I believe that one of the most overlooked opportunities to build a home either for profit or for living lies in lots that currently have old or dilapidated mobile or manufactured homes. There are a few reasons for this, which I am going to get into in this article. If you have parcels such as these available in your area and an interest in building a home, this strategy may be just what you are looking for. Keep reading to discover why targeting lots with manufactured homes and replacing them with stick-built homes can be a key part of your business.
These Properties are Relatively Inexpensive and Competition is Low
Let’s face it. There is very little demand from homeowners for parcels of land with ugly and old mobile/manufactured homes. I’m not talking about the nicely kept-up mobile or manufactured home that has been treated well over the years.
I’m talking about homes that are unlivable due to major repairs that are needed, or are built before June 15, 1976. This date is significant because for all homes built after this time it is necessary for the home to be certified by the United States Housing and Urban Development (HUD), and it is not possible to get an FHA-insured loan on a mobile home without this certification. Because of this, there is not a large pool of buyers who are able to purchase these properties, leaving them primarily for investors and those who plan to redevelop the property.
Utilities are Already In-Place
If a manufactured home is on the property, this means that there should already be power, water, and either sewer or a septic system already on-site. However, it is necessary to verify that these are in working order, especially the septic system. Typically, the septic system will need to be re-inspected to permit new development on a parcel after the original home has been removed, but this is much less expensive than having to build a new septic system from scratch. A prospective buyer will also want to make sure that the number of bedrooms that the septic system is approved for is not less than the number of bedrooms in the new home that will be built. Additionally, if the property is on well water, it is necessary to inspect and permit the well to ensure that drinking water standards are met.
If everything checks out, having the utilities already on the property means that you can avoid a lot of the costs that you would otherwise incur with developing a parcel.
These costs include jurisdictional fees for utility inspections and permitting (which can possibly be thousands of dollars) as well as the cost of the actual utility installations (which can usually be from about $15k minimum and up depending on site location and requirements) .
The further the utilities are away from your property, the more costly it will be. Certain jurisdictions and utility entities, such as sewer and water districts, can also have notoriously high hookup fees. Therefore, having the utilities already in place can be a huge cost savings.
It is Possible to Sell the Existing Home?
Another thing to consider is that if the mobile home is in decent condition, you may be able to sell it. The benefits of this are two-fold. First, you get paid and can use this cash to pay for expenses related to building your new home. Second, if the buyer pays to remove the home from the site, you don’t need to pay to have it removed yourself.
Some Challenges You May Experience
There are many things that need to be considered when building a new home. This article is obviously not meant to cover all aspects of real estate development and the challenges that may be faced, but it is worth noting a few of the many things to watch out for:
Zoning regulations may have changed on your parcel since the original home was built. Are the building setbacks the same as they were before (these are distances from the property line within which you may not build a structure)? If these setback distances have been increased, you may find yourself with less room to build a new structure than before.
Easements and Buffers
Are there easements on the site which constrain your development? It is always pertinent to obtain a survey from a reputable surveyor so that all easements are clearly depicted when you plan your new construction. There may be utilities going through your site (along with their associated easements), or access easements that you may not be aware of. Or, if there are wetlands or streams on site or close to your site, you will likely have a sizable buffer from the wetland/stream within which you may not build.
This distance will vary depending on its classification by a wetland biologist and the particular jurisdiction you are dealing with to get your plans permitted.
Do you have a neighbors fence or shed intruding into your property? These are called encroachments and you may not be able to remove them or alter them depending on the jurisdiction. If you are not allowed to remove them, you may be able to strike a deal with your neighbor to take care of the problem. They may be satisfied with you building a new fence on the true property line. Or, they may just allow you to move/remove the offending encroachment. Sometimes, these matters can’t be worked out and the developer will need to work around the encroachments.
Do you need to remove trees to build your home? Certain jurisdictions have tight regulations regarding tree removal. Some jurisdictions may require you to plant trees to replace the ones you remove, and other times, if the tree is considered to be a special, or “landmark”, tree, they may not allow you to remove it at all. And if you do, you will likely be slapped with a huge fine. Other jurisdictions are easy to work with though.
These are just a few of the items that should be part of your planning process. A good place to start is by reading the design and development manual which is likely found on your city or county’s development page. You will also need to look at your water and sewer district standards, if applicable to your site. Due diligence and adequate planning are going to make the process of permitting and building your new home go more smoothly and quickly.
So, next time you see a great property with a run-down manufactured home, think of what the possibilities might be. It could be a gem that is not given a second thought from most investors and developers. Replacing a manufactured home with a stick built home can be a great way to flip a property or to get a new home for less than it would cost to develop the land from raw dirt. Start keeping this type of deal in mind and let us folks here at FlipConnector know what kind of deals you come up with. We’d love to hear about it!