Mobile homes offer a wealth of opportunities for savvy real estate investors, but if you’re familiar with stereotypes about manufactured home appreciation (or lack thereof), you may be reluctant to add this type of home to your portfolio. Let’s dispel those myths with some solid facts.
First, as an investor, you’ll typically look for used mobile homes over new ones, and used mobile homes tend to hold their value, according to Russ Whitney, real estate investing expert and best-selling author. (In fact, Whitney refers to mobile homes as “little boxes that spit out cash.”) He may be able to find mobile homes that are actually worth more used than new.
According to research by Consumers Union, the large proportion of manufactured homes in rental parks is a major contributor to the lower appreciation experienced by manufactured home owners as a whole, as land ownership is a major driver of the appreciation. Median appreciation rates for home-packaged manufactured homes are statistically in line with the built-on-site market.
Standard industry 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 unnecessary and overpriced 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 mobile homes (which is generally not the case with site-built homes).
If the buyer defaults and the mobile or manufactured home is repossessed, the lender may not be able to recover the full balance of the loan on resale. While this creates the effect of depreciation, it is not technically depreciation. However, it creates an opportunity for the mobile home investor, as evidenced by the abundance of newspaper classified ads for abandoned and repossessed mobile homes.
In general, residential property values depend more on land value than home value, says Russ Whitney, who focuses on land investing in his latest book, The Millionaire Real Estate Mindset (Double day). This is why attaching 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 changing demographics can impact 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 hold 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 overall perceptions. Approach each potential transaction individually and negotiate a deal that will generate profit for you.