For as long as we have been in business we have been battling the stereotypes and myths about mobile or manufactured homes. Because of these perceived ideas many people have stayed away from owning their own home and either spent too much on renting an apartment or getting in over their heads in purchasing a conventional home. In order to better explain the advantages of owning a manufactured home we are going to follow the path of our couple Jim and Jenny.
Jim and Jenny have been married for a little over three years and do not have any children but are looking at starting a family soon. Currently they live in a two bedroom apartment and pay $980 per month for rent. At the end of their third one year lease they have paid $35,280 in rent. If they were to purchase a home they would have nothing more than a hope they could get their deposit fee back, which is often doubtful. So they have to pay a large amount for rent and somehow also save for the down payment of the new home they hope to afford.
Although mortgage rates are still low, conventional home prices are back on this rise so Jim and Jenny decide they must move quickly to decide where their future may lie. Jim’s co-worker tells him about the manufactured home he lives in and how nice the home and community are. Jim and Jenny decide to add the thought of living in a manufactured home to their plans for the future.
First, they decide to look at the financial side of owning a conventional home compared to owning a manufactured home or renting.
RENTING AN APARTMENT: Currently paying $980 and rent consistently goes up and average of $10 per year. They do not have to pay for heat, water or property taxes but still responsible for electric bills and rental insurance. Adding an additional $120 per month. TOTAL: $1,100 per month
MANUFACTURED HOME: Looking at a newer home for $50,000 where they would need 10% for a down payment ($5,000) and a new loan at a higher rate of 8% for 15 years would give them a payment of $431 per month. Lot rent for the community is $430 per month and consistently goes up $10 per year. The lot rent includes water, sewer and garbage service. They will have to pay for gas service, electric service, personal property tax and home owners insurance. The average total would be $352 per month. TOTAL: $1,213 per month.
CONVENTIONAL HOME: Looking at a modest home for $200,000 where they would need 5% for a down payment ($10,000) and new loan at a lower rate of 4% for 30 years would give them a payment of $907 per month. There is no additional community fees unless they purchase a town home or condo which may include an additional homeowner’s association monthly fee. They will be responsible for water & sewer charges, garbage service, gas service, electric service, property taxes and homeowner’s insurance. The average total would be $688 per month. TOTAL: $1,595 per month.
Next, the young couple decide to look at the actual features of the three options to see which one best fits their needs and is the best bang for their buck!
RENTING AN APARTMENT: Currently they have two bedrooms and about 1100 square feet of living space. They have an old air conditioner in the living room but nothing in either bedroom making it uncomfortable in the late summer to sleep. They can use the second bedroom as a nursery but would have to find somewhere to store the items currently in the room. They do not have a garage and would be charged an extra amount if they decided to get a cat. They are unable to own a dog.
MANUFACTURED HOME: The home they are looking at has three bedrooms and two full bathrooms and around 1,500 square feet of space. The home, built in 2004 and like most newer manufactured homes, has energy efficient thermopane windows, high efficiency furnace, Energy Star appliances including the water heater and fully insulated 2″x6″ walls with vinyl siding and shingled roofs. In fact in a study at the North Carolina A&T University, sponsored by the U.S. Department of Energy, found the energy efficient manufactured home they tested against a conventional home used 55% less energy throughout the entire year! [source: U.S. Department of Energy]. Although the home does not have a garage (even though many communities do allow them) it has plenty of storage room plus a separate room for the nursery. You own the home so you can customize it too. Finally the community does allow cats and small dogs and has a park built inside the community.
CONVENTIONAL HOME: The home they are looking at has three bedrooms and two full bathrooms and around 1,700 square feet of space. The home was built in 1990 and does not have a furnace that meets the current high efficiency models installed in newer homes. The furnace and appliances are all original and are almost 25 years old. The home does have a two car garage and more space for storage then the other two options. They can make the third bedroom into a nursery and can customize it also. They can have cats or dogs and the home is located near a park.
Finally, Jim and Jenny decide to look at other intangibles for each option to make their decision.
Simple Pro’s of each option:
1. No Long Term Commitment.
2. No Heat or Water Bills.
3. Cheaper Monthly Payment.
4. Less Expensive to Insure than Manufactured or Conventional Home.
5. No Property Taxes.
6. Not responsible for a majority of the upkeep and maintenance of the unit.
7. Less square footage then either Manufactured Home or Conventional Home.
7. Receive Rental Tax Credit.
1. Full Home Ownership.
2. Customize the Home.
3. More Energy Efficient than Conventional.
4. Community Owners must be approved through Credit and Criminal Background checks to purchase.
5. Pets are allowed.
6. Less Expensive Monthly Payment than Conventional Home.
7. Typically more square footage and more bedrooms/bathrooms than Apartment.
8. Less Expensive to Insure than Conventional Home.
9. Less Expensive Property Taxes than Conventional Home.
10. Can move the home to another property.
11. Possible to write-off home loan interest each year.
1. Full Home Ownership
2. Customize the Home.
3. Pets are allowed.
4. Garage & Storage Space.
5. Larger Yards.
6. Typically builds Equity over time.
7. Multiple Levels.
8. Typically more square footage than Apartment or Manufactured.
9. Possible to write-off home loan interest each year.
Simple Con’s of each option:
1. No Ownership.
2. Limited Pets or Charged more to have a pet.
3. Typically no garage or detached.
4. May have to walk up multiple flights to reach home.
5. Less possible tax write-offs.
7. Close living quarters with other residents.
8. Rent may go up every year.
1. Smaller yards.
2. Pet limitations.
3. Single level living.
4. Build little or no equity.
5. Lot rent may go up every year.
6. Fully responsible for all upkeep and maintenance of the home.
7. No garage or less square footage than conventional home.
1. Much larger financial commitment
2. Higher monthly payment.
3. Must pay higher property taxes than Apartment or Manufactured Home.
4. Must pay higher homeowner’s insurance than Apartment or Manufactured Home.
5. Fully responsible for all upkeep and maintenance of the home.
6. Responsible for more utilities and services than Apartment and Manufactured Home.
To be fair, we are a manufactured home dealer who believes 100% in our industry as a fantastic option for anyone looking into homeownership. So after gathering all of the information that Jim and Jenny have done, below is what our advice to them would be regarding their decision:
– They must decide a timeframe for having a child. Is it two years, five years or ten years? Based on their commitment to owning a home before the baby is born plays a big role. If it’s two years than they need to look at buying a manufactured or conventional home. Five years or more they can stay renting to save money for a down payment on the home when they are ready. The more you save means the less you finance leaving you in a much better financial place for the long term regardless of what you purchase.
– If they are committed to purchasing a home they must decide if they have enough money saved now to purchase the home they want and is their credit the best it can be? Most people do not realize that if your credit is not great you will often pay a higher interest rate on your home loan. If you could wait a couple of years and get your credit rating from good to great it could save you literally thousands of dollars regardless of which home you decide to buy.
– The toughest question to answer is regarding equity. Equity is the amount of money you will make on your initial investment from your conventional home increasing in value as real estate often does. So for example, you purchase the home for $200,000 and in five years you may be able to sell it for $225,000 earning $25,000 in equity. Historically in the United States real estate property has always been a rather safe and effective investment. Unfortunately the last six years has taught us that nothing in the investment world is safe. There are many people still in the United States who purchased a conventional home at peak prices in the early 2000’s who still owe more than what their home is currently valued as of 2015! So our simple advice is this…Manufactured Homes rarely increase in value (unless you add a garage to a property that did not have one) but do not decrease in value as quickly as an automobile or RV. Typically if the homeowner finances a home with 10% down for 180 months they will not get stuck with owing more than it’s worth if they want to sell it any time after 4-5 years. So below we will lay out our final argument for each:
APARTMENT: If you live in an apartment for the next five years you will pay $58,880 in rent (assuming there is no rent increase) and at the end of the five years you will get nothing in return. That is a bad investment every way you look at it. Some people have no choice but to rent because either they cannot afford to purchase a home, don’t have enough money saved for the down payment or simply have poor credit.
MANUFACTURED HOME: If you purchase the above home for $50,000 with 10% down at 8% APR for 15 years you will owe $35,445 after five years. Per the NADA Value (see below) of a similar home, the depreciation over five years would be $10,902. Meaning the home would still be worth around $39,000 after five years. So you would have around $3,555 in equity. If you add in the $25,800 you would still pay in lot rent (assuming no increases) and you would still save over $7,280 over those five years in comparison with renting an apartment. After five years if you wanted to purchase a conventional home using the money you saved, you would have $10,835 to use as a down payment.
CONVENTIONAL HOME: A long term investment that some people often feel stuck with especially in the current market situation. If you purchase the conventional home for $200,000 with 5% down ($10,000) for a 30 year term after five years you would still owe $171,850. You would have gained $18,150 in equity. Of course this would only matter if you purchased a “starter home” and would be looking to upgrade to either a larger home or more expensive home. One thing to think about when going this route is the cost of selling and buying a conventional home compared to a manufactured home. In this scenario you would have around $53,000 of equity if the home increased in value (to $225,000 per above example) over the five years. That money is often used to put down on the new home. Let’s say you wanted to purchase a home for $300,000 to upgrade to a newer development, bigger yard, more bedrooms, etc. Often to sell your home you must use a REALTOR which even the modest commission is 6% which would mean $18,000. Plus the closing costs of the new mortgage would be around $5000 or more. So of the $53,000 of equity you have already lost $23,000 in fees and services. In the manufactured home world commissions are typically lower and the cost of the loan is much cheaper.
In closing, we certainly feel that conventional homeownership is something we all strive for because of the investment aspect of it. But the cost of renting an apartment brings absolutely no long term value to you. So if you are not quite ready to jump into a huge investment such as a conventional home please consider the manufactured home as a wonderful alternative even if it’s only short term. You will get much more bang for your buck and still feel all the comforts and pride in owning your very own home!