Are Mobile Homes a Good Investment?

If you are looking for an alternative to investing in mainstream real estate assets, mobile home investments may be worth looking into in these turbulent times.

last updated Monday, July 1, 2024
#are mobile homes a good investment #mobile home investing

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John Burson

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Approximately 22 million Americans live in mobile homes. And the number is increasing because of the rising cost of traditional houses and the changing consumer mindset about these dwellings. Simultaneously, the competitive housing market has caused mobile homes to increase by 34.6%, just behind the 35.4% increase in the value of single-family homes from 2016 to 2024.

Despite this current housing market trend, the average median price of a double-wide mobile home is around $112,000 compared to the $245,000 median sales price of a single-family home. Considering these factors, buying motor homes seems like a good investment. But it's not that simple. There are several variables to evaluate before considering a mobile home investment. And we will describe them to you.

What is a Mobile Home?

A mobile home is a prefabricated type of housing primarily assembled in factories. Since you can place a mobile home on any plot of land or transport it to another, it fulfills its intended purpose of allowing owners the flexibility to live where they want.

fig: mobile home

Mobile homes are also known as an inexpensive form of long or short-term housing. Consequently, these homes are associated with lower-income families. This correlation has led to government zoning restrictions, such as

• Density and the number of mobile homes allowed on a specific lot of land
• Size requirements
• Exterior design limitations
• Rules governing the foundation

Motorhomes come in single-wide (500-1,200 sq ft.), double-wide (1,000-2,300 sq ft.), and triple-wide (up to 4,500 sq ft.) size categories. Single-wide mobile homes have the traditional trailer-like appearance, while double and triple-wide mobile homes resemble conventional site-built houses.

fig: Mobile Home Sizes and Dimensions source: www.mhvillage.com

What's the Difference Between a Mobile Home and a Manufactured Home?

People often use the terms mobile home and manufactured home interchangeably. But technically, they differ in some remarkable ways. Although they are structurally the same, two significant government actions established a definite distinction between the two.

According to HUD regulations, mobile homes are factory-built structures that entered the housing market before June 15, 1976, and manufactured homes are models made after that date. This timeframe coincides with the 1974 National Mobile Home Construction and Safety Act and HUD's Manufactured Home Construction and Safety Standards two years later.

These two legislative initiatives set universal standards for the mobile home industry. As a result, the new and improved mobile homes built after the new standards legally became "manufactured homes." However, the term "mobile homes" continues to be a popular way of referring to these homes.

How to Invest in Mobile Homes?

There are two mobile home investment strategies. The most common strategy is to buy one or more mobile homes and use them to earn passive income from tenant rent. The reward from this strategy depends on the amount of passive income from the monthly rental revenue minus the total cash outlay for a mortgage and other expenses.

The second strategy involves purchasing the entire mobile home park and leasing the land in lots to each homeowner. Since this option requires a high capital investment, this potentially ultra-lucrative investment option usually attracts wealthy or institutional investors.

Advantages of Investing in a Mobile Home

Along with increasing investor interest in motor homes, several tangible benefits have always factored into investing in these properties. Here are a few main benefits that will help you answer the question, "Are mobile homes a good investment?".

• Easy Entry with a Lower Cost Per Unit.
  Single-family homes and other mainstream properties require a substantial investment, usually with a significant down payment. On the other hand, the investment in motor homes is much less, typically a few hundred dollars per month for one unit compared to thousands per month for conventional properties. Institutional or wealthy investors pay much more for the land used for renting single mobile home lots. If you are in this group, you'll have a property tax burden and an insurance premium to consider. The location and size of the mobile home park are very influential in the price and expenses. However, the total costs are typically much less than owning a multifamily complex or several single-family homes.
• Consistent Demand.
  The Manufacturing Housing Institute found that 62% of mobile home residents intend to continue living in a mobile home for more than ten years. A separate study found that 56% of mobile homeowners have resided in their homes for over ten years. Plus, the demand for affordable housing is higher than ever.
• Reasonable Maintenance Costs.
  Since the plumbing and electrical wiring are easy to service, mobile home maintenance costs are very affordable. Also, their small size cuts down the overall repairs and routine maintenance costs. If you own a few mobile homes and assume the landlord role, your expenses should be low. But the return-of-investment (ROI) potential would be much greater if you owned the entire mobile home park instead of the mobile home units. In this arrangement, your tenants are responsible for repairs and maintenance of their mobile homes. Your responsibilities include maintaining the common spaces, utility connections, and roads.

Disadvantages of Investing in Mobile Homes

Like other investment opportunities, owning mobile homes or home lots has inherent risks and shortcomings. We've listed the most prominent ones to help you answer the question," Are mobile homes a good investment?"

• Density Restrictions.
  If you are considering investing in an entire mobile home community, be aware that many plots of land have density restrictions, even in a space adequately zoned for a mobile home park. These restrictions can severely limit the number of mobile home units you can place on the plot of land, jeopardizing your desired return on investment.
• Natural Disasters.
  Mobile homes are not as sturdy as homes built on a foundation. As such, they are more prone to severe damage or destruction during natural disasters. This possibility is why you should thoroughly research the history and potential of natural disasters in the region before you invest in a motor home or an entire park.
• Less Appreciation.
  The mobile home market is currently going through an upswing in interest and investment. However, real estate market forces could change to leave mobile home investors with inherent challenges. Although today's mobile homes can rival traditional homes in style and technology, the negative stigma persists with this type of property. As a result, some cities have zoning restrictions that ban mobile homes. This stigma causes downward pressure on demand, making it highly unlikely that mobile homes' price appreciation will keep up with single-family homes. Mobile home values may revert to a depreciation pattern, which is not bad for passive income investors.

Are Mobile Homes a Good Investment for You?

Like most worthwhile investments, mobile home investing comes with substantial risks. Before you venture into this type of investment, consider your risk tolerance and experience level in this field. Also, you can always opt for a passive income strategy by investing in REITs focusing on mobile homes.

Since mobile homes are financially accessible, they are a good investment if you want a low-cost entry into the housing market. Also, if you pay attention to risk factors and expenses, a mobile home investment can be an excellent passive income investment.

Q&A

Which is More Cost-effective, Older or Newer Mobile Homes?

The age of the mobile home is essential when considering the question, "Is a mobile home a good investment?" As such, newer mobile homes (built after 1976) are significantly more cost-effective because they are better constructed and compliant with strict government regulations. Also, older models can be expensive to maintain because they lack energy efficiency.

How Long do Mobile Homes Last?

HUD appraisers estimate that mobile homes have a life expectancy of 30 to 55 years. However, their estimate reflects the HUD's current building codes and construction standards, established in 1976. So, if your potential mobile home investment is a 1975 model or earlier, its life expectancy is less.

What are other real estate investment strategies?

• Across the capital stack: Real estate private equity. Real estate private debt.
• Across real estate investment vehicles: Real Estate Funds. Real Estate Syndicates. Sole discretion investment vehicle.
• Across stabilization stages: Value add real estate investing. Core real estate investing.
• Across property types: Multifamily investment strategy. Mobile home park investing. Industrial real estate investment strategy.
• Other strategies and opportunities: build to rent Florida.

 
 
 

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