Manufactured Home Good Investment?

Question

Hi BP Fam,

I live in Oakland, CA and I am currently in the process of placing offers on my first investment property, which will be an owner-occupied multifamily. I am offering with FHA 3.5 percent down.

I am considering making an offer on a duplex in Oakland (Fruitvale Area). It is built after 1989 (no rent control), with an already vacant unit for me to live in. Also, other property is occupied and generating income to cover about 60% of the mortgage on its own. After speaking with the agent, reviewing comps, etc., a competitive offer for this home would be around 720k.

However, upon reviewing the disclosures this evening, I realized that this is a manufactured home.

I would love to hear you all's thoughts on the above as it pertains to manufactured homes and whether you find this to be a good investment. Thanks!

DJ

Account Closed · Answer

I have doubts your lender will follow through, but if they can get it done, great. I would only buy it if I had a plan to keep it forever. ie. it better cash flow really good. Do not expect any kind of appreciation on it. Although it has appreciated in the last 10 years, it's the land that has gone up, and you are basically riding the wave of great market appreciation.

If you can cash flow $500/door/month without living there, and only putting 3.5% down, then it will be a home run. Your tenants won't care that it's modular/manufactured. Only the bank will care because it severely limits your buyer pool if/when you decide to sell.

If you can live for free/cheap, then it's still a good deal. If you were putting down 20-25%, I wouldn't feel the same way.

Let us know how/if the lender performs.

Chris Mason · Answer

There's a dozen or so 2-unit manufactured homes that were thrown up by some developer in Oakland in the 1980s. Once a month or so I get an inquiry from someone that wants to buy one. Always high DOM, always great price, always great cap rate, etc.

Only problem is, good luck getting a mortgage on a 2-4 unit manufactured home. Cash buyers only, though hard money may entertain it. That's why they are priced so well relative to rent, and why DOM is always like 85 or 143 or 700.

Good luck. Probably best to move on from that property.

Account Closed · Answer

@Donald Cespedes you’re going to have a very tough time getting a loan on this property. FHA probably no way. There are a few very specific lenders that will lend on this, and I believe they will require much more than 20% down.

The expert on this is @Chris Mason. He can confirm my thoughts.

Arlen Chou · Answer

@Donald Cespedes you have received some great responses from @Chris Mason and Account Closed . I wanted to elaborate on Saj's last comment about holding it forever. When building a company or a business plan it is extremely important to consider the "exit". Take what Chris and Saj have said and take into consideration that you will on the other side of the coin when you go to sell the property. Meaning that you might have issues trading up at a later date. Real estate is already very illiquid, this property will be even more so...

Account Closed · Answer

I have seen lenders recently widening their lending requirements on manufactured homes with land. However, @Arlen Chou is spot on. You may want to call a bunch of banks to see if they would lend on it. This will help you make the decision.

DJ Cespedes · Answer

Thanks Account Closed.

I spoke with my lender and it appears that they may be able to finance the home with FHA, but said that once under contract, it is possible that other issues may arise during appraisal, inspection, etc., that cant be known at this time. One possibility that he mentioned was that the appraiser may compare it to comps for modular homes rather than that for normal multi family units. If that happens, the home may appraise for much lower than 720k. Also, he mentioned that if I were to get the property, the resale value may be lower as well should I decide to sell it. The same appraisal issue could also arise on the back end if/when I decide to sell.

That said, assuming that I am able to get financing, would you recommend that I move forward on it. Is it a wise investment for the first time investor? It is a nice home and generates decent income (didnt even realize it was modular until I read the disclosures), but maybe a modular home is not the best move for a first time investment property? The price also appears to be pretty high for a modular home. Its right up there with the comps for normal "stick built" duplexes.

DJ

Greg Scott · Answer

There should be only two concerns.  (FWIW, these would be the same questions for any deal)

• Do I have appropriate comps?
• Does the condition of the house justify the valuation?

On the first issue, an appraisal will tell you the value.

On the second issue, I understand that manufactured homes are often of higher build quality than ones built on-site.   Still, an inspection should tell you if there are any major structural issues.

Manufactured Home Good Investment?

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