Prefab Homes - Are They Good New Home Investments?

When you see the word prefab, what’s your initial impression? Good, bad, indifferent? If your first thought was a “trailer” made with shoddy stapled construction, vulnerable to serious weather events and tacky neighborhoods, you’d be mistaken. That’s the past. Would you be surprised to learn that the prefab homes of today are not only competitive with traditional stick-built homes, they’ve edged ahead in many areas including speed and quality of construction, affordability, and custom home-level styling?

Prefab homes are still terribly misunderstood, due to outdated myths and confusing terms, but the prefab homes of today are capable of helping to solve the current housing crisis. While there’s no magic bullet for higher interest rates, higher home prices, low housing inventory, new home construction delays, and inflation, prefab homes are a sustainable solution to some traditional homebuilding setbacks like bad weather delays, skilled labor shortages and construction scheduling conflicts.  

First, let’s look at the types of homes that can be built and their definitions:

Stick-built: Any home that is built on the home site’s location and framed with wood sticks, also known as dimensional lumber. Site-built homes are highly customizable, making them the first choice among homeowners who want a custom home like no other. A custom home typically has its own blueprints, but a stick-built home doesn’t necessarily mean it’s a custom home. Homeowners are unlikely to pay premium prices in a neighborhood that features homes that use the same blueprints over and over. Many builders that use the same blueprints in a new development may alter exterior and interior building materials and colors for a more individually-appealing esthetic, but these site-built homes will cost less than custom homes.

Prefab: These homes are built in a factory and assembled on the home site. Prefab homes include three subcategories of homes – modular, mobile, and manufactured.

They’ve come a long way in the last five decades, as they’re built today in climate-controlled facilities with finer materials, well-trained labor, better construction, safety protections, and innovative designs that are more customizable than they were before.

Modular: Modular homes are constructed using pre-built modules, making them less customizable than stick-built homes, but they are just as able to meet local building standards, have basements, and feature beautiful architecture. They are the only category of pre-fab homes that are affixed to a foundation, making them indistinguishable from similar stick-built homes.

CrossMod®: Like the crossover in cars impacted the automobile industry, there’s hope among those in manufactured housing that the CrossMod will do the same for prefab homes. Developed by the Manufactured Housing Institute (MHI) CrossMods are a crossover between off-site and on-site homebuilding techniques to create a new best of class product. These innovative homes are placed on permanent foundations, quality for conventional financing, and are finished as well as site-built homes. The cherry on the cake is that CrossMods “can be appraised using comparable site-built homes.”  Explains Clayton Homes, a MHI member, CrossMods have additional features that make them look like a traditional site-built home, including covered porches and attached garages that are both finished on-site, not in the factory. The biggest benefit is that they can appreciate in value right alongside site-built homes.

Mobile: Unlike modular and stick-built houses, a manufactured home sits on concrete blocks instead of a standard foundation or a basement, and, of course, can be easily moved to a new location, if needed. According to Bankrate, Better Homes and Gardens, and others, a factory-built home created “before June 1976 is considered a mobile home, while a factory-built home made after that date is typically called a manufactured home.” What changed in 1976 was that the United States Department of Housing and Urban Development (HUD) established the Manufactured Home Construction and Safety Standards (MHCSS.) The HUD code regulates “all aspects of construction, including design and construction strength, durability, transportability, fire resistance, and energy efficiency.” This federal building code is periodically updated to keep the quality high in materials, construction and transportation for delivery.

Manufactured: Like mobile homes before them, manufactured homes aren’t attached to a foundation or built on top of a basement, but instead rest on concrete blocks, until they’re ready to be moved to a new location. However, today’s manufactured homes are built on a chassis which is worlds better than previous generations. This chassis can also be attached to a foundation, one of many improvements in pre-fab construction, safety and design, as mentioned above.

Battling the myths about prefab homes

Among homebuyer beliefs that the prefab industry is trying to overcome is that they’re 1. cheaper, 2. less durable, and 3. less appealing than stick-built homes and 4. that they depreciate in value. Again, all that’s in the past.

1.    Less expensive doesn’t mean cheaper. To compete with site-built homes, prefab manufacturers and fabricators use the same quality materials as stick-built homes, but in time and cost-saving ways. All building has to follow precise measurements, so walls meet the floors evenly and so on. The only difference is that prefab construction takes place indoors at a factory instead of outdoors on a home’s site. Just as homebuilders use blueprints, prefab homebuilders use blueprints and templates so every built-in window, door, closet and cabinet is the exact same size it’s supposed to be.

2.    Safety and durability are major concerns for any homebuilder. Because prefab homes must meet federal, state and local building codes, Carolina Custom Homes of Burlington maintains that all modular homes undergo a rigorous inspection process both during and after their construction. In addition to multiple inspections performed at every step of the fabrication and construction process, modular homes are also subjected to the same checks required by state and local regulations. The industry claims that they are just as good at surviving hurricanes, tornadoes and floods as site-built homes.

3.    As far as attractiveness goes, prefab homes have no restrictions in quality or beauty and can easily be made to look like custom site-built homes. Even lower-priced prefab homes can be upgraded with features that look more elegant such as installing a roof with a higher roof pitch, 8 to 9-foot ceilings, and larger, more expensive doors.

4.    Do prefab homes hold their value? At often half the cost of site-built homes with similar size and features, prefab homes can offer a better chance at building equity. A modular home, for example, can cost between $90 and $120 per square foot, whereas site-built homes begin at $150 per square foot. That said, prefab homes can depreciate like an any other asset in declining markets or condition. They can also hold and improve their value like any other property with good maintenance, repairs, and updates.  Prefab homes with foundations are like any other home where the homeowner owns the land and building upon it.