Guide to Building Prefab and Modular Homes in Silicon Valley
Our guide to building prefab and modular homes in Silicon Valley (including the cities of Palo Alto, Mountain View, Cupertino, Los Altos, Atherton, Wood, Los Gatos, Sunnyvale, Menlo Park, Saratoga, Woodside and San Jose) addresses the necessary topics to decide whether a prefab home is right for your situation, and if it is, outlines the necessary next steps. We address questions like, “how much does it cost to build a prefab home in Silicon Valley?” and “what companies serve the South Bay Area?”. What's more, we provide examples for how the economics of a prefab home project might look in the Silicon Valley cities of Los Altos, Mountain View, and San Jose. Continue reading to see if a prefab or modular home is right for your future home project in Silicon Valley or for more specific guidance, connect with one of our prefab home experts here.
Why Might You Want to Build a Prefab Home in and Around Silicon Valley - Palo Alto, Mountain View, Los Altos, Los Gatos, San Jose, Cupertino, Sunnyvale, Atherton, Menlo Park, and Woodside?
Quick Build Times - prefab and modular homes are manufactured off-site and assembled at the final build site which allows for multiple steps of the project to be completed simultaneously and more efficiently than a traditional home build. This often results in shorter build times than traditional, site-built homes.
Cost Controlled - using a highly controlled build process (homes are manufactured in climate-controlled production and cutting facilities), unforeseen cost overruns can be better managed leading to reduced overall cost. This is especially necessary for expensive cities in the Silicon Valley/ Santa Clara Valley area such as Palo alto, San Jose, Cupertino, Los Altos, Los Gatos, Mountain View, Sunnyvale and Atherton.
Sustainable & Modern - the prefab and modular home manufacturers that serve Silicon Valley and the surrounding areas offer net-zero homes (in-line with California’s 2020 Zero Net Energy “ZNE” mandate). Many of these manufacturers also offer modern designs, and high-tech elements and appliances.
Durable - manufacturers that serve Silicon Valley and the rest of the South Bay Area offer products that are manufactured with consideration of the natural hazards of the area such as earthquakes and wildfires. As such, the homes are designed and engineered to provide high-levels of protection from these natural hazards
Key Decisions to Make:
Home Location - while the initial cost to build a prefab home may be rather high in cities such as Palo Alto, Mountain View, San Jose, Los Altos, Los Gatos and other towns in the South Bay Area, a newly-built prefab home in these areas can be a sound long-term investment. When considering where exactly to build your home, you should be mindful of a few things that could affect your project:
Slope of lot - steep hills can make it difficult to build most pre-designed prefabs, and may require a custom designed and engineered home
Set back requirements which can limit the buildable area of your property
Floor area ratio or other zoning protocols that may affect the possible size of the home
Whether or not your city requires a design review
Custom vs. Standard - While most builders offer a set of pre-designed floor plans, while some also offer options for partial or total home customization. Other builders may specialize in custom prefab home designs. If you live on a tricky lot (uneven terrain, small-lot size, etc.) you may face a limited offering of standard home designs that are suitable for your home build
Modular vs. Kit Home v.s. Panelized - While all three of these construction techniques qualify as prefab home building techniques, there are nuances that you should know when building your own prefab house. These prefab home styles include:
Modular - homes are made up of multiple box-like modules. These modules are fully manufactured and assembled off-site and consist of floors, walls, ceilings, wiring, plumbing, and internal fixtures. After being assembled in an off-site facility, they are shipped to your desired location and the modules are connected and fastened to the foundation. Modular construction is one of the most affordable and quickest prefab building techniques due to the high degree of work completed off-site.
Kit Home - all materials and components necessary for building a home are pre-measured, cut, and delivered to the build site. In some cases, an owner builder can assemble the kit home themselves as a cost-saving method.
Panelized - the home’s structural components: walls, floor, ceiling, are manufactured separate from one another in off-site location. From there they are shipped and constructed at the final site like a traditional build. While somewhat similar to modular construction, panelized building offers more flexibility in the home build process.
Some builders advertise using Structural Insulated Panels (SIPs) which are a 2-in-1 combination of high-efficiency insulation and structural panels. This allows for the creation of a quick, energy-efficient prefab home.
Architect/manufacturer vs. All-in Company - There are many steps in the prefab home build process. Major steps include land acquisition, home design, manufacturing, and assembly. When selecting a company for your prefab home, you should also pay attention to the services your company offers. In some cases the company you choose may only offer a home design and therefore sub-contract out the manufacturing process, though this is not as common, as homes that offer both home design and manufacturing. This type of company however, still leaves you responsible for acquiring land and later finding a local builder to complete necessary site work and finish your home at the project site. It is worth noting that there are several companies that offer all-in-one services and can assist you in all stages of the home-build process including design, manufacturing, site work, and finishing your home.
Financing your home - unless you are planning to pay for your home in cash, you are likely going to need outside financing for your prefab home. The two most common ways of financing a prefab home build are:
construction loan - a short term loan that you can refinance once construction is complete
temp to perm loan - a construction loan for the duration of construction that converts to a normal mortgage once your house is finished. The advantage of these loans is you only have one mortgage close vs. two with just a construction loan.
These methods usually allow you to finance both the land purchase and the construction of your home however, the underwriting and approval process on these loans can be lengthy (60+ days) as the bank is not only underwriting you as a borrower, but also the viability of your building plans. To get land more quickly, buyers will often pay cash for their building lot and then the lender will credit the land purchase as a down payment percentage on the purchase.
Some of the best lenders for these products only operate regionally. Our list of the Best Lenders for Land Loans and Construction Loans in California can be found here. However, if you would like assistance specific to your situation, we can provide recommendations here.
If you’re looking to purchase an ADU (accessory dwelling unit) or tiny home, then you may want to consider a personal loan:
Many personal lenders allow you to borrow up to $100k with no down payment
These loans are typically amortized over a shorter period than mortgages (up to 12 years)
These loans typically don’t underwrite the property and instead underwrite you as a borrower
Many of the best personal lenders are online and serve almost the entire country
The time to get approved for a personal loan is generally pretty fast (as little as a day to up to a couple weeks)
Common Questions
How much will it cost to build a prefab house in Silicon Valley or surrounding areas like San Jose, Palo Alto, Mountain View, Los Altos, Los Gatos, or Cupertino?
While certain variables such as location, builder, and floor plan will affect the total cost of building your home, it is our experience that the final cost of your prefab will range between $400 - $600+ (as of February, 2020).
Is a prefab home a good investment?
Yes, in areas where the total cost of building your prefab home (land cost + building costs) is less than the average dollar per square foot sales price of homes in your neighborhood i.e. you are able to sell your home for more than it cost to build it. In the South Bay Area that includes areas where the average price per square foot is $800 per sq ft or higher. This includes many of the towns in the Silicon Valley area such as Palo Alto, Mountain View, Los Altos, Los Gatos, Sunnyvale, Cupertino, and San Jose. It is important to note that the hardest part of a project in these areas, is finding buildable land or even lots suitable for tear down that will work within the price range and time frame of your project.
Can I finance a prefab home in the South Bay Area?
Yes. The most common way to finance a prefab home is a temp to perm loan. This financing method starts out as a loan for the construction of your home and converts to a mortgage once your home is completed. Another financing option is a construction loan which is a short-term loan that you then refinance once the construction process is finished. Our guide to the Best Construction and Land Loan Lenders in California may be helpful.
What do the economics of an investment in a prefab home look like?
Our spreadsheet (below) is an example of what the costs and potential benefits of a prefab home investment might look like. While there may be high up-front costs, it is likely there will be a sizable return on your investment. In high-demand areas of Silicon Valley such as Palo Alto or Mountain View, one of the most challenging parts of the build process is finding a buildable lot at a reasonable price. In some cases it might be cheaper to buy and tear-down an existing home rather than purchase a vacant, build-ready lot.
| Item | Unit | Los Altos, California | San Jose, California | Mountain View, California | Notes |
|---|---|---|---|---|---|
| Cost To Build | |||||
| Cost of lot including closing costs & buyers agent | $ | 2,600,000 | 1,650,000 | 1,600,000 | |
| Cost of prefab home + construction | $ | 2,000,000 | 1,400,000 | 1,500,000 | |
| Loan Rate | 4.50% | 4.50% | 4.50% | ||
| Loan | $ | 248,400 | 164,700 | 167,400 | 4.5% APR (interest only), 18 months project time, 20% down |
| Value of tax deduction | $ | -86,940 | -57,645 | -58,590 | Assumes income to deduct and 35% marginal tax rate |
| Total cost to build | $ | 4,761,460 | 3,157,055 | 3,208,810 | |
| ARV (after repair value) | This is the term for post-construction value | ||||
| $ per sqft comps for new construction | $ | 1,200 | 1,040 | 1,250 | |
| Size of new home | Sqft | 5,000 | 3,500 | 3,750 | |
| Cost to buy similar home | $ | 6,000,000 | 3,640,000 | 4,687,500 | |
| Return On A Flip | |||||
| Sale price | $ | 6,000,000 | 3,640,000 | 4,687,500 | |
| Cost to Build | $ | $4,761,460 | $3,157,055 | $3,208,810 | |
| Broker Fees | $ | $360,000 | $218,400 | $281,250 | 6% |
| Closing costs | $ | $120,000 | $72,800 | $93,750 | 2% |
| Profit before taxes | $ | 758,540 | 191,745 | 1,103,690 | |
| PLEASE NOTE: THESE MODELS ARE NOT GUARANTEES AND SHOULD NOT BE CONSIDERED FINANCIAL ADVICE. THEY ARE FOR EDUCATIONAL PURPOSES ONLY AND PURELY ILLUSTRATIVE EXAMPLES OF POTENTIAL BUYING SCENARIOS. BUYERS SHOULD DO THEIR OWN DILIGENCE BEFORE MAKING ANY PURCHASE. | |||||
How long will it take?
The answer to this question depends a lot on your particular location. Your city’s permitting and building process will play a large role in determining the timeframe for your build. Total, the build process can take between 1-2 years and maybe longer if there is a design review process.
Planning Departments in and around Silicon Valley:
Reputable Companies that Serve Silicon Valley and the South Bay Area:
Offers fully-custom homes with sustainable features and recycled materials where possible
All-in-cost: $400 - $550+ per sqft
8 collections of predesigned residential plans, varying from standard looking cabins to ultra modern looking contemporary houses and ranging in size from small 600+ sf studios to 3,500+ square foot luxury houses
All-in-cost: $400 - $550+ per sqft
Makes 11 largely high design standard home designs created internally and be designer partners as well as custom prefab homes. All homes are made at their factory, Plant Prefab
All-in-cost; $400 - $500+ per sqft
Has 13 models ranging from 640 sq ft to 3200 sq ft of modern, environmentally friendly homes
All-in-cost: $400 - $550+ per sqft
Offers full-service design, manufacturing, and general contracting for their high-end, contemporary prefab homes
All-in-cost: $400 - $600+ per sqft
Offers home kits through local suppliers in both pre-designed and custom designs
All-in-cost: $300 - $400+ per sqft
Alternatively, see our list of prefab home builders and modular home builders in California or our list of tiny homes for sale in California. For project-specific assistance, speak with a member of our Prefab Concierge program.
