I am writing this piece to hopefully shed some light on a disconnected thought process regarding mobile home ownership. There are many who subscribe to the notion that mobile home ownership is a losing proposition for the buyer because mobile homes value always declines.
Instead, these “experts” advise you should buy a site built house, chiefly because their value won’t decline, and will usually increase. While there is much to debate on those two points, I think the whole discussion misses the larger point, and that is the overwhelming, undeniable advantages to residing in a home that is “free and clear” of debt. Furthermore, the debate neglects the total cost of ownership, taking into consideration the associated costs of property taxes, homeowners insurance, upkeep, and mortgage interest.
I think this entire line of thought is one that has led many Americans into the unusual circumstances of at the same time earning more than ever, yet having so heavy a debt burden so as to make them feel more strapped than ever before.
I’ll give you an example of a typical deal at Lakeside Community: A very nice manufactured home 1120 sq. ft. with 3 bedrooms, 2 Bathrooms, central air, range, refrigerator, dishwasher, washer, dryer, deck, and storage shed is currently for sale at $17,900. The 12 year old manufactured home is in excellent condition, and financing is available with the following terms 20% down ($3580) $390 per month payments for 43 months, the amount financed is $14,320 @ 9% with 0 points, closing costs, title fees, or other fees. The mobile home is sited in very clean and quiet Lakeside Community. You will be charged $165 per month in lot fees, included in which are your water bill, sewer bill, trash service, and we cut your grass.
Now, let’s contrast this purchase with a typical site built comparison. 1100 sq. ft. 3 BR, 1 Bath 40 year old ranch style house. It comes with no appliances, or outbuildings, or decks. The price for such a house in good condition is $79,900 finance terms are 5% down payment ($3,995) leaving a balance of $75,905 financed for 30 years @ 6% $455 per month…but wait… in order to get that 5% down – 6% mortgage you’ll need to pay 1 point ($759) and you will need to pay closing costs ($1,100) and since you didn’t pay at least 20% down, you will need PMI until you reach that 20% equity mark so that will cost an additional $51 per month for the first 9 years. So, you walk away from the closing with a mortgage balance of $77,764, a monthly payment of $466 + the PMI of $51 for a total of $517 per month for 9 years – then the PMI drops off and your payment will be 455 for the next 21 years For that first 9 years of ownership – you will pay $55,836. Lets see how much you would have paid if you would have bought that nice mobile home: payment + lot fee totals $555 for 43 months $23,865 then the house is paid for and all that is owed is the $165 lot fee Total cost for 9 years ownership $34,985 for that nice mobile home – That is $20,851 less than the site built house at the 9 year mark – but remember there is still another 21 years of $455 monthly payments or an additional $114,660.
Of course, there will be some lot fees involved in that mobile home during that 21 years, and lot fees are bound to increase during that time, so lets assume that the overall average of lot fees will be $250 per month $63,000 or $51,660 less than the site built house.
Oh but there is more! Remember that lot fee of $165 – it included water, sewer, trash, and lawn service Water service will cost you $25 per month
($300 year) at the site built house, and sewer charges cost another $40 ($480 year)per month, and the trash service costs another $25 per month, ($300 year) and getting the lawn mowed costs $40 a pop, and usually it gets mowed 24 times ($1,000 year). That stuff adds up to $2080 per year and the property tax costs $550 per year and the homeowner’s insurance costs $400 more than that mobile home policy would have cost. So, all totaled there are $3030 in checks that I need to write each year for the opportunity to enjoy the appreciation in value that is sure to come from owning the site built house. At the 9 year mark your cost of ownership including payments and the other associated costs would be $90,558. With another 21 years to go at $8490 per year or $178,290, bringing the 30 year total to $268,848.
Now how much was the 30 year total for that nice mobile home? $97,985 that is how much. And don’t forget – we factored in some anticipated lot fee increases – while we didn’t calculate any increases for water, sewer, trash and lawn services on that site built house…do you think they might cost more after 10-20- 30 years? Huh? I know that I do.
Here is the point: that even if this site built house would double in value (and that just doesn’t seem likely to me), it would still cost $109,000 more to own.
But the even bigger issue of wealth accumulation is being ignored – after the 43 month mark the nice mobile home is paid for, freeing up $390 per month and adding a lot of “piece of mind.” Were that $390 per month invested @9% for the 317 months that you would have been making payments on that site built house – you would have accumulated $503,000. In an account with your name on it!
And lets us never forget that 100% of all foreclosed houses had mortgages. Think on that for a moment; if you were to suffer a decline in health such that you were unable to work, would you rather have a paid for house, or a debt laden
House? There is no question that a debt free home reduces the downside risk when the unexpected bump in the road occurs – and talk to the people that you know well – those unexpected bumps in the road happen to most of us several times during our lives. People get injured – (I’m just talking about relatively minor things – broken limbs, emergency appendectomy and the like) – and they are financially wiped out before healing.
So, tell me how big a deal is all of this so called appreciation? Not so big a deal when compared to the advantages of living in a paid for house. And yes I realize that people usually don’t live in the same house for 30 years, or even 9 years. The benefits work just as well when trading up to another house in which you can pay for quickly, or better yet; after paying for that first house keep making that payment TO YOURSELF, when you trade houses, you pay all cash with no mortgages, building wealth, and reducing your exposure to risk.
