The manufactured home industry is enjoying increasing popularity with investors and tenants. As the pandemic has exacerbated an already worsening affordable housing crisis and the wave of unemployment has hit the retail, hospitality and leisure sectors hardest, manufactured homes are seen like a viable solution to the housing crisis. According to the 2013 US census, some 20 million people lived in a manufactured home.

More commonly known as “trailers” or “mobile homes,” modern manufactured homes are almost indistinguishable from single-family residences because they are built in accordance with HUD regulations. REITs and other large institutional investors, including Sam Zell’s Equity Lifestyle properties, are entering a historic industry dominated by moms and pop and taking advantage of value-added opportunities.

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The following list addresses the most common misconceptions about investing in prefabricated housing. From financing to building quality and tenants, manufactured homes have evolved to be defined by affordability rather than mobility.

5. Difficult to finance

A myth about manufactured homes is that they are difficult to finance. Whereas it was the case several years ago, the situation has changed with increasing interest in investments and now GSEs and private lenders have acceleration of the financing of prefabricated housing. Fannie Mae single-handedly closed $ 2.5 billion in manufactured home loans in 2019, down slightly from the $ 2.9 billion in 2018, but a significant increase from $ 1.9 billion in 2018. dollars in 2017. In addition, recent data from JLL shows that the percentage of delinquent loans barely exceeded 5% in the period following the last economic recession and has remained at an all-time low when others asset classes have struggled.

The first half of the year saw a surge in lending as the US Federal Reserve cut interest rates to offset the economic impact of the ongoing pandemic, with many homeowners taking the opportunity and refinancing their portfolios. . For example, in August, Hunt Real Estate grossed $ 41 million in Fannie Mae’s debt for three communities in Arizona and Utah.

4. Poor build quality

While many still view them as old-fashioned mobile housing, manufactured homes are actually a specific type of prefabricated housing and look a lot like single-family residences. They are built to HUD’s strict code of manufactured home construction and safety standards. They are then transported to site and assembled quickly to ensure minimal exposure to the elements that can lead to increased expansion, contraction and warping. Compared to a traditional house built on site, a prefabricated house has to withstand transportation, making the end products more robust when finished. What fits the stereotype are structures built before June 15, 1976, when the HUD code was implemented.

It is also believed that manufactured homes depreciate over time. This can happen if the structure has been moved or if it has not been well maintained. But, as with any type of real estate, location is everything and a well-located community can maintain or increase its value over time.

3. Bad investments

The demand for manufactured homes continues to rise and the pandemic has only accelerated the need for affordable housing. The industry is currently experiencing a cap rate of 5.89%, according to RCA data cited by Fannie Mae. Total investment in prefabricated housing rose 23 percent in the second quarter from the first three months of the year, according to JLL’s findings. In addition, institutional capital has represented a record 28% of the total volume of investments since the start of the year. Last month, Blackstone was in talks to invest $ 550 million develop its portfolio of prefabricated housing with 40 parks.

The sector can be seen as a safe investment in uncertain times since manufactured communities have recently experienced low residential turnover and high rents. The nationwide stabilized occupancy rate hit a record high in the first quarter of 2020 at 93.5%, according to JLL data.

2. High barrier to entry

Compared to other asset classes, the manufactured housing sector has one of the lowest barriers to investment. The second quarter saw an average price per block of $ 50,792, up 6.6% from the first quarter and 26% year-on-year, according to JLL data. With a new limited supply and an aging existing stock, investors have many opportunities to add value in this niche sector.

1. Target low-income residents

While most asset types use letters to differentiate properties by age and build quality, prefabricated housing communities are differentiated using a star system, ranging from four stars to two stars, each targeting a different type of tenant.

According to data from Fannie Mae, renters of manufactured homes tend to have lower incomes, with more than one-third of renters earning less than $ 20,000 per year and more than three-quarters earning less than $ 50,000 per year. These may be seniors on fixed incomes, low income families, people with disabilities, veterans and others in need of affordable housing.

The same data shows that there is an all-inclusive cost difference of $ 350 between renters of manufactured homes and homes built on site. This could be an incentive to Millennials in debt choose prefabricated housing options and use the savings to invest or repay loans.

Another growing demographic is made up of Aging baby boomers with disposable income who have chosen to reduce their retirement costs or simply add a second home. These residents primarily envision communities 55 and older, which offer amenities comparable to traditional seniors’ communities, but at a fraction of the cost.