Investing in Modular Rentals - Successful Investing Niches in 2023
Modular rental homes offer a unique opportunity to get a brand-new, pre-built home for less than you’d pay for a traditional site-built home. People who believe modular homes are cheap or low quality may be surprised at how far the buildings have come since the 1980s. Today’s modular homes are virtually indistinguishable from site-built structures, and older ones can be easily spruced up to appeal to modern tastes.
A wise modular rental home investment can offer more flexibility and bang for your buck. If you’re ready to invest in another rental property or want to build on one of your existing plots, consider a modular rental home. As long as you’re aware of and prepare for all the perks and pitfalls, they can be a solid investment for your portfolio.
First, if you would like to learn how to finance the construction and/or purchase of modular rental properties today, we would like to help. All you need to do to get started is click the link below to book a free strategy call with our team at LendCity.
What is a modular rental home?
Modular homes are not to be confused with mobile homes, which carry a stigma of their own. They’re traditional wooden-framed homes built off-site, then transported to your location and set atop a concrete foundation. Once the home is put together, it should look like any other stick-built home in the neighbourhood. Unlike mobile homes, modular rental buildings are not moveable after placement.
This type of home must comply with CSA Standard A-277, Canada’s national building code. That guarantees that you will get a quality piece of construction, even if it’s not built on your property. They’re still constructed the same way as stick-built homes—the only difference is that the construction occurs in “pieces,” or modules, which are then assembled on site.
Modular rental homes are highly customizable, so you should be able to find a floor plan that works with your needs. Manufacturers often employ architects who will work with buyers to create custom homes. Whether you want a four-bedroom home in a college town or a tiny home to rent out in your backyard, there are plenty of options available.
Financing a modular rental home
If you use a traditional mortgage to finance your new modular home, the mortgage lenders will have special requirements. First, you need to own the land the home is to sit upon—it will be difficult if not impossible to get approved for a modular home mortgage on leased land. Most lenders recommend purchasing the land at the same time as the home if you don’t already have a plot.
Next, the lender will need to know certain things about the home. They usually require that your home is permanently secured to a concrete foundation, and it needs to have amenities like a heating source, electricity, water and sewer or septic systems. These services must be up to local and national standards.
If you’re buying a preexisting, pre-installed modular home, it has to be in good overall condition. Modular homes that were built in the 1980s and 90s are more likely to have poor construction or other issues, so a 20- to a 30-year mortgage may be a bad investment. Finally, the property needs to have year-round access.
If your building a Modular Home, getting financing will be extremely difficult as none of the major banks will finance this. However, if you reach out to our friends at LendCity Mortgages they have lenders that will finance the construction in Ontario. You can reach them at the link above or by calling 1-519-960-0370.
Pros and cons of a modular home
There are certain advantages and drawbacks to investing in modular rental homes. Be sure to pay attention to the drawbacks so that you’re not surprised by additional costs or requirements.
Pros:
New modular homes are high quality
The standards for modular rental homes today are a far cry from what they used to be. Today’s modular homes are built to last, from transportation to the site and decades thereafter.
Faster to build
Modular homes are typically built indoors, which means that you’re much less likely to encounter construction delays. Since construction crews are limited by the weather, stick-built homes are subject to delays.
Environmentally friendly
Pre-fabricated houses reduce construction waste and maybe as much as 15 percent more energy efficient than traditional homes. Plus, you can customize yours further: add solar panels, LED lighting, better insulation and more.
Stretch your money further
Generally, modular homes cost less to build. Since construction companies buy materials in bulk, and they’re not subject to weather delays, you’ll ultimate pay less for a modular home than you would for a traditionally built home.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
Cons:
You’ll need to buy land
Before you get excited about the low costs of modular homes, keep in mind that you’ll still need to buy a plot of land. Be sure that you choose a lot that’s zoned for home construction.
Older homes require renovation
Buying an older modular rental home is a good way to get a low-cost rental property, but you may need to do some renovations. Older homes are more likely to have cheap fixtures, doors and cabinetry. Luckily, these renovations are usually inexpensive.
There’s still a stigma attached
Since most people don’t understand the difference between a modular rental home and a mobile home, you may run into problems renting or selling the property down the line. Although the stigma is slowly fading, you may still deal with people who think “modular” means “cheap and unreliable.” If you sell, make sure to work with other real estate professionals who can help you market the home and educate potential buyers.
Additional expenses
Finally, you’ll need to factor in additional costs when deciding whether a modular home fits your budget. Not only do you need a plot of land, but you’ll also need to pour a foundation and install ductwork, wiring and plumbing. Adding these costs may determine whether it’s a good investment, or if you’d be better off buying a traditionally built rental. This will also affect how much you need to charge in rent.
Is a modular rental home right for your next rental?
This modular home overview should prepare you for the advantages and drawbacks of choosing one for your next rental property. The newer versions are affordable and high quality, while older modular homes may be a money pit. As always, take advantage of your real estate investor network: ask other investors and real estate professionals about their modular home experiences in your target market. They’re likely to provide valuable insight and steer you in the best direction possible.
If you would like to learn how to finance the construction and/or purchase of modular rental properties today, we would like to help. All you need to do to get started is click the link below to book a free strategy call with our team at LendCity.