Friday, January 04, 2013

Is It Worth Buying A Manufactured Home?

In December Jessi and I considered buying a manufactured home to live in. It would be a temporary home that would enable us to shovel more cash at our student loans. The price was listed at $30,000 which meant we could potentially save a bunch of money due to small payments. We ultimately decided not to pursue that specific deal, but I learned a lot about manufactured homes in the process.

What Is A Manufactured Home?
A picture is worth a thousand words. Here's a classic one:

A couple things to note in this picture:

  • See the vertical paneling around the bottom? That's called a skirt. Almost all of them have this. Sometimes it's brick, but 99% of the time it's wood. That's the crawl space. It's like having an above-ground pool.
  • Notice how close all the other homes are? This is also fairly typical. Often developers will build a bunch inside a "park" and then people rent spaces (think of it as an HOA - more on this later). I know this picture is in a park because of the address: "H35". That's the unit number.
  • They tend be smaller in size, though they do make "double wides" which are two halves put together (see the top picture).
  • See the other home to the right? Notice they're adding a section. Yep, they can be expanded just like any other home.
  • Not shown here is a carport or garage. Garages aren't as common, but they can be added.
  • Finally, the shape is often a rectangle. That's because they need to fit on a truck trailer and cruise down the highway. Perhaps you've passed one of those "wide loads" before.

Manufactured homes are also called mobile homes, but I would argue that after 1976, they stopped being mobile homes. You see, in 1976 manufactured homes became HUD-approved. That means they have to be built with the same standard quality as stick-built homes. Today, manufactured homes are only mobile in the sense that they're moved after they're constructed. Before 1976, they were the cheap trailers often depicted in movies. That "cheap" stigma still remains. But today, sitting inside of one, you wouldn't be able to tell that it's manufactured. I'll go deeper into this in the Appreciation section.

Can you tell this is a modular home?

Yeah, me neither. Here's a picture of one being put together:

Unlike manufactured homes, these are designed to look like a classic stick-built home. A foundation is built in place, and the the modules of the building are set on top. These have all the benefits of manufactured homes (more later), and few of the detractors... Except price, these actually tend to be the most expensive of all the options.

Stick-Built Homes
This is the type of house most of us live in. These homes are built on-site. Another thousand words:

So, manufactured homes are like boxed-up versions of stick-built homes. They have all the components of a regular home, but tend to be smaller and have a fairly standard look. Modular homes are the tweaner: They're made to look like stick-built homes, but are constructed off-site at a manufacturing plant.

Do Manufactured Homes Appreciate In Value?
Since we were planning on buying short-term, I actually cared about this question (normally I don't care since I focus on cash-flow and holding long-term). It turns out the answer is complicated.

As I stated earlier, homes built after 1976 have to follow all the same standards as stick-built homes. So the initial quality is just as good, if not better than stick built homes. Here are some of the benefits:

Benefits Of A Manufactured Home
  • The buildings are manufactured inside, in a moisture/temperature/machine controlled environment. This often produces better quality - also a perk of modular homes.
  • They're designed to travel at 55mph down a freeway. So all the braces are stronger and everything is tightly integrated.
  • When buying new, you can literally design you're home by walking through examples and piecing together all the components.
  • Plus, when buying new, you get a warrantee where the manufacturer will fix anything and everything. From what I learned, this is a pretty awesome perk.
Wow! That's sounds great! So what's up with the "complicated" answer and the pervasive thought that they're not as high quality?

Manufactured Homes Are Cheaper
Part of the stigma is that the homes are cheaper. Surely something that costs $30,000 can't be as high quality as something that costs $300,000. Maybe...

  • First, the buildings are smaller. Less material = less cost.
  • They're made assembly-style. You don't have to hire an appraiser, or draw up plans. The only added cost is transportation. Standardization = less cost.
  • If you buy in a park, you're not buying land. No land = less cost.

Here's the bottom line: IF you buy a manufactured home after 1976, it was at least in compliance when it was built. If you're like Jessi and I, having a smaller place is preferred. IF the dwelling was maintained properly, it will appreciate in value along with the rest of the market. If homes go up 5%, your manufactured home will go up 5% too. But 5% of $30K is only $1,500 which seems like nothing compared to $15,000 for the $300K home.

Furthermore, people tend to buy manufactured homes because they can't afford stick-built homes. As a result, they also tend to not be able to afford proper maintenance once the warrantee ends. So, IF you don't maintain the dwelling, the value will depreciate, fast. Stick-built fixer-upper homes can get away with selling at a decent price because of the land - it appreciates because no more is being made. As Lex Luther would say, "It's all about the land, Superman."

Can You Get a Home Loan For Manufactured Homes?
IF you buy the land in addition to a manufactured home, you can get a home loan. If you're buying in a park, you cannot. Instead, you need to get something similar to a car loan. It'll feel like qualifying for a home loan, but it'll be a different type of loan. Not all lenders deal with manufactured loans. We had to find someone special for our deal.

Obviously, banks like lending on new manufactured homes, and become more strict with used homes. If it's new, you can get a 20-year loan. As the home gets older, the length of the loan gets shorter - all the way down to 5 years. After the dwelling is older than 20 years old, the bank will not lend on it (the place we looked at, turned 21 this January).

So the price might be cheap, but the terms of the loan might make it such that you're still paying a hefty payment (though you will pay it off faster, so that's nice).

Manufactured Parks
I specifically wanted to call out manufactured parks since most of the ones I see are in parks. Think of these parks as closed-gate communities with an HOA (home owners association) you pay rent to. The difference is that it's a single owner of the land you're paying to. That rent includes a space and could also include water, garbage, and lawn care. Lots of times they also have age restrictions, like 55+ communities, and pet restrictions. In the Corvallis-Albany area rents are in the $400 to $500 range, with regular annual increases. If you're going to have a loan the entire time living there, it might actually cost you more cash each month relative to just renting.

Final Thoughts
My goal was to buy a cheap place, live in it while we paid off our student loans and then re-sell it to re-coup my equity. So over the entire time, my only cost would be interest, taxes and utilities. Once I learned about the park rent and that they're difficult to re-sell because of the financing barriers, I became less interested. Especially since we don't have a ton of cash right now since it's going towards student loans, so I can't afford to pay $30K up front.

If we were going to stay for the long-term (30+ years) and I had the cash, I would definitely look into buying one. Ideally, I'd like to find something that includes land for a garden and our dog. I mean, if I'm going to be paying an extra $400, it might as well be towards a mortgage. Then, I wouldn't care about appreciation/depreciation because that's not the reason why I bought it.


  1. Great post! We also toyed with the idea of going manufactured, but agree that if it doesn't come with land, it's not worth it. I didn't go far enough to learn about financing, so thanks for the great information there!

  2. Keith9:30 AM

    I've toyed with the idea of buying one on land (probably 1acre +) and living in it for a while, but intending it as a MIL unit (or general rental) when I build the 'forever' home on the same property...that shifts some of the priorities around for a whole new set of analyses!

  3. That's an interesting idea. It's definitely running the numbers when the time comes.