The ongoing lumber shortage is making it harder to build new houses, so many homebuyers are searching for alternative construction methods. One that’s become popular recently is modular homes.
They’ve attracted the attention of homebuyers and manufacturers alike, who regard them as an affordable housing solution. Even YouTubers are dedicating videos to reviewing various modular home brands and models.
But do modular homes honestly make a good investment? Take a deeper dive and find out.
What Is a Modular Home?
First, let’s define what a modular home is. These structures are built in sections on an assembly line at an offsite factory. The parts are then shipped to the buyer’s address, where they’re assembled. Modular homes fall under the umbrella of “prefab homes,” which also include mobile and other types of manufactured homes.
Unlike mobile homes, however, modulars are built on a foundation and meet local building codes, which makes them more like houses that have been constructed onsite (aka stick-built homes). They last just as long (if not longer), and they pay the same property taxes.
As the name implies, modular homes are made up of individual building components. Each is like a block you can mix, match, and combine with other modules – like Legos.
This enables you to customize your modular home to a greater extent, and in most cases, the finished product is indistinguishable from a regular house.
In the past, modular construction primarily involved commercial buildings such as offices and classrooms. More and more single-family homes are being built this way now.
Nevertheless, buying a modular home has both pros and cons. Let’s go over them.
Pros of Modular Homes
Lower Cost.
Modular homes tend to be 15% cheaper than comparable stick-built homes because they’re built in a factory by a single company instead of entailing the integration of several different contractors. Modular home manufacturers also benefit from economies of scale. Each additional home entails a lower production price, and homebuyers get to share in some of the savings.
Faster construction.
Modular homes can be erected faster. Their construction isn’t delayed as much by labor shortages or shifts in weather, and robotic assembly lines may run day and night with little interruption. Once the modules have been delivered, the house is relatively easy to put together.
Better quality control. Modules are inspected through every step of the manufacturing process. Even when they’re shipped, they’re usually covered and protected. So you can expect a high build quality.
Higher energy efficiency.
Modular homes usually include energy-efficient windows, siding, and insulation, so you can worry less about losing heat in winter and loss of cool air in summer.
Extra amenities.
Sometimes, modular homes come equipped with extra amenities like smart-home features. For example, modular homes built by Zennihome include automated thermostats, lights, TVs, speakers, door locks, and other innovations.
Appreciation over time.
Though some investors worry that modular homes may depreciate in value, they actually tend to appreciate at a roughly similar rate to regular stick-built houses. That’s because they’re built on a foundation and regarded as “real property.” So you can still sell yours for a profit or keep it for a rental property. You might also outsource the property management to generate truly passive income.
Cons of Modular Homes
Smaller size.
Though sizes vary, most modular homes are smaller than the average stick-built house. That’s because they target buyers who are focused on affordable housing solutions.
Stricter land requirements.
Modular homes aren’t allowed everywhere. You need to have enough space for it, obviously, but you also have to follow local building and zoning codes. Some jurisdictions ban modular homes, and this includes most subdivisions.
Trickier financing.
Because they’re not your typical residential structure, modular homes can be more difficult to finance. Many traditional mortgage lenders won’t underwrite them, so you’ll have to find a non-traditional lender or one that specializes in modular homes. Either way, count on a standard 20% down payment.
Separate contracting. You’ll have to hire out contractors to pour the foundation and hook up the utilities—including water, sewage, electricity, and gas.
Less customization.
Though modular houses have come a long way since the more rigid shipping-container style, they’re still less customizable than many stick-built designs. Most of the floor plans and amenities are pre-set and it can be difficult to make changes once the manufacturing is underway.
Enduring stigma.
Modular homes still retain some stigma. Many associate them with low-quality mobile homes, even though they’re considerably closer to stick-built homes in quality. This might also make yours harder to sell later on.
Final Verdict
Modular homes can be a great investment, especially if you can’t afford a more traditional house. They are faster to build, more affordable, and still appreciate in value over time.
But you should be prepared for their unique challenges. Weigh the pros and cons carefully and make sure you have appropriate land and financing before you decide to invest. Ultimately, the correct decision will come down to your personal preferences and resources.
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This content is made possible by Larry Alton.
Photo credit: Shutterstock
