Manufactured homes, often seen as a budget-friendly alternative to traditional site-built homes, have sparked debates on their investment value. These factory-built homes, adhering to federal HUD standards, offer affordability and quicker construction times. Yet, their investment potential is influenced by factors like depreciation, maintenance, and market trends. This article delves into whether manufactured homes are a wise financial choice, considering their pros, cons, and market dynamics.
What is a Manufactured Home?
Manufactured homes, often referred to as mobile homes or trailer homes, are prefabricated structures built in a factory setting. Unlike traditional homes constructed on-site, these homes are assembled from parts made in a controlled factory environment, which adheres to the building codes set by the U.S. Department of Housing and Urban Development (HUD). Once completed, they are transported to the home site and installed on either a temporary or permanent foundation.
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7 Reasons to Invest In a Mobile Home
One of the biggest concerns many investors express about mobile homes is that their values are known to depreciate. However, depreciation isn’t necessarily a bad thing for an investor.
Why? Because depreciation allows manufactured home investors to deduct part of the home’s value yearly against their operating profits.
If you plan on renting out the manufactured home, another concern you might have is occupancy rates. Fortunately, manufactured housing typically has higher tenant retention rates than similar assets.
In addition, fewer maintenance costs, high cap rates, and relatively low per-unit pricing make manufactured homes attractive to many investors — with average cap rates of 7-12% and the lowest cost-per-unit out of every real estate asset class, manufactured homes keep looking better and better.
Buying a mobile home, whether to rent long-term or live in, comes with several advantages over other types of real estate. See why manufactured homes can be a fantastic investment:
- Affordability
Manufactured homes and their parts are cheaper than typical site-built homes for various reasons. Mainly, because they are made in a factory setting, labor and material costs are far cheaper than traditional homes.
Plus, most mobile homes are extremely energy efficient, lowering utility costs.
Finally, maintenance costs are more affordable for manufactured homes. For example, if you or your tenant experience a plumbing issue, it will be much less of a setback than if the same problem occurred in a site-built property.
- Structural Strength
Many people look at manufactured homes and worry about the quality of materials, building practices, etc.
Ever since 1976, manufactured homes must follow the HUD code, which dictates the quality to which standard mobile homes must be built.
These standards include ensuring proper practice for structural design and construction, energy efficiency, fire safety, and the transportation of manufactured homes from the factory to the lot where they will sit.
Every manufactured home in the US will have a permanent red seal showing all of the requirements outlined in the HUD code were met.
- Versatility
Manufactured homes are highly versatile, both for long-term and short-term purposes. If the home sits on a suitable long-term site and not in a park, you can often add additional modules onto the home, altering it to fit your needs for a much more reasonable price than adding onto a stick-built property.
Prefab homes are excellent as a “starter home;” you can build bigger in the future and turn a single home into multiple rentals.
Even though it can be a logistical challenge and expensive, you can also have manufactured homes moved if it sits on a short-term lot or rented property.
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- Eco-Friendly and Energy-Efficient
A huge advantage of manufactured homes is that they are energy-efficient and eco-friendly. You can thank the HUD code for this; it ensures a high degree of efficiency.
For example, insulated skirting, wall insulation, under-home insulation, on-demand water heaters, and energy-efficient windows are mostly standard for all mobile homes. You’ve probably seen appliances that are Energy Star certified, but did you know that an entire manufactured home can receive that certification?
Plus, many manufactured homes have state-of-the-art bathrooms and kitchens with water-saving plumbing fixtures and energy-saving appliances. And adding things like energy-efficient lighting are relatively simple, affordable upgrades you can make.
- Customization
From small starter homes to large, luxurious retirement manufactured homes, you can make just about any customizations and personalizations that you can dream of, whether you buy a new mobile home and make changes from the beginning or you buy an older manufactured home and add on to it, the possibilities are endless.
As a bonus, updating or repairing fixtures, flooring, appliances, etc., is often cheaper, easier, and faster for manufactured homes than traditional houses.
- Low Cost for High Luxury
A manufactured home does not mean a run-down trailer home. There are options for high-quality finishes and distinctive floor plans as complex and luxurious as site-built homes.
You can add pretty much any luxury amenities to manufactured homes to increase their value — hardwood floors, fireplaces, granite countertops, vaulted ceilings, kitchen islands, etc.
Outdoors manufactured homes can also have garages, decks, sunrooms, patios, high-end landscaping, and any other feature that a traditional residence could have. And while all of these additions won’t be cheap, they will cost less than installing the same amenities in a site-built house.
- Financing
Buying a mobile home, whether as an investor or a homeowner, is as easy (or easier) than buying a stick-built home. You just have to approach the loan process slightly differently.
At Mares Mortgage, we help potential buyers navigate the manufactured home financing process and offer various loans to get you the best deal.
As with buying any property, your employment, creditworthiness, debt-to-income ratio, etc., all play a part in your ability to purchase a manufactured home.
Market Trends and Future Outlook
Current Demand
The demand for manufactured homes has been fluctuating due to various economic factors. Recently, there has been a noticeable shift with many investors adopting a wait-and-see mode due to the wide bid-ask spread. This cautious approach is primarily driven by the misalignment between buyers and sellers, suggesting a cooler market ahead.
Manufactured homes are becoming increasingly popular, both for investors and homeowners. As resource scarcity continues and with our ever-changing economy, you don’t want to sleep on investing in manufactured homes — Just check out our short video about the benefits of manufactured home investing.
Predictions for Appreciation
Experts predict a stabilization in the debt markets, which could ramp up transaction and development velocity for manufactured homes. However, the overall sentiment remains cautious, with 2023 expected to be remembered as a blip in the investment landscape. Despite high interest rates, buying a home now offers immediate equity building opportunities.
Recession Resistance
Manufactured homes are often considered more recession-resistant compared to traditional homes. This resilience is attributed to their lower cost and the growing interest in affordable housing solutions, especially in economically turbulent times.
Should You Invest In a Manufactured Home?
Whether you’re making a long-term investment, planning on renting out a manufactured home, or looking for a more affordable way to live, investing in a manufactured home can be an excellent idea.
Manufactured homes offer the same amenities as traditional housing at a more affordable cost and are often even more customizable than other stick-built houses.
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Whether manufactured homes are a good investment largely depends on individual circ*mstances and goals. These homes offer affordability and quicker construction times, which can be appealing for first-time homebuyers or those looking for rental properties. However, potential investors should be wary of the depreciation factor, similar to that of vehicles, and consider the long-term value of the property. For those who can secure a desirable location and manage upkeep, manufactured homes can indeed be a viable investment option. Mares Mortgage can help you weigh the pros and cons in light of your personal financial strategies and market conditions before making a decision.
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