Scenario: A Buyer's Broker looks at the dollar difference in a mortgage between a $90,000 investment property, a doublewide, and a stick-built $135,000 property. Although the appearance of the properties is similar, (see photos) she notes differences including an Energy Star Rating on the more expensive property. The investor/client plans to keep the property for about five(5) years. Neighborhood appreciation rate over that period of time is of serious interest. The difference in mortgage payments between these two properties would be around $300/month.
STICK-BUILT
Discovery: How much and how fast could the properties of interest appreciate ? Will this offset the difference? Which property could be a wise investment?
Having explained to her clients that she is not a financial analyst/consultant, so it would beyond her scope as REALTOR® to advise in-depth about appreciation rates, the Broker, who is knowledgeable about value-added factors, completes her overview of the situation and refers her clients to tax/financial experts as per Article 11 of the REALTORS® Code of Ethics :
"REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth."
Insights: On first glance, as the client/investor and Broker factored in that in five years the $135,000 property would have to appreciate $18,000 more than another, less expensive, there were a few raised eyebrows. Given the current rate of appreciation in the area, it looked as if the $135,000 would have to appreciate approximately $3600/year more when compared to the less expensive property.
But certain insights are apparent when she looked a little deeper...
1) in spite of fluctuations, stick-built properties have been shown to appreciate (from the base year) at a higher cumulative rate than doublewides...
2) the purchase of the average home in the sustainable, "green" community, according to research, will yield a higher rate of return on investment than one in the conventional development, despite the nearly 2:1 lot-size differential. The $135,000 property is in such a community. It is in a new development where it appears the goal is to maximize building space and avoid the more land consumptive, conventional housing pattern. This adds up to a higher rate of return on investment.
3) the property is in the Asheville, North Carolina market where home-buyers, speaking in dollar-terms through the marketplace, have demonstrated a growing demand for homes with less land-consumptive attributes, and more "green" advantages. From looking at trends in the marketplace and those across the USA this demand to be on the rise.
4) Real estate transactions have proven that the City of Asheville , where both properties are located, continues to be one of the best communities in which to live and work. (named # 1 for investing in Second and Vacation homes)
5)Property sales continued to be strong during calendar year 2006,.so the likelihood of the trend working in the investor/client's favor is excellent.
6) According the mortgage loan calculator at REALTOR.com...
$90K at 4.25% = $443.75/mo
$135K " = $664.12
$ 212 difference
7) We could look for appreciation of about $2,500/year according to an examination of appreciation in the Asheville market as seen at this link
Outcome: Investor bought more expensive property. Would you have? Let me know what you think.
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Copyright © 2007 All Rights Reserved Asheville ECO Real Estate: Trends, Legacies & The Home Place Greenolina
Jane Anne - another great post that is a new topic to think about. I use to be an L/O in Michigan. Many people put double-wides on property because it was less expensive and many of the people living in these communities were blue-collar workers for small places.
In 2003, many of the lenders decided they would not do loans on "manufactured" housing and as far as I know, people can not purchase existing manufactured nor refinance manufactured homes through conforming lenders. While a property may appreciate, it's difficult to sell it unless you can find a cash customer or the new buyer is willing to pay a much higher rate for a loan because of limited resources.
JaneAnne-
Love Asheville, I was there this summer!
Absolutely Beautiful!
I present seminars to large groups of investors.
Living here in the SF Bay Area investors sometimes think they have to go out of state to be able to afford the house. The part of the seminar this refers to is how to have a positive cash flow and buy here in the expensive bay area.
My Co-Presenter, Charlie Krackeler and I show the vastly different appreciation rates (historically) between different housing types, like you have here.
We take it a step further and show the different appreciation rates between an two SFRs, a high quality area and a cheaper questionable area.
Given the same cash flow on both, your ROI is dependent on the better appreciation. Quality over Quantity - always!
Blogs can be entertaining, educational, thought provoking, or a waste of time. This is an excellent example or thought provoking!
Well Done!
I hoppe you don't mind I followed up on it at
Recommencing A Single Family Investment
Bill
William J Archambault Jr
The Real Estate Investment Institute
http://www.reii.org
RUN FROM TRAILER PARKS AND TRAILERS AS INVESTMENTS
besides don't you know they are magnets for tornado's
go sell something....something else
CH
Bryant...Personal property = mobile home here in NC It still needs to be licensed. But if it is "planted" /off-frame on the land (as per the doublewide), it is not considered personal property in NC.
Interestingly, a gathering of mobile homes sometimes are considered good investment fodder. At the end of the life cycle of a the mobile home park, it might be translated into an infill residential project, and be a valuable commodity.
Christopher and Bernadette...I have often wondered about the magnetic attraction of mobile homes and storms, I used to think it was just my imagination, but if you follow storm stories, you must see the stats prove otherwise. What do you think is the cause? As to investment in mobile homes and parks, please see my comment to Bryant.
"Quality over Quantity, for sure. And let us know if y'all are ever in North Carolina doing seminars. In the meantime, I am wondering how to create a quality product for my client/investors who want to keep their investments in affordable housing. Any ideas?"
I'll be back for sure. My wife is a genealogist and we were back there for two reasons.
The Smith- McDowell house in Asheville had a thing. (She's a McDowell)
And then we were also back exploring cemeteries in NC and KY.
Digging up dead people can be fun!
Here's a pic of my daughter and her cousin as we were digging in a family plot in the hills of KY.
Now about the investments.
Differing appreciation rates aside, in most any real estate investment the primary way to achieve real ROI is thru appreciation.
Appreciation takes time. So you need to be able to buy and hold.
See this post: LINK
BTW: I'll point out that investing in RE at 100% LTV isn't investing.
As for seminars, I tend to stay in CA. But who knows?
Sticky wickets - Cricket, I like that. Good point.
I can't tell you how many times I go out to appraise a manufactured home and one of the following happens:
Although the manufactured homes are made to be more solid, energy efficient and appealing these days, I don't see them ever having the same pull in the market as a stick built home.
Interestingly the following just arrived as Board News from the Asheville Board of REALTORS:
The NC Real Estate Commission has a good article about identifying a modular vs. a manufactured home at: When Those Homes Coming Rolling In .