Pros and Cons of Rental Modular Properties

Source: Quality Homes.

Let’s clear the confusion: modular homes differ from mobile homes or manufactured homes.

Modular properties are the same as prefab or prefabricated homes, where there are repeated sections called “modules” constructed in a factory before getting delivered to the intended site. Once they arrive, a team installs each unit to complete the property.

Now… Are they good investment properties? Should you consider them over stick-built homes?

Forbes even calls modular homes the future of real estate. But are they really?

Below are the pros and cons of investing in modular rental properties. We’ve provided all the information necessary for you to make the right decision, so read on!

Pros and Cons of Investing in Rental Modular Homes

Just as with all property types, there are trade-offs when investing in modular properties. Still, despite their mixed reputation in the industry, modular homes are suitable for an increasing number of investors who prioritize building economically, completing the project quickly, and maintaining quality.

Here are the pros and cons of modular homes:

In our opinion, the pros outweigh the cons. If you can find a modular property that passes financial viability and attracts potential tenants (e.g., being close to a quality school or public transportation), there’s no reason why you shouldn’t proceed with the investment opportunity.

What to Consider When Investing in a Modular Home

Modular homes can be an excellent investment for the right person and business, but turning a modular home into a rental house isn’t for everyone. Here’s what you should consider before investing in a modular property:

• - Assemble your list of modular building suppliers and contractors. Work with your prefab home supplier to find a local contractor to provide utility services and a solid foundation. Take time to understand their services and your obligations regarding site preparations.
• - See if you can realistically afford it. Factor in costs associated with owning a property, including possible renovations if you’re buying an existing modular property. While modular properties are generally cheaper than site-built properties, mortgage rates are higher than rent in most states.
• - Get pre-approved for a mortgage beforehand. Share your financial information with your chosen lender for them to review, verify, and determine if you’re good to go. If they do, do your due diligence in checking all the mortgage options and terms. The lender will issue a pre-approval letter, which you can use to prove to sellers that you’ve secured financing.
• - Know that property taxes still apply and will be on top of your monthly mortgage payment. Your lender may require you to pay for private mortgage insurance (PMI) if you put down less than 20% for a down payment.
• - Be aware of the market surrounding the property. See if the modular property hits your investment goals: neighborhood livability, convenient location, quality schools, low crime rates, and more. Just like with any real estate investment, don’t just choose the first one you see. (If you’re looking at the Metro Detroit market, we have an ongoing deep dive series that’ll help.)
• - Don’t bid too high or too low on the modular property. Ensure that you’ll be in a suitable position to generate cash flow and equity into the home. One easy way is via the 1% Rule. Bidding too high will allow you to purchase faster, but you might have difficulty recouping the costs. In contrast, bidding too low will only give you the cold shoulder from the seller.

Modular Homes Make Good Investment Opportunities

All in all, modular properties give you the same strengths, weaknesses, opportunities, and threats as site-built or stick-based properties. If you can invest in turning traditional homes into a rental business, then there’s no reason why you shouldn’t consider modular homes in the first place.

Modular properties are just as good as traditional ones. Maybe even better.

Do you need more help with real estate investing? Get in touch with me—my inbox is always open. Plus, if you’re interested in the Metro Detroit real estate market, we’ll be the perfect partnership. I’ve been a property manager in the area for over two decades and have the information you need.