Investing in Mobile Homes: Costs, Profitability, & More
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Did you know that nearly 22% of Americans live in mobile or manufactured homes, and 1 in every 10 new houses is a mobile home? Thanks to the rising costs of traditional homeownership, mobile homes have grown in popularity in recent years.
Buying mobile homes for sale can provide investors with niche, low-cost, residential real estate investments that thrive when the traditional housing market becomes too tight. Here, we'll cover the basics of investing in mobile homes. We'll discuss mobile home appreciation, mobile home costs, mobile home profitability, increasing the value of your investment, and more.
Let's get started.
Types of Mobile Homes and Costs
Mobile homes for sale tend to be cheaper and easier to finance than their traditionally built counterparts.
The average traditional home goes for about $84 per square foot, while the average mobile home costs about $41 per square foot—almost half the price. Averages can vary significantly from state to state, though.
Mobile vs. Manufactured vs. Modular Homes
The term "mobile home" is often used interchangeably with "manufactured" and "modular" homes. All three types of homes are the same in that they're pre-fabricated but are technically different things.
The main difference between mobile and manufactured homes is the building codes that apply to them. Mobile homes first came about in post-WWII America as a type of cheap, mass-produced, moveable home. In 1976, the US HUD established new standards for "manufactured homes," creating a wide array of both mobile and manufactured properties.
Modular homes are distinct from mobile and manufactured homes in that they're pre-fabricated but permanently attached to the plot's foundation, like a traditional house. As such, many states legally distinguish modular homes from mobile homes.
Do Mobile Homes Appreciate in Value Over Time?
The answer is both yes and no. That might sound confusing, so let's elaborate.
If you're just looking at their actual, physical structure, mobile homes usually lose value over time. The average mobile home will depreciate 3% to 3.5% a year. The average mobile home for sale costs about $125,000, so, after five years, you're looking at about $19,000 in depreciation. Think of it like a car: Mobile homes start to lose value as soon as they leave the factory.
However, the fact that the physical structure might depreciate does not necessarily mean that you'll lose money from buying a mobile home for sale. The house itself might depreciate, but the land the house is on can appreciate in value. So, if you own both the land and the mobile house, the land's appreciation will cancel out any home depreciation.
Why Do Mobile Homes Depreciate So Fast?
Why do mobile homes depreciate so quickly, unlike other types of residential and commercial property? It comes down to three key reasons.
#1 – Real Property vs. Personal Property
Unlike most types of residential, commercial, or special-purpose real estate, most states don't consider mobile homes as real property because they're not permanently affixed to the land. Instead, mobile homes are personal property, which depreciates differently than real property, like traditionally built homes.
#2 – Obsolescence
The HUD stringently regulates the quality and standards of manufactured and mobile housing to ensure inhabitant safety and comfort. If standards change, a previously existing home might be rendered obsolete without significant remodeling. This potential for obsolescence might make some people more hesitant to buy a mobile home for sale than others.
#3 – Public Perceptions
Despite increasing quality standards, lower costs, and general resident satisfaction, many still hold negative perceptions of mobile and manufactured homes as shoddy, unreliable, and dangerous. These negative perceptions can affect mobile home value assessments, making them more difficult to sell at a gain.
What Increases the Value of a Mobile Home?
Fortunately, there are several ways owners can maintain healthy real estate financials when buying mobile homes for sale.
#1 – Upgrades and Repairs
The most straightforward way to recoup your investment is upgrading the mobile home's fixtures and interiors. For example, you can:
- Update kitchen appliances and fixtures (e.g., stove, fridge, sinks, etc.);
- Install energy-efficient HVAC and water heater;
- Replace the flooring;
- Restore the roof; and
- Replace windows and doors.
These new additions can help make the property more attractive to buyers. Fortunately, mobile homes are less expensive to maintain than traditional homes, so you can put that extra money into updates and improvements.
#2 – Curb Appeal
A large criticism of mobile homes is that they look unappealing from the exterior. Implementing a nicely manicured lawn or something as simple as a fresh coat of paint can boost curb appeal and make the property more attractive to buyers.
#3 – Work With a Real Estate Agent
Another option is to hire and work with a real estate broker. Real estate brokers tend to have significant experience negotiating with buyers and helping clients land more favorable terms on sales and lease contracts. A broker on your investment team can also assist with property upkeep and management.
Can You Make Money on a Mobile Home?
So, the real question: Can you make money investing in mobile homes?
The answer is yes, you can make money buying mobile homes for sale, provided you buy mobile homes on desirable land and make the appropriate upgrades and updates to keep the price high.
A key investment feature for mobile homes is the price of the land: If the cost of the land rises, so too will the cost of the mobile homes it houses. As long as you do your due diligence, it shouldn't be difficult to find a profitable mobile home investment.
You can also make passive income by buying mobile homes for sale and leasing them to tenants. Average mobile home rents in the US were about $600 a month as of 2022, while cap rates on mobile home rental properties hover between 7% and 10%, higher than the national average multifamily cap rate of 5%.
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