Institutional investors and real estate developers are always looking for new opportunities in today’s marketplace, and one surprising trend to note is manufactured housing. Compared to traditional site-built home developments, manufactured housing developments offer several advantages that make them an extremely attractive investment. And in today’s article, we’ll discuss those advantages and why so many investors and developers are clamoring to get in on the ground floor of this new trend.
The Future Of Sustainable Housing: Manufactured Housing
Manufactured homes – also known as factory-built, prefabricated, or modular homes – have come a long way since the days of our grandparent’s mobile homes.
Most manufactured homes built today are made with the same high-quality materials and techniques as traditional foundational homes. This gives them the same look and feel as conventional “stick-built” homes. And unlike their mobile home predecessors, today’s manufactured homes are built to be both energy efficient and strong and durable, which enables them to stand up to severe weather.
While mobile homes were known for being small and crowded, the same can’t be said about today’s manufactured homes. Some models are now over 3,000 square feet and can be fully customized to the buyer’s specifications. They can also be made quickly and for a lot less money than “stick-built” homes, making them an attractive and sustainable affordable housing option.
Institutional Investors and Real Estate Developers See Manufactured Housing Communities As Capital Magnets
Despite recent turbulence in other asset classes, manufactured homes have maintained their standing as a recession-resistant asset class, making them an attractive option for investors looking for stability and capital growth.
Since 2000, manufactured housing has consistently outperformed other asset classes in terms of an increase in Same-store NOI (net operating income). And historically, this asset class has proven its ability to maintain high occupancy and low turnover in all economic cycles, including recessions. It’s because of these reasons and more that institutional investors and real estate developers have taken notice.
Factors Contributing To Serious Profits In This Sector
According to the Manufactured Housing Institute’s most recent report, more than 105,000 new manufactured homes were produced last year in 2021, making up 9% of all single-family new home starts. This was the highest number of new home starts in this asset class since 2006. And this trend is only expected to continue its upward trajectory.
What’s more, developers and investors who get in on the manufactured housing market early stand to make some serious profits. Let’s look at several factors that make this asset class a capital magnet.
The Nation’s Inventory Shortage
The nation’s shortage of homes is an advantage for investors in new housing developments, especially when it comes to affordable housing. And since there’s not enough housing to meet the demand of all new homeowners looking for first-home starts, this leaves plenty of room for profits in this market segment.
Lower Cost To Build:
Most of the construction of a manufactured home takes place in a factory using standard building materials, resulting in lower overall costs to build. But there’s even more room for investors and real estate developers to increase their profit margins on build costs. Those who can shift their mindset from focusing on individual projects to committing to a pipeline of ongoing repeatable projects will be able to take advantage of economies of scale and negotiate even better terms for construction materials, products, and appliances with manufacturers.
Controlled Construction Environment and Fewer Labor-Related Issues:
Some common site-built construction problems resulting from weather, theft, vandalism, and damage to building equipment and supplies by inexperienced workers, are reduced in manufactured housing because of the controlled construction environment throughout a large part of the building process. This is because factory workers are taught and controlled in a manner that’s more effective and efficient when compared to the approach of outsourcing labor in site-built home construction.
Skilled factory workers also tend to be more productive and have a lower turnover rate than their counterparts in the site-built home sector. This means that real estate developers of manufactured home communities manage fewer labor-related issues than they would with a traditional build. And with skilled labor being harder to find these days, that’s a significant advantage.
Faster Time To Market, Less Risk, and Faster Profits:
Manufactured homes take less time to construct from start to first, which limits developers’ risk because their capital isn’t locked up in vacant or undeveloped land for as long. Faster construction times for new manufactured home developments also mean faster profits for investors.
What Does The Future Hold?
The bottom line is that investors and real estate developers can make significant money from the construction of manufactured housing communities. The time, money, and labor savings that manufactured housing offers investors and developers lead to a favorable outlook for sustained expansion in this housing market segment. And we only anticipate that this segment of the housing industry will continue growing at a healthy rate in the coming years.
What do you think about this investment trend? And did we overlook any other compelling reasons why institutional investors are taking notice of this housing market segment? Be sure to let us know in the comments below!
