.webp)
Prefabricated homes, or prefabs, have become increasingly popular over the years. One significant factor is the rising cost of homes. You've probably seen one or two videos on social media showing off modern modular homes, which are already closer to actual homes than boxes you can transport, such as classic mobile homes.
The question for real estate investors is: would it make a good rental property? Learning the pros and cons of prefab homes compared to traditional site-built homes can help you decide whether this can be a good investment or not.
Key Highlights:
- Prefab homes offer affordable and efficient construction, making them an attractive option for investors looking to expand rental portfolios without the high costs of traditional builds.
- There are several types of prefab homes, including modular, manufactured, kit, container homes, and barndominiums, each with unique designs, costs, and suitability for different locations.
- Major advantages include faster construction, energy efficiency, and precise factory-built quality, allowing investors to save time and money while offering durable, eco-friendly rentals.
- Challenges include zoning restrictions, limited financing options, and suitability issues in urban areas, which can affect rental potential and property placement.
- Prefab homes can be profitable rentals if strategically located and customized to meet tenant expectations, especially in suburban and rural markets with growing demand for affordable housing.
What Are The Types of Prefab Homes?
Modular Homes
The most common type of prefab homes is the modular home. They are built in a factory setting and then transported to the building site for assembly. Modular construction is quicker and still follows the same building codes as traditional homes.
Manufactured Homes
Also called a mobile home, the new name comes with new features. The entire construction process still happens in a factory, but the prefabs now look more like traditionally built houses. They can be placed on permanent foundations, but the way they're built leaves no room for customization.
Kit Homes
It is similar to a model kit or a LEGO set, except the parts are life-size and can be a new home. All you need to do is follow the building plans, and you won't even need an experienced team to do it, which means lower costs. These are usually preferred by people who enjoy modular home building for the experience and customization.
Container Homes
The name already says it all. Container homes are repurposed shipping containers, which means they are built to withstand long, rough journeys. It can be a single unit, or you can combine several for a multi-unit rental. However, they are mainly designed for items, not people, which can make temperature control an issue.
Barndominiums
Largely similar to how barns are built, they are usually built with metal or wooden frames to support the entire structure. It can easily be marketed as a luxury rental unit with the open floor plan and custom finishes. This prefab house is more suited to rural or suburban areas due to its design and overall aesthetic.
Modular Home Advantages:
- Since the building materials are manufactured off-site and ready to ship, you will only have to wait for transportation and construction, which can take a week or two. If you want to customize the modular home, the construction time can take between 4 and 5 weeks.
- Modular homes are generally energy efficient, and not just because of how they are built. Since they aren't typically built with utility connections, prefab homes use alternative energy sources like solar panels. The eco-friendly home will reduce energy bills, which is a great selling point for potential tenants.
- You will have lower construction costs since you don't have to hire an entire crew to build a home. Experienced home builders can construct most types of prefab houses since they don't need the extensive expertise required to build traditional homes.
- Arguably, the best thing about modular homes is their affordable price. Compared to brick-and-mortar home prices, prefab homes can be a cost-effective way to start a rental business.
- Despite being affordable, many modular homes can be as sturdy as your typical real estate property. Since they are manufactured in a factory, the dimensions and pieces are precise, leaving no room for leaks. Many use enhanced materials as well, allowing the home to withstand stronger weather.
Modular Home Disadvantages
- Modular homes are not suited to urban areas, which means that your options for real estate investing will be limited. You can only market to a specific tenant pool, particularly those who prefer single-family homes.
- There are zoning laws and local regulations that affect mobile homes. Accessory dwelling units (ADUs), or prefabs attached to existing homes, are covered by different rules and regulations in San Diego County as well.
- It can be harder to acquire modular home loans, especially if you don't intend to hire registered builders with a proven track record. The approval process for your home purchase may also be faster if you purchase from BBB-accredited businesses that sell modular homes.
- There are still many obstacles that can affect construction. Weather delays, inaccessible roads, and foundation suitability can turn an efficient building method into a stressful one.
- Although you won't need much to purchase prefab homes, financing can be trickier. Lenders wouldn't bet on an unfamiliar investment, as opposed to site-built homes. Even construction loans can be more complex than you expect.
Conclusion: Can Prefab Homes Be Rental Properties?
Yes. A new modular home can be a good investment, as long as you acknowledge its limitations. For instance, your location is limited to rural and suburban areas. Your ability to customize it can also vary depending on the type of prefab home you choose.
Weigh the risks and benefits of purchasing a prefab based on your investment plan. Plan ahead for the potential costs, such as additional customizations to make it a tenant's dream home.
Prefabricated Homes FAQs
Can modular homes withstand hurricanes?
- Yes. Modern modular construction follows specific building codes for hurricane-prone areas. The materials used for the prefabs, such as reinforced framing and hurricane straps, are also built to be just as secure as site-built homes.
Are modular homes energy efficient?
- Yes. One of the main selling points of prefab homes is energy efficiency. It usually uses sustainable energy sources like solar panels, helping tenants reduce utility costs. Since the home site is typically in rural or suburban areas, solar panels can produce enough energy for even a few family members.
Do modular homes lose value over time?
- They lose value the way traditional homes do. With proper maintenance and the right upgrades, it can also appreciate in value. Keep in mind that most modular homes become real properties as soon as they are built on a permanent foundation, making them just as great investments as site-built homes.
Why can't prefabs be built in urban locations?
- Mainly due to local zoning laws, strict building codes, and transport challenges. Since prefabs are typically single-unit homes, they are more suited to rural or suburban locations, appealing to tenants with families.
How To Be A Stress-Free Landlord
Although purchasing a modular home is a more cost-effective way to start a rental business, it doesn't mean that the property management aspect will be easier. You will still have to market your rental and screen your applicants, and then fulfill your daily tasks as a landlord.
The good news is that you can enjoy the benefits of being a rental property owner without the work. By hiring professionals like Blue Line Property Management, you can earn passive income as you continue to grow your portfolio.
Contact us, and we can help you expand your investment plan.
