Mobile homes or manufactured homes are a prefabricated structure that is put together in a factory and then transported to a site. It can be used either as a primary residence, a vacation home, or a rental property. It is estimated that about 22 million people live in manufactured homes in the United States. According to statista.com, the states with the highest numbers of mobile homes are Texas, Louisiana, Alabama, North Carolina, and Florida.
So, is buying a mobile home worth it? Is investing in mobile homes as rental property a good idea? These questions can be answered by looking at the pros and cons of buying a mobile home to rent out.
Advantages of Mobile Home Investing
- Affordability – One of the best things about manufactured homes is their price. Since they are mass-produced in factories, mobile homes for sale usually cost much less compared to conventional rental properties for sale.
- More luxury options – Since you are not spending much on buying a mobile home, you might be able to afford luxury items such as granite countertops, hardwood flooring, and other upgraded fixtures. Such upgrades will allow you to charge more when renting mobile homes.
- Lower cost for maintenance and repairs – The tenants in your mobile home will be responsible for repairs and maintenance in their residence. This saves you the hassle of dealing with contractors.
- Safety – A mobile home built according to the United States Department of Housing and Urban Development (HUD) code standards is very safe. This means that you won’t have to worry if your rental property is located in high-risk areas for hurricanes, storms, or other natural disasters.
- High demand – With more people looking for affordable accommodation, the demand for mobile homes keeps increasing every year. When rented out, mobile homes can easily be cash flow properties.
- Lower tenant turnover – The turnover rate of mobile homes is much lower compared to that of single family homes, apartments, and multi family homes.
- Less competition – Mobile home investors are few and far between. This limited competition means more opportunities for those who buy manufactured homes.
Downsides of Buying a Mobile Home for Investment
- Negative stigma – Many people have a prejudice against living in mobile homes. Some see them as housing options for the poor, while others think they are dangerous. Such attitudes could make finding tenants difficult.
- Quick depreciation – Typically, mobile homes depreciate much faster compared to traditional homes. While this is good news from a tax perspective, it is bad news for your resale value.
- Need for land – You might have to incur the cost of buying land on which to place your mobile home. The alternative is to look for space in a mobile park which is difficult to find.
- Limited financing options – Most traditional lenders don’t offer financing for mobile homes, especially if you are not buying a mobile home with land. This means that your only option will be chattel loans that charge a higher interest rate if you need to leverage the property.
Related: Buying a Manufactured Home for Investment: Pros and Cons
Is It a Good Real Estate Investment? The Verdict
Mobile homes can make for a good investment if you’re looking for an alternative real estate investment. Just be prepared to handle the downsides. For instance, you may need to pay for your mobile home fully in cash. When advertising your mobile home for rent, you will want to look for the right outlets as traditional tenants may ignore your rental listing on popular websites. Just be sure to do the math – if it ends up being a cash flow rental property, then it will be a good real estate investment. If not, then move on either to other mobile homes for sale or back to the traditional real estate market. And if you’re investing for appreciation, you will definitely want to look into other types of investment properties.
The Process of Buying a Mobile Home
If you’ve decided that mobile home investments are for you, follow this step-by-step guide for buying a mobile home:
1. Understand the different types of mobile homes
There are basically two types of manufactured homes; double-wide units and single-wide units. The main difference is size, with double-wide homes being twice as large as single-wide homes. Rooms in a single-wide unit are connected back to back, while those in a double-wide unit are separated by a hallway. You could visit a mobile home park to get a good idea of both options.
2. Choose between buying new or used
Decide whether a new or used mobile home would work best for you. Both options have their pros and cons which you need to consider.
If you settle on buying a new mobile home rental, take the time to research different retailers. Compare at least three options before making a final decision. Before contacting the companies, conduct an online search and check their reviews. You could also ask friends and family to provide recommendations for mobile home retailers.
In case you think buying a used mobile home is a better option, you could work with a local real estate agent to identify mobile homes for sale in your neighborhood of choice.
3. Look at the features
Whether you are buying used or new, you need to look for features that could contribute to its overall resale value. Besides granite countertops and stainless steel fittings, consider other features such as:
- Insulation
- Pitched and/or shingled roofing
- Wood flooring
- Siding (preferably vinyl)
- Built-in water cutoff valves
4. Analyze rental potential
Once you’ve found a few properties for sale, you can add the addresses to the real estate investment software, Mashvisor, for rental property analysis. This tool allows you to enter basic info for on or off market properties. Once that is complete, the system uses rental comps from the location of the property in question to show you how it will perform when rented out. You’ll get key numbers like rental income, cash flow, and cash on cash return.
5. Explore your mobile home financing options
To enhance your chances of getting a traditional mortgage, look for manufactured homes that lenders consider to be ‘real property’. These are properties that:
- Are sold together with the land on which they sit
- Sit on a permanent foundation
- Were manufactured after the new HUD standards were imposed
If the mobile home doesn’t fulfill these conditions, you can still find financing via chattel loans.
6. Close and have the mobile home delivered and set up
Quick Tip: Do not pay extras to the dealership
Before closing on the income property, many mobile home retailers will give you the option of including warranties, taxes, or insurance in the price of the new home. Though the offer might look good, it might not be in your best interest to take it. Secure the extras from a local broker instead.
Once you’ve closed on your mobile home, find a transporter to deliver it to the site where you want to have it installed. Shop around and get different quotes before making a decision. Installing a mobile home usually takes 21 days on average.
Conclusion
Buying a mobile home is a relatively straightforward process. With a little pre-planning and research, you will eventually enjoy a good return on investment from your mobile home rental.
Related: What Is a Realistic Return on Investment in Real Estate?