Starting out with House Hacking Manufactured Homes any Advice?

5 Replies

Hey BP!

I decided that graduating college and moving to a new state would be a great time to start my real estate investing journey! I have no college debt and quite a bit of savings for a decent down payment. Unfortunately, my job is in the San Jose, California area so the only thing I think I could reasonably afford to buy and house-hack is a manufactured home. I would love input on my plan seeing as I'm not too familiar with the specifics with manufactured homes or the Bay Area real estate market.

Plan: Buy a manufactured home with an FHA loan, 3.5% down payment and rent out the extra rooms.

Current Financial position: No debt, credit history is in good standing (700+ credit score), enough savings for down payment of manufactured home in question, good W2 job waiting for me, previous W2 income is 1 year worth of unsteady (more than one company/not-continuous) internship income.

Questions: 

  1. What are the main differences between manufactured homes and SFH. I've done some initial research and couldn't find much more other than the cheaper construction materials means likely more maintenance (however building standards have improved significantly over the years), land may not necessarily come with the property, and insurance tends to be higher proportionally.
  2. I believe the conventional loan route is out of the question since I don't have steady W2 income for the past 2 years (only a year worth of internship income, and wasn't at the same company), but I have heard having been a student as well as leveraging the income you plan to make in your new job is enough to get an FHA, is this true?
  3. If you have any good contacts or resources for learning up on the area's market and/or about manufactured home investing/house hacking I would greatly appreciate it! 

Thanks for reading!

@Chris Lopez ,
Welcome out to the Bay Area!
I'm actually in Thailand. But I still consider the Bay my "home." ;)

Not an expert on this, but considered doing something similar in the Bay myself. 
A couple negatives I found during my research are: 

1) The lot rent can be very high. There are some rent control aspects, but I think that lot rent can change during transfer of ownership also. Sort of like property taxes. So be sure to find out the new lot rent, and not just look at the old. (I have seen some lot rents in the thousands of dollars. Here's one interesting article about a park in mountain view.. (working on rent control..)
- The tag-along with this is that most of the big benefits from investing in the San Francisco Bay Area (appreciation) comes from the increase in the land value. Not from the deteriorating structure (even more true with mobile home vs stick-built/wood house w/ foundation.)

2) Mobile home parks seem to have some of the most restrictive rental rules - sort of like condo HOA's - but worse. If (while) you're living there, you may be able to pull off the room rentals. May be different when you leave, and the rules can change in the mean time.

However, if you can make good cash flow (or even not have to pay rent) for several years, that could be a big swing in money for future investing. I just wouldn't expect to hit a home run with it as a deal in and of itself. And if you're doing it to "own real estate" for the long term - you're not really doing that. The "real" "estate" is the ground. That's what you want to be into in the Bay for the long term IMHO. 

Whether that be San Jose all the way up to Richmond..
Anyway, look closely at the cash flow you may be able to generate, and the potential depreciated price you would have to sell for in the future, along with potential increases in lot rents that could offset an increase in rents received (or, god forbid, a decline in rents if the jobs situation changes..)

@J. Martin ,

Thanks for the warm welcome! 

You brought up some good points I didn't consider like the threat of rising lot prices, would you say that rent in the area tends to grow with lot prices? I would view it as a good deal as long as I'm alleviating myself of the cost of living in the area. Although, some cash flow is always nice. I plan to contact the listing agent to determine if the property value includes land and if not to determine how much rent prices would be for a new lot tenant. 

If the numbers work and the rental rules aren't that strict the plan would be to sell the property down the line once I have some decent equity built up, and likely 1031 exchange the depreciated value of the manufactured home into a down payment for more expensive property in California. I'm hoping the equity value, combined with money saved from not paying for living, plus any possible cash flow would be enough to let me invest in actual land/property in the area.

Do you have any recommendations in terms of resources for reading up on landlord/tenant laws in the area?

Originally posted by @Chris Lopez :

@J. Martin,

Thanks for the warm welcome! 

You brought up some good points I didn't consider like the threat of rising lot prices, would you say that rent in the area tends to grow with lot prices? I would view it as a good deal as long as I'm alleviating myself of the cost of living in the area. Although, some cash flow is always nice. I plan to contact the listing agent to determine if the property value includes land and if not to determine how much rent prices would be for a new lot tenant. 

If the numbers work and the rental rules aren't that strict the plan would be to sell the property down the line once I have some decent equity built up, and likely 1031 exchange the depreciated value of the manufactured home into a down payment for more expensive property in California. I'm hoping the equity value, combined with money saved from not paying for living, plus any possible cash flow would be enough to let me invest in actual land/property in the area.

Do you have any recommendations in terms of resources for reading up on landlord/tenant laws in the area?

 For landlord/tenant laws, differs city to city. And mobile homes are different. So check with the city you want to live in. 

Regarding land: I think a purchase of a mobile in the SF Bay will rarely, if ever, include the land. But much better if it does IMHO. 

Regarding 1031 exchange: I don't think a manufactured home, without land, qualifies as real estate. I think it's personal property. So you could not 1031 exchange into real estate, such as land with a structure on it. (check with a qualified intermediary).  It has to be for a "like kind" exchange. 

Ironically, if it were real estate, you wouldn't have to worry about the 1031 exchange as much, because you can get an exemption on the first $250K in gains if you lived there 2 of the last 5 years as a personal residence. (for singles; as of now). 

Regarding equity: Most of the equity will probably come from paying down the loan, rather than from dramatic appreciation in the value of your manufactured home. (unless you get some sweet lot rent deal..)

My 2 cents: with mobile home, you buy a vehicle, not a house. Some do make money flipping them, or hold them during the real estate upswing. However, in the longer term, as the mobile home get older, it lose value.

That makes sense. I’m certainly not buying a manufactured home for the appreciation. My main goal is reducing living costs (ideally completely), my secondary goal is to leverage my buying decision to help me start buying actual real estate as soon as possible. Not being able to 1031 exchange mobile homes makes sense now @J. Martin so thank you for that explanation. I’ve heard of others using their mobile home equity/using it as collateral to secure better loan deals in another property which still seems like a beneficial route for future deals. I’m just not entirely certain if I’m calculating a mobile home deal correctly since I’m treating it like a SFH.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here