What are the Best Prefab Investment Opportunities?

We are NOT investment advisors, but here are some potentially appealing strategies we have recently seen or helped our readers with.

Build value-oriented units for rent

Example:

• Here’s a lot in Truckee, CA listed for $340k, that could probably be purchased for about $300k since it’s been on the market for 100 days.

• With California laws such as SB9 and others, you can often find ways to put 4 units on a single-family property.

• If you purchased value-oriented modular homes (think Champion homes, Clayton homes, etc.), you likely could get 4, 3-bedroom units for about $1mm - but let's say you’re all in for about $1.5mm [land+homes+soft costs]. I’m describing units that look like this: https://www.claytonhomes.com/homes/72DRM28483AH/ or this: https://www.claytonhomes.com/homes/51TEM16663AH/ 

• Rents for houses like those in Truckee are probably in the $4k to $5k range, so you’re at $18k of gross rents, which is a pretty good return on the capital investment.

• And if you assume that NOI (basically profit on the rents from those units) is $12k / month and the Cap rate for that market is about a 5 CAP, then you’re looking at a property that would be worth about $2.88mm on $1.5mm-ish invested before financing costs. 

• The example provided above is specific to cramming a bunch of units on what’s essentially a single-family home lot, but the same principal and math more or less work for large, single-family home build-to-rent scenarios as well.

Build High-End Modular Homes for Less Than the Cost of Stick-Built or Other High-End Homes

This is pretty straightforward. In the most expensive areas (think the bay area, LA, the Hamptons, etc.,) prefab construction is an arbitrage on the expensiveness of the local land + construction cost  & you can sometimes buy land + build for considerably less than the cost to buy something comparable.

Example:

• Here’s a lot in Mill Valley, CA - a very expensive area in the Bay Area

• The land is around $500k in a good, but not A+ location with some slope

• A high-end 3,300 sqft modular home can probably be permitted and built in that location for $2mm - this is one example from Dvele.

• In that market, you’re probably looking at comps for high end new construction in the $1,400-$1,500+ / sqft range, so the result is a home valued at around $4.2mm - $4.5mm that cost around $2.5mm in land + build costs before financing

Add Tiny Homes as Rental Units or Short-Term Rental Units in Areas That Allow It

• There are now a lot of municipalities that allow people to use tiny homes as primary homes or ADUs. A couple nearby residences we’ve spent time on include: Placer County (which is Sacramento & Lake Tahoe Area), Santa Cruz, and Oakland - all high end markets in CA.

• The basic math here is a new high end tiny home that’s just under 400 sq ft of space probably costs around $100k-$150k to be fully installed in your space. And in these markets, the rents can easily be $2,00-$3,000 / month for long term rentals.

• Here’s one example of a large, high-end tiny home but you can find reviews of many great brands on our site.

• We have also seen campground owners adding tiny homes to their RV pads and renting them as furnished units and that also seems to be a pretty profitable model in some instances.