Investing in mobile or manufactured homes can be a relatively low-capital way to begin investing in real estate and start earning cash flow quickly. Manufactured homes have had a reputation for being poorly built with low-quality materials.
Still, since the year 2000, the overall quality of these homes has substantially improved thanks to new legislation and compliance measures. Even with these increases in quality and investability, experienced investors often avoid manufactured homes
The reason is usually straightforward; there are a few drawbacks compared to investing in “stick-built” homes. If you’re new to real estate investing, manufactured homes could present the perfect investment opportunity to start generating regular cash flow.
But be sure to fully understand the pros and cons of doing so. We’ll look at the ways investing in a manufactured home can benefit you as an investor, as well as some of the reasons to be careful with this type of investment.
If you’re asking the question, “are manufactured homes a good investment?” then keep reading to determine if this is the right opportunity for you.
What to Know About Investing in Manufactured Homes
Like any form of real estate investing, you should go in with a clear understanding of what to look for, what to avoid, and what tips and advice you should know. Here’s a quick lesson in what you should know about investing in manufactured homes.
Less Capital, More Profit
You don’t need as much capital to invest in a manufactured home. There are so many examples online that you can study to give you an idea of the general cost and initial investment. Here’s a great example. This comes from Bill Neves in the Portland, OR area.
- Asking Price: $12,000
- Paid: $6,000 and 2 months with no lot rent to allow for repairs
- Repairs: $14,000
- Total Investment: $20,000
- Sold Price: $59,900
- Time on Market: 1 week
- Net Profit: $39,900
As long as the cost of making repairs to the home doesn’t swamp you, you can buy a nice manufactured home for relatively little cash and make a big profit.
Location Is Important
One study found that the location of a manufactured home can affect the value by more than 24%. That could be the difference in your investment being worth $35,000 and $43,400.
Good locations for mobile home value include near beaches and other natural water sources, being located in 55+ communities, those near substantial amenities and attractions, hospitals, and schools, and in neighborhoods or areas with other homes in good conditions.
Decide Whether to Sell or Rent
Depending on the role you want to have, you can choose whether to rent a manufactured home to tenants or sell it outright. There are a few things to keep in mind either way.
If You Plan to Rent
Is the home you’re interested in investing in sitting in a mobile home park? If it is, you’ll have to cover lot rent and/or lot fees whether or not tenants are living in it.
Mobile home parks can also reduce the amount you’re able to charge for monthly rent because tenants will have to add the lot fee to your base rent charge. $700/month sounds reasonable until your tenant has to pay an additional $500/month in lot fees.
If you’re able to purchase a manufactured home on a parcel of land, you may be able to charge more in rent and increase your cash flow prospects.
If You Plan to Sell
Keep in mind that some lenders won’t touch manufactured homes, and not all borrowers know this upfront. You may have a lot of interested buyers that are unable to secure financing to buy the home.
Because manufactured homes are not built with the same quality of materials as traditionally-built homes, their value depreciates over time.
You can’t sell a manufactured home for the same price it was purchased for even ten years later unless there were substantial improvements made or it is on a nice parcel of land.
Make sure you know how much you can realistically sell the home for after you’ve made repairs and fixed it up. You don’t want to invest too much and fail to get a return on it.
Avoid Older Manufactured Homes
It may be tempting because you can find some incredible deals on older manufactured homes, but don’t fall for it. It was not until 1976 that the United States Department of Housing and Urban Development started regulating quality and construction standards for mobile and manufactured homes.
This act ensured that all manufactured homes built in the year 2000 and beyond would meet all building codes and be backed by warranties. If you do end up with a pre-2000 manufactured home, you may end up spending more money on repairs than you planned.
Even post-1976, the quality level still left a lot to be desired. Aim to invest only in homes built in the year 2000 and afterward, as these homes were constructed under HUD’s Manufactured Housing Improvement Act.
Bear in mind this will also reduce the amount of profit you’re able to make from the sale or rent of the home. Below, we list some of the common issues that need to be repaired with older mobile homes.
Common Mobile Home Issues
Combine cheaper materials with this type of home’s tendency to “settle” and slowly bend over time, and you’ve got a few common issues that need to be repaired on most older mobile homes.
- Roof problems
- Lack of insulation or fallen insulation
- Subfloor and floor damage (water, weight, uneven)
- Door warping, bending, or cracking
- Window frame issues
- Plumbing problems
- Electrical issues
Keep these potential issues in mind, plus the cost and time required to repair them if you’re considering investing in a pre-2000 manufactured home.
More Susceptible to Damage, Harder to Insure
This is a big deal, especially if you’re planning to rent the home out. You will be responsible for keeping insurance coverage on a manufactured home. These homes are more susceptible to damage from strong winds and storms like hurricanes and tornadoes.
Couple that with the notorious difficulty in insuring these homes, and it could be a recipe for disaster if you don’t know what you’re in for. Many home insurers will only offer “actual cash value” policies for manufactured homes.
This covers the current cash value of the home on the date of coverage, not at the time of purchase. It does not cover the replacement value, or how much it would cost to purchase a similar home again.
Avoid Homes in Mobile Home Parks
Lot Fees Plus Rent. We mentioned this above, but lot fees can be a big problem with mobile homes located on rented lots in mobile home parks. The lot fees differ by park and even the location of the lot and access to park amenities.
But for the most part, you can expect lot fees to be between $140 and $700 per month. Add to that number the amount of rent you want to charge, and you can quickly go above the amount local tenants want to pay.
Park Rules and Regulations. Mobile home parks have a lot of rights and rules that can impede the owner’s rights. Mobile home parks can actually refuse a buyer when you find one if they believe they don’t meet their regulations.
Right of First Refusal. The Mobile Home Park Home Owners Allegiance (MHPHOA) notes that most mobile home parks have tenants sign a lease when they move in that gives the park a “right of first refusal.”
This means if the tenant decides to sell the home and receives an offer, the tenant has to make the home available for the same offered price to the mobile home park within a certain number of days. This essentially gives the park owners the “first right” to buy the home if they like the price it’s been offered for sale at.
“Tenant grants the park owner a right of first refusal to purchase Tenant’s mobile home. If Tenant receives a bona fide offer to purchase the mobile home, a copy of the offer (including all terms and conditions whether written or oral) shall be submitted to park owner who shall have five (5) business days to meet and agree to its terms.
Tenant shall inform the third party offeror of this Agreement when its offer is made. The park owner may agree to buy the mobile home on the offeror’s terms by sending (or delivering) written notice within such five (5) days period.” –MHPHOA
Are Manufactured Homes a Good Investment?
Are manufactured homes a good way for you to start investing in real estate? It depends on the home, location, needed repairs, and age of the home.
Manufactured homes are not a reliable way to build equity because their value predictably depreciates over time, unlike traditionally built homes. They can, however, be a great way to generate cash flow for a new or seasoned investor who knows which homes to invest in and which to skip.
Remember: The best-manufactured home investments are purchased in cash, built after the year 2000 (the newer, the better), don’t need extensive repairs, are located on their own parcel of land (not in a mobile home park), and in a good location.
As you consider investing in manufactured homes, keep these considerations in mind. If it’s your first real estate investment, think of it as a learning experience and a relatively low-capital way to determine if this form of investment is right for you.