Investing in the residential housing market has been unequivocally proven to generate higher returns than many traditional investments. Since people will always need a place to live, based on demand, supply, and market conditions, apartments and single-family rentals could be utilized as viable additions to portfolios.
In the residential home industry investment space, manufactured housing is a growing sector. Words like double-wide and single-wide may conjure pictures of abandoned houses parked on wheels in shabby “trailer parks.” The fact is that manufactured housing communities offer an answer to the issue of affordable housing. Also, aged-restricted communities- for example, those designed for residents older than 55- can provide the ideal asset to strengthen an investment portfolio.
What Is Manufactured Housing
This particular sector is tiny (pun intended) compared to the apartment industry and has various concepts and definitions. A prime example can be modular housing.
Modular housing, also known as prefabricated housing or stick-built housing, is a term used to describe homes that are constructed on-site and then erected onto a rectangular frame. It differs from stick-built or site-built housing made by hand on a fixed base. In addition, the absence of a foundation upon which manufactured homes are built resulted in its mobile housing designation. Today, moving the house from one place to the next requires enormous effort. Most of the time, when a prefabricated house is constructed in an occupied location, it remains on the site for an extended duration.
A different term, manufactured housing, can be used interchangeably with modular housing. Manufacturing housing is a modular style developed with strict rules and regulations established by the National Manufactured Housing Construction and Safety Standards Act of 1974. The manufactured houses in five- and four-star lifestyle communities are an ideal investment opportunity. According to the Manufactured Home Institute, around 22 million individuals reside in houses manufactured nationwide.
How Manufactured Housing Works
If a homeowner buys a stick-built home, the homeowner also owns the foundation it’s constructed upon. It’s not the case for a prefabricated house, but. The property where a manufactured home can be reassembled is often owned by another entity.
The way it is described, this entity is the one who owns the property (the land) in exchange for a lease to the owner; revenue is earned from rent and other investments. The manufactured house, in turn, is considered personal property, not real estate, as per the U.S. tax code. In addition, if an owner of the land wants high-end tenants to rent their homes, the entity is likely to own and manage an exclusive manufactured housing development.
These communities aren’t the images evoked by so-called caravan parks in the middle of the 20th century. These communities could offer a range of amenities for residents, including fitness centers, swimming pools, and a lifestyle director on site.
Why It Works
In various ways, investing in a four or five-star manufactured home community is no different than buying a luxury apartment building. These types of investments draw financially stable residents who will not be expelled for not paying rent. The constructed housing communities may yield more income for investors because of the following reasons:
• Minimum turnover: People living in manufactured housing communities are homeowners, not renting. Moving and picking up manufactured homes could cost upwards of 10,000 dollars. In this way, homeowners of manufactured housing communities tend to be less likely to pack up and relocate after the end of their lease. Residents of a manufactured home stay in the neighborhood for fourteen years typically.
• Resident in good standing: The four and five-star manufactured housing developments typically attract people with higher earnings or retirees with solid pensions. It means less chance of evictions or defaults. If there is a chance that a debtor is in default or not paying in the event of default or nonpayment, the housing community owner may initiate proceedings for the title to their home.
• Low supply and significant demand: Even though there is a growing demand in the market for manufactured homes, there is a shortage of housing with demand, partly due in part, to NIMBYism and “not in my back yard.” Top-quality manufactured housing communities have high-quality housing as well as residents. Yet, with opposing views and strict regulations for zoning, creating a manufactured housing community may be a challenge.
• Recession-resistant: Prefabricated housing is considered a counter-cyclical class of assets. Also, there is a tendency for the demand to grow during economic downturns because people are losing the possibility of a steady income or seeking to reduce their size to a more reasonable level.
• Lower operating expenses: In the case of manufactured housing leases, residents are accountable for maintaining their homes and the areas in which they’re located. Owners of manufactured housing communities are only required to pay for the common areas and any other amenities. It has a similar structure to a net-lease arrangement.
Manufactured Housing As An Investment
Searching for communities with houses owned by tenants (no rental properties) with solid foundations in the market and steady occupancy levels will increase the potential of investment for those interested. Investors should also be interested in homes that offer the possibility for planned renovations and upgrades to help implement an income-generating strategy of value-added expansion in real estate investment.
Manufactured communities offer an attractive niche in the entire residential housing industry. In many ways, these housing communities are an excellent passive investment, particularly as they shift away from nothing more than trailer parks. With the rise of the four and five-star communities, investors can profit from a potential recession-resistant property that can provide an impressive yield and outstanding longevity.
