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Depreciation and Manufactured Homes As an Investment

L. A. Tony Kovach

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There is a long standing belief that all manufactured homes (what many used to call “mobile homes") will “automatically" depreciate once it is purchased. While it is true that manufactured homes have lost value from their initial purchase price, this is not historically a given. There are many examples of manufactured homes which have appreciated (gained) value. It should also be noted that site built houses, gain - or lose - value for similar reasons that manufactured homes do - as the recent sub prime mortgage meltdown has underscored.

Let's take a brief look at the factors which cause that gain or loss of value.

Many are familiar with the old real estate adage, “location, location, location!" The location of the home has a tremendous impact on its value. Let's use an analogy to explain this example.

Having lived in the Houston metro area, imagine a mansion from the River Oaks district being placed in Houston's Fifth Ward. What would happen to that mansion's value? It would drop like a rock! Even a gorgeous home, set in an older, blighted area will lose a lot of value. The reverse could happen too. If an older “challenged" home from the Fifth Ward and could magically find its way onto a site in the River Oaks district, it would immediately be worth more - just because of its location.

The lesson is, what is the manufactured home's proposed location? Is the location upgrading, or going down? “The better the location, the more likely the value is protected. "

Next is the condition of the home. If you have a conventional site built house that is run down, is it any surprise that it is worth less than a site built house that has been well maintained, where the property has been landscaped, and where improvements are taking place? The same is true for manufactured homes as well!

If you don't maintain the manufactured home, over time, similar things will happen to it that would happen to a site built house that isn't maintained. Now, if you take a neglected manufactured home (or a site built “fixer upper") and it is purchased “right" and then repaired and upgraded, what you will have is a home that will often sell for more than what it originally sold for when it was new! Why? Because as building materials cost rise, the value of older housing (manufactured or site built) that is maintained or brought up to standards will go up too! So if you buy a pre-owned manufactured home, and do the same things that a site built home owner would do, you will experience similar results.

Many are surprised to learn that studies done by the largest insurer of manufactured homes, Foremost Insurance Company, reveal that MHs appreciate for the same reasons and at similar rates to site built housing. But there are “caveats. " Is the MH in a good location? Is the home well maintained? Another factor of course is the local market conditions - a booming economy will naturally enhance values, just as a slumping economy will hurt values. One must also point out that when there is a glut of repossessions on the market. That fact will hurt the MHs value, just as a glut of foreclosures on the market hurt the value of site built houses.

The “bottom line" is that MHs can be a very good investment in and of themselves. But let's step beyond the appreciation/depreciation issue, for just a few moments. Let's look at another analogy - one that I'm a little hesitant to make, because one shouldn't compare a MH with a car or other vehicle. But let's do it for just a moment, to make an important point.

Millions today lease a car. They know that their vehicle will depreciate, and they want to use as little of their money for that vehicle as possible. The rest of their money that would have gone towards a higher car payment, they may invest for a good rate of return, or to have more fun, etc. .

So, stop and think of the comparison! What if you invest your housing dollars in a home that costs 1/3 to 1/2 less than a comparable site built house! Why not take the money you save, and invest those funds! Thus, you still have the benefit of living for less, and have the benefit of earning money on the money saved in housing costs! Even if your house lost value, what you may earn on the money you save could very well create an overall better lifestyle!

Take it a step further - because the manufactured home has a lower purchase price, and lower taxes, if someone pays off or buys a home outright, then the money saved in mortgage payments and on taxes vs. a conventional house could be used for savings, investment, travel, charity - a host of positive possibilities! These are just some of the advantages of manufactured homes as an “investment. "

In short, depreciation in manufactured homes are neither inevitable nor is it necessarily a tragedy if it does occur. What's needed are the facts and a good plan. With the right information, you can make a housing decision or investment that will yield a host of potential benefits, from lifestyle advantages, to financial ones, less stress and beyond.

L. A. “Tony" Kovach is a speaker at Jerry “Mr. Mobile Home" Hoganson's Seminar and specializes in MH Community operations. Kovach is the founder of the website Tony Kovach has been published in a number of newspapers, magazines and MH industry trade journals, including Manufactured Home Merchandiser Magazine and Automated Builder Magazine.


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