still bring in a solid income from rental fees.
More Luxury Options
By spending less on the house itself, you can use the remaining part of your budget to upgrade some of the finishes in the home, which allows you to charge more in rent. These upgrades can include things like granite countertops, hardwood floors, higher-quality fixtures and appliances, and so forth.
Lower Cost of Maintenance and Repairs
The production of manufactured homes is able to more tightly scrutinized than traditional homes because it takes place in a factory setting rather than under the supervision of multiple different contractors and subcontractors.
This means that a new manufactured home is not likely to need much in terms of maintenance or repairs for many years to come. Plus, if you rent out the home, you can lay out in the rental agreement that the tenants are responsible for any maintenance or repair costs that arise.
Manufactured homes have to meet strict standards as far as structural design, energy efficiency, fire safety, and transportation method from the factory to the home site. Manufactured housing that is sold in the United States comes with a red seal that shows they have met all of the stringent requirements laid out by the government.
The United States Department of Housing and Urban Development (HUD) holds the manufacturing process of these homes to a very strict code, which means they are quite safe and not prone to malfunctions that can afflict traditionally built homes. Even if your manufactured home is ultimately placed in an area that is high-risk for natural disasters and inclement weather, you can rest assured that it will weather most storms easily.
More and more people are looking for affordable home options, so the demand for manufactured homes available for rent grows every year. Manufactured homes can be placed on their own on a property as a single-family home or you can create a manufactured home park (i.g., mobile home park) with multiple units on one property – both situations are in high demand and present excellent options for cash flow properties.
Lower Tenant Turnover
The tenant turnover rate for manufactured homes is much lower than that of traditionally built single-family homes, apartments, and multi-family homes. This means less administration work for you and a more constant stream of income without much work on your part.
Despite the high demand, there are still relatively few manufactured home investors. This means that if you do decide to invest in manufactured homes, you will see more opportunities to generate income.
Traditional homes can take six months or longer to build, while manufactured homes are modular homes that can be produced in three months or less. Once the home is constructed in the factory, installation at the site can move very quickly.
Eco-Friendly and Energy Efficient
Newer manufactured homes are produced to meet strict efficiency standards, which means that tenants will enjoy lower utility costs. Low utility cost is a big factor of tenant retention – happy tenants stick around longer. Some energy-efficient facets of manufactured homes can include double-paned windows, high-quality insulation, and appliances and fixtures that conserve energy and water.
Downsides of Manufactured Home Investing
Also in no particular order, here we discuss 5 different potential downsides to investing into manufactured homes.
While the stigma has reduced somewhat in recent years, many people still believe that manufactured homes are housing options only for ‘poor people’ or that the homes are produced using subpar materials which can lead to structural or fire dangers. While these sentiments are untrue, it can still make finding tenants somewhat difficult in certain regions.
Manufactured homes usually depreciate much faster than traditional homes. This is good for your tax liability, but not good for resale potential. However, if you find a long-term tenant for a manufactured home with no intentions to resell it, this can be an overall good thing.
Need for Land
Naturally, a manufactured home does not come with any land as a traditional home does, which means that you will also need to invest in land on which to place the home, or space in an existing manufactured home park, which can be hard to find. However, if you already own land on which to place the home, this isn’t an issue.
Limited Financing Options
Many lenders won’t offer financing on manufactured homes, especially if they are purchased on their own rather than as part of a combined sale that includes land. If you aren’t able to secure a lender, your only other financing option would be a chattel loan that has a higher interest rate. However, other financial options are available to help make your investment more lucrative, such as taking advantage of section 1031 of the US tax code and using a triple net lease framework.
Limited Design Options
Due to manufactured homes being mass-produced and the fact that they have to break down into parts that can be moved easily on major roadways to the home site, there are limited design options. Many manufactured homes look very similar from the outside, and add-on structures must be approved by a local building authority. However, many tenants are not looking for groundbreaking architectural design in a rented manufactured home.
Manufactured homes can be great investments, as long as you have considered any potential downsides and have a plan in place to mitigate them. You may need to purchase your manufactured home entirely in cash, and you might find that traditional tenants will ignore your rental listing on popular websites.
However, this just means you need to be prepared with cash in hand and you might have to find alternative marketing outlets to turn your investment into a cash flow property. If you are investing solely for appreciation, a manufactured home will not be your best option and you should pursue traditional real estate investments instead.