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Mobile Homes

Section 2 - Chapter 6

Why Buy Mobile Homes?

You can buy mobile homes for much less than stick-built houses in most areas of the country. Despite the common prejudice against them, mobile homes are the cheap housing choice of millions. While the advantages are not always obvious, they are real.

One of the advantages is fast equity building. You see, the myth about mobile homes depreciating is only half true. In parks they generally go down in value over time. Buy mobile homes on land, though, and they'll usually go up in value.

In fact, since most of the value is often in the land, they will usually appreciate at the same rate as other homes. The only reason you will get less equity gain from appreciation is because you are starting at a lower price. (20% of 50,000 is a 10,000 gain, while 20% of 150,000 is a $30,000 gain.)

My first home was a mobile, and it doubled in value in the twelve years I lived in it. The home deteriorated a little (don't all houses?), but the value of the land rose. With a lower price than a "stick-built house, the mortgage payments were lower. Because of the shortened amortization (seven years), and lower loan amount, I built equity fast.

A house with a $100,000, 6%, 30-year mortgage loan gives you a payment of $599.60. $500 of the first payment will go to interest, $99.60 to principal. You built equity of $99.60 (I'm ignoring appreciation for the moment).

A mobile home on land, with a $30,000, 8%, 10-year mortgage gives you a payment of $363.99. The higher interest rate is normal with mobiles. The shorter term is normal too, so you'll own the home free-and-clear in 10 years instead of 30. The first month, $200 will go to interest, meaning $163.99 goes to principal. You built more equity in this scenario.

A mobile home on land might appreciate slightly more slowly than a "regular" house, but faster loan pay-down may cover this factor. Now, if you also chose to invest the difference in payments ($235.61 per month in the example), even if only in bank CDs, you would almost certainly be better off financially with the mobile home versus the more expensive home.

You can pay less per month and build more equity. Your real estate agent won't tell you this, and don't expect him to agree even after you explain it. Math skills aren't part of the licensing requirements (at least they weren't when I sold real estate).

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