Mobile homes, also known as manufactured homes, are a type of housing that is built off-site and then transported to a permanent location. They are a popular choice for many people due to the benefits they offer. They are generally cheaper to purchase and maintain than traditional homes and they offer the experience of having your own place with a sense of privacy and your own yard. You can find them located on plots of land, in mobile home parks, or a combination of both.
So, are mobile homes a good investment? Well, the answer depends on you and your situation, but let’s see if we can provide some answers below starting with a brief overview of how they are made.
Manufactured housing is generally constructed in a factory setting using a steel chassis for a base. The walls, floors, and roof are then assembled on top of the chassis using materials such as plywood, OSB, lumber and insulation. The interior is then finished with drywall, flooring, and cabinetry. Once the home is complete, the exterior is finished with materials such as metal, wood, or vinyl to give it a traditional look and feel. It is then transported to the final location and set up on a permanent foundation such as a concrete slab or crawl space, or a temporary foundation such as cylinder blocks with tie-downs on a dirt surface. Okay great, but what is this all going to cost?
The Cost of a Manufactured Home
The cost of a manufactured home can vary depending on several factors such as location, size, age, and condition. On average, the cost of a new mobile home can range from $30,000 to $100,000 or more, while the cost of a used mobile home can range from free to $50,000 or more. However, the cost of a mobile home does not include the cost of the land it sits on, which can add significantly to the overall cost of ownership.
Today’s product is generally recognized by the U.S. Department of Housing and Urban Development (HUD) to last around 30-55 years. Post 1976 homes are built to stricter building codes and given a HUD tag. The tag proves that the home was built in compliance with HUD regulations and therefore we can assume it is a more durable product.
That being said, after 30-55 years the mobile home will likely need significant repairs or replacement. Of course this all depends on how the home was taken care of. Mobile homes definitely have the potential to last as long as traditional single-family homes with proper repairs and maintenance. I still have homes built in the early 70s in one of my parks and they are in great shape.
The lifespan of a mobile home is affected by things like the quality of the construction materials, proper maintenance, and the geographic location it is placed. You should consider the potential cost of repairs required to prolong the life and value of the home.
Mobile Homes Are Not a Good Investment for Profit
When I bought my first mobile home park, I was excited that 28 homes were park owned. This meant that I could potentially get an extra $200-300 on top of the lot rent each month for each of these homes. Seeing how I didn’t include this income in my evaluation of the property, I was like great! Straight to the bottom line, cash in my pocket! Well, that’s not how it turned out to say the least.
Since I was renting the homes to tenants, opposed to resident homeowners:
- There was no pride of ownership, so the condition of the home would always be worse when I got it back and never better.
- The tenants would stay for a month or two sometimes and just leave in the middle of the night. No warning, just gone and good luck holding them to the lease payments they still owe.
- I would then have to do a turnover which could be anywhere from $1,000- $5,000 depending on how bad they trashed the place.
- Completing one turnover could wipe out 15+ payments of the extra $200-300 I was getting.
At the end of the first year, I broke even, and I knew I had to sell these homes off as fast as I could.
Another one of the main reasons why mobile homes are not a good investment for profit is their lower resale value compared to traditional homes. Mobile homes are considered personal property and not real estate. They generally depreciate in value over time, meaning that they will be worth less in the future than they were when they were first purchased. This means that if you are looking to make a profit on the mobile home by flipping it, or waiting for it to appreciate in value, you may not be able to sell it for as much as you paid for it.
When I went to sell the homes in my first park, I realized that the buyer for this product does not have much money. A lot of the times they do not have great credit either, so obtaining financing is usually out of the question. What did this mean? This meant that I had to sell the homes at a low cash price, or I had to do some kind of rent credit program. I ended up selling most of them for less than $5000.
If you remember I didn’t include the park owned home income in my evaluation of the park, so I ended up doing just fine. If I had included that income in my evaluation of the park:
- I more than likely would have overpaid for the park
- The lot rent income after the sale of the homes would not have been enough to cover the larger mortgage and park expenses.
- I would have had to sell the park and take a loss
The moral of the story is that a mobile home is not a great investment if you plan on renting it or holding it for appreciation.
Reasons Why Mobile Homes Are A Good Investment For Some Residents
Now we need to look at this topic from a different perspective. Over 20 million Americans currently live in mobile homes. We should pretend to be the customer and ask ourselves are mobile homes a good investment for me as a resident? I would say they can be if you are in the used mobile home market, you buy a great deal that may not have much depreciation left in it, and you want to use the money you save on rent elsewhere. Let’s look at some benefits:
- Low Purchase Price: One of the main reasons why mobile homes may be a good investment for residents is their low purchase price. Because mobile homes cost much less than traditional homes, they are a good option for people who want to own a home but don’t have a lot of money to spend.
- Low Monthly Costs: Along the same lines is the low monthly costs. The average lot rent in the U.S. is $280 a month, compare that to renting an apartment or paying off a mortgage which can run $1000+ each month. Even if you buy a used mobile home for $15,000 and it depreciates to zero, you are in the green after 21 months if we use a savings of $720 a month. I would consider this situation a fairly low-risk investment.
- Cost Savings in Utilities and Maintenance: Mobile homes are also generally cheaper to maintain and operate than traditional homes. They tend to have smaller square footage, which means that they use less energy and require less maintenance.
- Flexibility in Terms of Location: Mobile homes can give homeowners more flexibility in terms of where they want to live. Some people who are looking to live in a specific area like California but can’t afford to buy a traditional home there have the option of purchasing a mobile home instead. This could allow the resident to buy a low-cost home in an area that they can possibly work a higher paying job. If your now able to work a job that pays $10,000 more on top of the lower cost of housing, well then, I’d say it’s a great decision.
So, Are Mobile Homes a Good Investment Opportunity?
In the examples we explored, mobile home investing may or may not be a good decision depending on your individual situation. If you are looking to invest in mobile homes to make a profit, it may not be the best option due to the costs associated with renting the home to tenants and the higher risk of overall depreciation. However, for residents looking for an affordable housing option, mobile homes can offer a low purchase price and low monthly costs, potential savings in utilities and maintenance, and flexibility in terms of location. If you are interested in a great alternative real estate investment, check out a post I made about investing in the mobile home park itself. Good luck!