I’m going to try to convince you that you should buy a mobile home.
Kind of. Not really. I’ll make a case for it, but do what you want.
You might have heard Mobile Homes (now termed “manufactured homes”) are low quality, terrible investments. You might have seen the infamous John Oliver skit (video here) about what a trap these things can be. True but exaggerated, and that main trap is solvable.
I believe, and have data to support, that manufactured homes are an incredible value. Especially if you’re renting right now.
I’m a software engineer. I guess we’re known for being smartish, and usually well-payed.
I’m also in the bay area. It’s known for being absurdly expensive to live.
Flushing money away on high rent or putting a too many dollars towards a non-diversified (2) asset like a house wasn’t appealing to me, so I started looking for other options.
At the time I was renting a tiny, cute house for $2300/mo or so. Equivalent or larger-but-older better traditional homes had all-in monthly costs with mortgage and everything at $5000-7000/mo. More than double the cost, and not much higher quality of living. Just the promise of ownership and equity from long-term appreciation.
Side-by-side Anecdote (around 2020)
So, instead, I bought a manufactured home.
It’s in a similar neighborhood, I still bike to work. It’s more than double the square footage but has a smaller yard area – definitely a net quality increase.
The house was around $300k and it has a thing they call “space rent” which cost around $1000/mo. Together with the chattel loan for the home that cost is about $2800/mo (1000 + 1800 – calculator).
Even better, when payed off, it’ll only cost me $1000/mo to hold on to. In the bay area, this is the impossible – holding costs for property that are significantly lower than equivalent rent. Property taxes are also much cheaper than traditional real estate, chiefly because the assessed value is lower. So, significant cost reduction.
Rent VS buy manufactured home, side by side:
- $2300/mo, traditional rental house, flushing all that money away.
- $1000/mo, manufactured home space rent, less gets flushed. But also consider the opportunity cost of parking $300k in this asset
Personally I’m not betting on appreciation, but I wanted to say a word about it.
Everyone says “Mobile homes are a terrible investment”. I guess there’s truth to that, or maybe there was before HUD enforced stricter building guidelines in the 1970s. But today that’s not what the data says though. At least not in the bay area.
The data says mobile homes appreciate pretty well. Park-by-park, here is price and $/sqft for three different parks in San Jose:
San Jose, “Westwinds”, 1998-2019
San Jose, “Lamplighter”, 1998-2019
San Jose, “Oak Crest”, 1998-2019
So… about triple over twenty years? Not bad. It’s certainly not charting the financial outcome of boat or a horse ownership, anyway.
For more data like this see github.com/mobile-home-space-rents – that data set is especially looking at the impact of space rent hikes.
Definition of “Value”
This may be controversial. But my definition of value here is what other people would pay for the utility a thing provides today. Defining value by price is speculation on supply shortage and long term trends that are out of my control. So for me,
value of housing === rent. If I moved out of town, could I rent out my house for about what the mortgage costs me? In the bay area, usually, absolutely not.
Real Estate investors call this rent/price ratio 1 and in the Bay this number is way off the norm. For example, in San Jose, a home costs 42 times a year’s worth of rent, but in Cleveland, a home only costs 8 times a year’s worth of rent source.
Broadly speaking, a high rent/price ratio means renting is more favorable than buying.
You can, and my non-wealthy home-owning colleagues do, abide this imbalance. They are ok with having most of their assets in real estate, and/or with betting on long term appreciation outpacing the stock market 3. I don’t want to do either.
The one trap to avoid
One thing I noticed when I started looking at this was that some parks would, almost overnight, double space rent from $1000 to $2000. You don’t want this to happen to you, because, unlike in an apartment, you can’t move, and it affects your home value.
The solution is to buy where there is rent control. I don’t know about it for apartments, but it’s a must-have for mobile homes. If a park owner doubles the rent, you could lose 30-50% of your home value when you go to sell. To see this, compare quality/price of homes in a city/park that has $2k space rent with one that has $1k space rent. Monthly affordability drives buyers’ price points, and that equation is simply
space rent + loan payment. If you increase the space rent, the loan payment and home price has to shrink.
If you’re currently renting, A mobile home is very likely a strong financial choice and you should take a look for yourself.
- Rent Control. To control for the biggest risk factor, buy in a rent-controlled city. In the bay that means San Jose or Mountain View, afaik. Importantly, rent control must apply to mobile home “space rent”, not just apartments. I watched owners in Mountain View fight for that distinction, they finally got it in 2021
- Nice Enough. Consider where you are on the hedonic treadmill, and find a home that is “nice enough” for your quality-of-life demands. But don’t be too worried. These homes and neighborhoods can be very nice. If you’re coming from an apartment complex, it’s actually a great upgrade.
- Rent AND Own. Think of this is a diversified blend between renting and owning. Partial exposure to the risk and upside of owning, with some of downside of throwing away money on rent. When you run your numbers, pretend conservatively that you’ll sell the house at a break-even price, and see if it’s a much better deal than renting (it is).
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