Mobile homes offer a wealth of opportunities for seasoned real estate investors, but if you are familiar with stereotypes about the appreciation of manufactured homes (or lack thereof), you may be reluctant to add this type of home to your wallet. Let’s dispel those myths with some solid facts.
First, as an investor, you will typically be looking for used mobile homes rather than new ones, and used mobile homes tend to hold their value, according to Russ Whitney, real estate investment expert and bestselling author. (In fact, Whitney refers to mobile homes as “little cash-spitting boxes.”) You may be able to find mobile homes that are actually worth more to use than new ones.
According to research by Consumers Union, the large proportion of manufactured homes in rental parks contributes greatly to the lower appreciation experienced by manufactured home owners as a whole, as land ownership is a major factor in appreciation. Average appreciation rates for prefab homes packed with own land are statistically in line with the on-site construction market.
Industry standard practices when it comes to mobile home sales and loans can contribute to the perception of rapid depreciation, Whitney says. New mobile home loans often include overpriced and unnecessary fees, points, and add-ons (such as vacations, cash back, and single premium credit life) that increase the loan balance but do not add value to the home. Used mobile homes are often subject to higher interest rates than new ones (which is generally not the case for site-built homes).
If the buyer defaults and repossesses the mobile or manufactured home, the lender may not be able to recoup the entire loan balance at resale. While this creates the effect of depreciation, it is technically not depreciation. However, it does create an opportunity for the mobile home investor, as evidenced by the abundance of classified ads in newspapers for abandoned and repossessed mobile homes.
In general, residential property values are driven more by land value than home value, says Russ Whitney, who focuses on investing in land in his latest book, The Real Estate Millionaire Mindset (Double day). That is why adding land to a mobile home will significantly increase the value of the home. Of course, as with site-built homes, mobile homes are subject to market demand; New tastes and demographic changes can impact the demand for certain home styles and that will affect value. Also, as with site-built homes, mobile homes that are in good locations and have been well-maintained will retain their value and even appreciate more than those that are not.
When it comes to mobile home appreciation or depreciation, don’t worry about average rates and general perceptions. Approach each potential transaction individually and negotiate a profitable deal.