Buying Houses for 1/3 the Price?

Yup, that's a thing. And it's actually so brilliant I bought one.

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Million Dollar Mobiles

Just close your eyes…

“Picture yourself in a new kind of community, where adventure waits just outside your door. Where your passion for the outdoors is rewarded daily with spectacular views. A place where exquisite, sustainable homes and amenities meet the open splendor of nature.”

This is the opening line of a new community we’re looking to plant a flag in. If the homes weren’t so sweet I’d start chuckling, “open splendor.”

And yet, these houses are 1/3 to 1/5 the price of their counterparts and allow for rentals on properties that theoretically can breakeven and outpace your mortgage. That tickles my little fancy. It apparently tickles others too as we showed them to three of our friends who we will now call our neighbors. Is it too early for me to call this Codie’s Commune?

Ah, but there’s always a catch to the too good to be true, right?

The catch, it’s kind of like a modern-day trailer park. Say what?

Now - I think the developer would disagree. These aren’t actually homes you can move to. They’re modular homes, some w/ ADU’s (accessory dwelling units), or what we could even call good ole’ fashioned prefab homes.

For those of you newbies to this like me, apparently, there is modular and prefab which all mean a structure prebuilt that goes on a permanent foundation, whereas mobile or manufactured homes mean they can, ya know, move.

But follow along for a moment.

#1: Look at these things… Not your average home

Aren’t they purdy?

Modular homes are kind of brilliant. You can basically 3-D print or factory print your house.

And I’m nothing if not a hipster in chase of overly modern design at a discount, so we may just dive in.


#2 Problem? RE IS RIDICULOUSLY EXPENSIVE RIGHT NOW

We were looking at property in a town, wanted to get out of the city and commune with our Mother Nature. Turns out it was just us and the rest of the entire country flocking from urban to “nature’s splendor.” So no surprise that the median house price in said town is a measly… $2.03M and the average is $2.5M 😬. The median home price in the US is $270k for reference.

Or that houses there were going over asking 70% of the time and only listed on average for 1 week. We had looked in 6 different cities across the country, all the same song. I was capital O over it. Until we found this modular mecca. Sidebar: I was going to post where we are headed and the location of the development, but then ya know the internet is full of weirdo’s like this guy who graced my DM’s with some sweet offers:

Apparently, there really is a market for ANYTHING.

Back to our regularly scheduled programming.

Real estate is on a TEAR nationally, and that makes me nervous. When people say there is a group of the “haves” and the “have-nots,” what they are really saying is there are asset owners and asset payers. The asset owners well, they run the world. Billionaires have increased their wealth by 20-304% during the pandemic. And they, and all who are shareholders, and owners, with the ability to work despite the pandemic, are buying hard assets… aka real estate.

Exacerbating this trend is interest rates are so low they’re practically sinking, (we got a quote on a VA loan at 2.5% 🤯 ). This means cheap money, which means potential inflation and over extending credit limits. But it also means money is flowing. This chart shows mortgage rates going back to the ’70s.

Thus, timing on RE market, I have no idea. The market seems hot. But cash is also VERY cheap and I’ve always liked owning my real estate if I can. Then if strategic you can cash refinance out, and buy the next property to accumulate a portfolio. The reason I like owning a home is one sentence:

“If I had a lever long enough and a fulcrum on which to place it I could lift the world.”

Leverage. Unless the apocalypse does come… we’re never going to see rates this low again during our lifetimes. You pair extremely cheap money (aka debt) with the fact you can get a home loan for 10-20% down, use your tax writeoffs, and it’s starting to make sense why houses are flying off the old MLS.

But I get nervous…

The stock market is also at all-time highs, fixed income pays pennies, bitcoin is… and everywhere you turn there are assets at penthouse level.

So I got to thinking, how could we buy real estate at a discount or make money on it inside of a year or max 24 months? How could we invest in hard assets where the value can’t walk away from us, how can we use OPM (loans), and do it in a way where we get an unfair discount?

What I try to do at Contrarian Thinking is walk the damn talk. Instead of just telling you ideas that I hear through the grapevine, we implement these bad boys and go down the path of turning them into a portfolio of small bets.

So here’s where I put my money to work, what it costs, how I saved $2M+ in a hot market, and maybe, how you can too.


#3: Facts on Modulars First

I had a ton of questions, modular homes sounded to me like mobile homes. I was concerned about resale value, on the solidness of the build, on the ability to get loans. Basically, are these like new-age Tesla’s that look rad but depreciate immensely on resale?

Well here’s the skinny:

  1. Modular homes have the same resale price appreciation as a stick-built (cool kids term for a normal house) and no depreciation of the asset.

  2. While the other, mobile homes, depreciate not entirely dissimilar to a car and are harder to finance, etc.

  3. Modulars appraise the same as their on-site built counterparts (equal comps obvi).

  4. Modular homes are considered a form of green building, as they have less waste, quicker build time, and can use more environmentally friendly materials (aka tax credits baby).

  5. Usually 40% of construction materials end up as waste, not the case with modular. Take that Green New Deal.

  6. Some modulars are even longer lasting than stick-built and can withstand 180-mile hour wind.

  7. They take 6-10 weeks to build whereas stick-built houses take 4-6 months.

  8. Loans, mortgages all the same as on normal houses.

  9. LAST FUN FACT… they’re so much cheaper.


#4: Price of Modular Homes 1/3 to 1/5 Regular Houses

When I heard about properties where you can buy into a market at 33% of the median home price, my little heart started pitter-pattering. I love a deal. If you have to buy into an inflated market… do it smarter than the other guy.

Here’s the price breakdown:

  • The average property in said town $2-$3.5M

  • Average modular home in said town $600k-$1M

  • What do you get?

  • With average property you get - 1-3,000 sq ft so close to your neighbor you can shake hands on the toilet for $2-10M. One house had a price per sq ft of $2,000!

  • With modular you get - 2,000 to 3,000 sq ft and a quarter to an acre

Here’s the part that kills me. The modular model we looked at online costs about $190k to build (3k sq ft). That’s $63 per square foot not including hookups and foundation etc (which all is expensive). The average cost to build per square foot in the area for normal units $200 to 300 to $500 depending on finishes.

Those savings they transfer to buyers, while simultaneously increasing their own margins.

How?

  • Let’s be generous and say it costs $250k to build a 3k sq ft modular home here w/ all infrastructure (which is was too high a buffer but we’ll be generous)

  • It would cost you at the low end of $200 per sqft, $600k to do a stick-built house

  • So they save $350k w/ modulars PER UNIT

The interesting part…

If you google modular developments you are going to go down a rabbit hole of nothingness, they’re hard to find.

  • You can see resorts made of modular homes, —> (Sweet: https://www.firesidejacksonhole.com/)

  • Bu whole developments? Tough.


#5: So how do you find them?

The best-case scenario, you find a developer that is creating a planned community of modular homes, then you can use a conventional mortgage.

  • Ask your realtor in your local market

  • Ping a realtor in the hottest markets growing in the US there are modular developments in almost all of them

  • Usually, you put down a down payment of something like $5-10k to reserve your spot

  • Ideally, you don’t pay fully until the house is fully built and delivered and they provide financing for you or you can go with a traditional lender because it’s already built

Option #2: Build your own (we’ll do that for an ADU but I’m lazy for the main house).

  • Benefits are you can take that entire margin increase and keep it for yourself

  • Downside you have to do the work and also you can’t do conventional loan so you’ll have to tap your mortgage, use cash or use a building loan (rates more like 6-8%)

That said here are some of my favorites:


#6: My Prediction, This is The Future of Building

In the future, you are going to have planned communities entirely made out of modular homes. The cost of building will go down DRAMATICALLY and decrease in time spent even more so. Developers who only do stick-built housing won’t be able to keep up with prices, and in the very distant future, we’ll look at each other in skepticism at the idea that you didn’t first build your house in a factory? Say what?


#7: The Bigger Play?

If I was a developer I’d be copying this model. Hipster millennial compounds are full of modular homes (not necessarily tiny ones either). Put up one sample unit in 4 weeks, take a bunch of pictures, buy land outside of city centers, use a lot of terms like “nature’s splendor,” and pre-sell the entire place before you’ve built much of anything.

And buyers get better, cheaper, greener houses faster.

Yet, another way… the world is actually getting a bit better even as it seems so much worse.

This place suck doesn’t it?

Do you all wanna see pics when we finish ours? Let me know your questions in the comments. I’m also going to break down the business of ADU’s and how to make $$ off of adding one of those bad boys.

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Question everything and buy smarter,

Codie


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Next week: We’re talking about how to never pay full price on retail again… through auctions with a dude who’s done it to the tune of 100’s of houses.


THIS IS NOT INVESTMENT ADVICE. This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Entourage Effect Capital, LLC, Codie Ventures LLC or its affiliates. Any such solicitation of an offer to purchase an interest will be made by a definitive private placement memorandum or other offering document.