Mobile Homes: A Decent Option

By Steve Gillman - 2011

Mobile homes are not really what they used to be. The quality of mobiles, modular homes and all manufactured homes has improved over the years due to customer demand. Prices have risen substantially as a result, but they are still far below the cost of a regular wood frame house in most parts of the country, making them a decent option for those who cannot afford to spend $160,000 for a place to live (that was the national average for houses as of early 2012). Let's look at what the advantages are, and whether it makes more sense to buy in a park or to put a mobile home or manufactured house on real estate.

Affordability

Manufactured homes are the affordable option for many people, and so they may lead the recovery in real estate, according to the latest statistics. A recent article from Fox Business News says:

The Census Bureau reported 51,600 shipments of new manufactured homes in 2011, an increase of 3.2%. In January, shipments were 3,945 new homes, up 42.1% from January 2011, according to the Manufactured Housing Institute.

They also note:

In his annual letter to shareholders released in late February, Berkshire Hathaway Inc.'s Warren Buffett noted the company's Clayton Homes division, which makes manufactured homes and arranges mortgages for buyers, continues to operate profitably and its mortgage portfolio has performed well. Buffett said he expects earnings to "improve materially" in the years ahead as more Americans seek lower-priced homes.

Loans made through Buffet's companies were not hit with high default rates like many others were. He credits this in part to only loaning what people can truly afford. Almost anyone who can afford to rent an apartment can afford to buy a mobile home.

Many manufactured homes sell for $50,000 and up (the average as of the end of 2011 was around $64,000), but you can still buy a decent one for a lot less than that. As of this writing, at least one vendor was advertising a new 16-by-80-foot Fleetwood Sand Pointe mobile, with three bedrooms and two bathrooms, for under $36,000. That included delivery, setup, and skirting.

Rates on loans for manufactured homes are as low as 4.5% interest at the moment, and some lenders will loan (if your credit is good) with a 5% down payment. If you were to borrow $32,000 at 5% on a five-year loan (loans are usually for shorter terms than with traditional housing), your payment would be $604 per month. Add a $300 payment for lot rent to that and you might be right around where rental rates for apartments are depending on where you live. But in five years you will have some equity, even if the home depreciates substantially. You also will get a new home, and a 16-by-80 single-wide has 1,280 square feet--probably more than you'll get in an apartment with reasonable rent.

Flexibility

A mobile home in a park gives you some flexibility if you are not sure what the future will bring. You can sell it on your own far more easily than you could a traditional home (there is less paperwork). Or, if you choose to stay in an area once your home is paid off, you can buy property and move your mobile to it.

Now, it is worth noting that mobile homes on land usually appreciate in value when real estate in general is appreciating. A mobile or manufactured home on a rented lot in a park will usually depreciate from the day you buy it. This is not always true. There are some popular areas where local authorities limit the number of mobile homes or parks, and so prices have actually gone up. But in general, you will lose value on your home if it's not on real estate. If you are spending less between the payment and lot rent than you would to rent a house or apartment this is not a problem, because in the end you'll have something as opposed to nothing in equity. Just be aware that you'll be selling for less than you paid someday.

If you really want cheap housing, and even the opportunity to profit when you sell, buy a used mobile home. Buy as cheap as you can and pay off any loan you have on it quickly. Then you are free to sell it on payments, which can sometimes enable you to get 100% more for the home, since you are making it possible for the buyer to afford it. I saw a livable mobile sell for under $2,500 in recent years, and I've known people looking for housing who would have happily paid $6,000 for the same home if the payments were just $250 monthly.

Buying a mobile home that is already on land is another option. In many parts of the country a mobile on land can give you as much living space as you would in a traditional house for half or less of the price. These are a bit trickier to finance, but local banks are sometimes still writing loans on them.

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