What You Need to Know About Investing in Manufactured Housing

TOP NOTES 

  • More than 22 million Americans live in manufactured housing communities.
  • In regions with a hot real estate market, manufactured housing allows affordable market entrance and provides a much-needed community resource.
  • Regulatory advancements have ensured that manufactured housing is built to a high standard of strength, durability, and safety according to HUD codes.

Sometimes an industry deserves a second look, one that goes beyond traditional stereotypes and instead focuses on the positive societal impact and investment potential it can afford. 

One of those industries is manufactured housing.  More than 22 million Americans live in manufactured housing communities (MHCs), and this number continues to grow as more retirees and workers with lower-income jobs choose the affordability of MHCs.

But is it a solid real estate investment for you?  Let’s talk about the factors you should consider. 

1. Traditional single-family housing is in high demand (and extraordinarily expensive)

The housing market has become extremely competitive, especially in regions with temperate climates and appealing cultures.  According to the Federal Reserve, home supply is at historic lows, which means housing prices continue to creep up (or in some cases, skyrocket).  One of the last remaining options for non-subsidized affordable housing is the purchase of a manufactured home.

When you choose to invest in manufactured housing communities, you have the opportunity to spread your investment funds.  

With the same investment amount you might put into a  single-family rental, you could invest in a manufactured homes community and rent/lease lots to multiple homeowners. This approach allows you to have multiple tenants providing income on your property, and your upkeep responsibilities are minimal compared to other types of property management. 

It’s also a good partnership for the homeowner. They receive a space in your community and their utility hookups; at the same time, they are able to own their home affordably and maintain an asset that can be resold if needed. 

2. Technological advances have yielded outstanding advancements in this sector

The manufactured housing market has benefited from advances in design and construction practices.  Many manufactured homes are built in line with the design aesthetics you’d see in traditional dwellings. 

While technology and economies of scale allow suppliers to produce high-quality items quickly, they’re also able to provide more customization options.  With the ability to choose unique features and finishes, manufactured housing can appeal to a group of potential buyers who might have otherwise been shopping in a crowded, competitive traditional housing market. 

Regulatory advancements have also ensured manufactured housing is built to a high standard of strength, durability, and safety according to HUD codes.  These requirements provide standardization on key safety features so you can ensure consistent quality among the properties you’re considering. 

The quality of manufactured homes continues to improve, as does the quality of the communities where they are located, both of which are driving additional interest and demand from stable, long-term consumers and from investors.

3. Manufactured housing communities, just like other types of real estate, benefit from the location

Some people avoid manufactured housing because they are concerned their investment will depreciate over time.  In reality, manufactured housing investment returns can vary greatly from market to market.  Many MHCs are located within or very near major population centers.  

These cities are perpetually expanding, gobbling up land as they go.  MHCs (specifically the land they are on) are often targets of acquisitions that are repurposed for other uses such as apartment complexes, shopping centers, and big-box retail.

When you consider investing in manufactured housing in areas where the population is booming and the real estate market is hot, there are opportunities to get into the market affordably and provide a much-needed resource to the community.

Demand for manufactured housing continues to increase, supply remains steady, and the market isn’t flooded with new entrants because of barriers to zoning new communities.  In addition, there are low operating costs due to most residents owning their homes.  This factor also drives pride of ownership, long tenancies, and lower resident turnover.

In addition, MHCs can vary in value depending on the customer groups they serve, just like apartments.  For example, communities targeted to senior living or adult-only living may be more desirable to specific population segments and therefore benefit from higher demand in those particular groups. Florida is an example of a state where there are large, luxury MHCs where retirees are flocking.

 4. Manufactured housing communities can be managed with low operating costs.

Because most homes in manufactured housing communities are owned by the residents, there are minimal maintenance costs. Further, many MHCs are located on properties that are serviced by city water, sewer, electric, and gas which are directly billed to the home owners.  Although this varies from community to community, when the MHC only owns and maintains the land, it’s a low cost business model.

In addition, many MHCs are still run by mom-and-pop owners and have not received upgrades consistent with the increased demand in the market. This usually results in a very inefficient operation.  When investors choose to put their funds toward these communities, small upgrades and a shift to a business-minded focus can make a big difference in their profitability while still maintaining low overhead. 

If you’ve been considering manufactured housing as an investment option, two investing giants—Warren Buffett’s Berkshire Hathaway and Sam Zell’s Equity LifeStyle Properties—are anchoring the industry. Their commitment ensures the continuing production of well-built homes and maintaining stable properties. 

Final Thoughts

Manufactured housing can be a particularly good option for investors who want to participate in a syndication. Managing a portfolio on your own requires a lot of work building networks within the local community, getting to know community managers and potential sellers, buyers, and/or renters.  When you operate as a passive investor, you have the opportunity to leverage someone else’s relationships and diligent networking as part of your strategy.

At Cira Capital Group, we help busy professionals diversify their traditional investment portfolios by creating private real estate funds, pooling investors’ capital with our own, and investing with world-class operators.

Interested in learning more about our investments?