Prefabricated, or “prefab,” homes are manufactured piece by piece in an off-site factory, transported to the home site, and assembled on the homeowner’s property. For some people, prefab homes are a fast and affordable way to build sustainable housing. What are the advantages and why purchase a prefab house? Find out.
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What Is a Prefab House?
When choosing your dream house, deciding between site-built and prefab housing options is challenging. Prefab houses have become popular among many home buyers because of their flexibility, comfort, faster construction, and durability! Today let’s dive into some pros and cons of prefab housing options and answer famous questions like “What is a prefab house” and “How long do prefab homes last”.
Prefabricated homes have a long history in the United States, dating back more than a century. The design was first developed during the California Gold Rush in the late s to enable prospectors to build homes fast and affordably. Prefab homes were popular throughout the early 20th century, and they have lately increased in popularity again as homeowners demand more affordable sustainable housing.
How Prefab Houses Are Built?
As we mentioned above prefab houses are fully put together in a factory!
Instead of being built on-site, the house is constructed in a controlled setting by highly skilled specialists. Factory production, as opposed to the traditional construction process, requires a lot of preparation. Prefabrication can be done to varying degrees, depending on how complete the home needs to be when delivered on-site. Modules and elements (sometimes known as panels) are the two most common prefabrication "options".
Let’s go over some main steps of prefab home construction processes:
Step1: The Idea
This is perhaps the most crucial step in creating your dream prefab home! Firstly focus on the size of the house you wish to have, the number of rooms, style, and quality. Many people browse the internet to find a model that suits their needs. Once you have listed all your requirements you can estimate the approximate floor area of the house and consult with a manufacturer to set a rough budget.
Step 2: Choosing a Manufacturer
Choosing the right manufacturer can be a time-consuming process. Before deciding which manufacturer to go with, make sure to get all your questions answered and that all of your requirements can be met! This is a very slow stage but as soon as you find your manufacturer things will be less challenging.
Step 3: Engineering Design
This stage is no less important as it includes all the major work done with the house. e fundamental steps of how prefab homes are built. Depending on the size of the house and the complexity of the architecture, the engineering design can take anywhere from 4 to 12 weeks.
During this phase, the house is broken down into its basic components like in a 3D puzzle. Each component is then designed carefully. While designing the components of the house, designers shall take into account the layouts of electricity, ventilation, and plumbing installations. For this reason is important that agreements with all the companies involved are finalized before the engineering design begins.
Read also: Best Modern Manufactured Home Floor Plans and Layouts
Step 4: Preparing the Site
Prefab homes require a solid, level foundation. Site preparation includes ensuring the foundation is poured and cured, which provides a stable base for the home and avoids issues like settling or structural misalignment. Prefab homes often need connections for water, sewage, electricity, and sometimes gas. Preparing these connections in advance ensures the home can be connected quickly upon arrival, reducing delays.
Step 5: Production
In the production stage of a prefab house, components like walls, floors, and roofs are built in a controlled factory environment. These sections are pre-assembled, wired, insulated, and sometimes even painted before being transported to the site for final assembly. This stage emphasizes precision, quality control, and efficiency to ensure quick and seamless installation on-site. After the prefab house is modeled, constructed, and polished, it is time to transport it to its site and install the house! Still confused about what is a prefab house?
Read also: Mobile Home Construction Process Overview
Pros of Prefab Houses
There are many benefits to prefab homes. Due to the factory portion of construction, prefab homes are more predictable, efficient, cost-effective, and sustainable. Let’s talk about some of the pros of prefab homes!
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Cost Efficiency
Building a prefab home is an average of 10% to 20% more affordable than a traditional home. The controlled construction environment in the factory means you’ll be provided with a fixed cost at the beginning of the process.
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Speed of Construction
Another benefit is the timing. In a controlled environment weather conditions and other factors don’t matter, prefab houses are built quickly and effectively.
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Customization Options
Even if you can’t find the exact module or example of a layout. Prefab homes can be customized to meet your needs and requirements. With these homes, you can always add your personal touch or change any layout!
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Environmental Benefits
Factory construction minimizes material waste, as leftover materials can be reused more efficiently than on traditional sites. Many prefab homes use sustainable materials and are designed for high energy efficiency, reducing long-term energy consumption and emissions.
Cons of Prefab Houses
Even though prefab homes come with great benefits, we should not ignore the other side of the coin. Let’s explore some of the cons involved with prefab housing options.
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Resale Value
The resale value of a prefab home is more or less the same as of site-built homes but in some cases, it might be less.
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High Land Prices
Depending on where you want to build your home, you may be faced with costly land prices. Depending on the value of your home, this may not be a significant issue, and you may be willing to make the trade-off. However, make sure to take into account all of the factors that will influence the final cost of your home.
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High Utility Hookup Costs
Speaking of variables, you also ought to consider the cost of utility hookups. If you’re building in a rural area, for example, you may have to pay more money than you’d like to get your utilities set up before you move in.
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Financing Options
Even if there are many financing options covering prefab homes as well, depending on your land and area there might be some challenges in finding a good option! Make sure to do some research to know your options better!
Understanding the Cost of Prefab Houses
Prefab homes often cost $100 to $200 per square foot. This cost covers materials, labor, and basic finishing. However, personalization and customization can significantly increase the cost, often reaching $300 per square foot or more for high-end designs.
Land Costs
Purchasing land is a critical factor that can greatly affect the overall expense. Depending on the location, land prices can range from $5,000 in rural areas to over $100,000 in urban settings. It’s essential to account for land preparation costs, such as clearing, grading, and utility installation, which can add $10,000 to $50,000 to the project.
Transportation Costs
Transporting the prefab components from the factory to the building site is another essential factor. Depending on the distance and the size of the home, transportation costs can range from $5,000 to $15,000.
Assembly and Installation Costs
Once the components arrive on-site, assembly and installation begin. The cost for assembly typically falls between $5,000 and $15,000, depending on the complexity of the design and the labor market in the area.
Utilities and Finishing Touches
After the home is assembled, utilities such as plumbing, electrical, and HVAC must be installed. These costs can vary widely, with estimates ranging from $10,000 to $30,000. Additionally, finishing touches, including interior fixtures and landscaping, can add another $10,000 to $25,000 to the overall cost.
For more information, please visit expandable modular homes.
Prefabricated (prefab) and modular homes are growing in popularity as homeowners and investors seek out affordable, sustainable housing solutions.
In , prefab homes represented just 2.14% of new home construction in the US. By , this percentage more than tripled to 6.64%. And the growth is projected to continue. The American prefab housing market is expected to grow from $36.14 billion in to $60.03 billion by , representing a compound annual growth rate (CAGR) of 5.8%!
So, naturally, homeowners and investors have questions about this emerging trend in housing.
This guide to prefabricated and modular homes will:
- Explain how these housing structures work,
- Compare the pros and cons of prefab and modular homes, and
- Outline the additional factors you should consider before proceeding with a prefab home build.
But first, let’s start with the basics: defining and comparing prefab and modular homes.
What Are Prefab and Modular Homes?
Prefab and modular homes are both structures that are manufactured in a factory and transported to the building site to be assembled or installed there.
So, what is the difference between prefabricated and modular homes?
A prefab home is any structure built in a factory to be assembled or installed at the building site. Modular homes are a type of prefab home in which the structure is built in sections (modules) and assembled on the building site like building blocks.
Other Types of Prefab Homes
In addition to modular homes, there are a few other types of prefabricated homes:
- Mobile and manufactured homes. Mobile homes are prefabricated homes that are built on movable chassis. Manufactured homes are prefab homes constructed on chassis that are fixed permanently to a foundation. The Department of Housing and Urban Development (HUD) refers to mobile homes built after as manufactured homes, grouping both types together for regulatory purposes.
- Panelized homes. In panelized homes, wall panels are built in a factory, then transported to the building site for assembly onsite. This provides more design flexibility than modular homes, but requires more labor and is typically more expensive.
- Pre-cut or “kit” homes. Kits (like log cabin homes, for example) include materials that are cut to size and shipped for on-site assembly. The concept is similar to IKEA furniture: you get all the pieces you need, then you put them together. Unlike IKEA furniture, you will need building permits, a proper foundation, and safety inspections to complete a kit home.
- Shipping container homes. As the name implies, shipping container homes use repurposed shipping containers to serve as the primary structure. This style sometimes falls into the prefab category since the containers were manufactured in a factory, but this article will focus on prefab homes that are designed and intended for housing.
The Pros and Cons of Prefab Homes
Prefab homes, whether modular, manufactured, panelized, or pre-cut, provide multiple benefits to both homeowners and investors. But they also come with a few potential downsides to be aware of. Let’s consider the pros and cons for homeowners and investors.
Benefits of Prefab Homes for Homeowners
- Lower costs. Brand new prefab homes often cost 10-25% less than traditional site-built homes.
- Quick construction. By some estimates, prefab homes can be built 20-50% faster than traditional homes thanks to factory efficiency.
- An extra level of quality control. The factory environment helps to ensure consistent quality and precision.
- Customization options. Many prefab building companies offer customizable floor plans and finishes.
- Sustainability. Prefab homes are typically more environmentally friendly than traditional builds in multiple ways: They create less material waste, the factory precision means tighter seals, which improves energy efficiency, and transporting the constructed sections to the site creates lower emissions compared to transporting individual building materials to the site.
Benefits of Prefab Homes for Investors
- Faster ROI. Shorter construction timelines allow you to generate passive rental income or sell the completed project sooner.
- Affordable entry point. Prefab offers a lower cost per unit compared to traditional builds.
- Scalability. It is easier to duplicate successful projects with prefab construction.
- High demand. Sustainable, affordable prefab homes appeal to environmentally and financially conscious buyers and renters.
- Alternative markets. Prefab homes are ideal for workforce housing, vacation rentals, or accessory dwelling units (ADUs).
Potential Downsides of Prefab Homes for Homeowners
- Limited customization. Design options may be limited to a set catalog unless you pay for upgrades.
- Financing challenges. While existing modular homes can often be financed with traditional mortgage loans, manufactured homes typically cannot. If you’re building a new prefab home, you’ll likely need a land loan (if purchasing the parcel the home will sit on) plus a construction loan for the build. The construction loan may be replaced by a traditional long-term mortgage upon completion of the build.
- Resale stigma. Some buyers still perceive prefab as lower quality, which can affect resale value in certain markets.
Potential Downsides of Prefab Homes for Investors
- Limited appreciation potential. In some markets, prefab homes may not appreciate as quickly as traditional homes.
- Market perceptions. Negative bias from appraisers, renters, buyers, or HOAs can impact value and demand.
- Long-distance coordination. Investing in prefab often involves coordinating with out-of-area factories and shippers.
- Fewer comps for valuation. If you don’t have many prefab homes in your market, a lack of nearby comparables can make it harder to appraise accurately.
Additional Prefab Considerations for Homeowners and Investors
In addition to the pros and cons of prefab and modular homes, there are a few more items for both homeowners and investors to consider before proceeding with a prefab home:
- Site prep is still required. Foundation, street access, and utility hookups must be handled separately and will add time and expenses to the project.
- Zoning and building codes. Local regulations determine where prefab homes can be erected and can affect how easy or difficult it is to build prefab homes in your market.
- Permitting. Prefab homes are still subject to building permits, which require time and money.
- Insurance requirements. While modular homes can typically be insured by the same homeowner’s or landlord’s policy as a traditional home, manufactured homes typically require a special HO-7 policy, which can be more expensive as manufactured homes may be more vulnerable to weather damage.
- Delivery logistics. Transporting modules, panels, or a manufactured home requires a clear delivery path and site access.
How to Build Your New Prefab Home
Whether you’re building a new home from the ground up, rebuilding your home after a disaster, or constructing an investment property for your real estate portfolio, here is a simple, seven-step process to building a pre-fab home.
Step 1: Choose Your Prefab Home Type
Decide between modular, panelized, manufactured, kit, or even container homes. In making your decision, pay close attention to the costs, potential resale value, and zoning requirements of each type.
Step 2: Set Your Budget and Explore Financing
Determine your total budget, including land, site prep, permits, and the home itself. Research prefab-friendly lenders and loan types.
Step 3: Find and Secure Suitable Land for Your New House
Look for a suitable plot that matches your home type. Be sure to verify zoning laws, local building codes, and utility access. In many cases, homeowners and investors buy the land outright, but a long-term land lease may make more sense in some markets.
Step 4. Choose Your Builder and Design Your Home
Select a reputable prefab builder, customize your floor plan, and choose features like roofing, siding, windows, and energy-efficient systems.
Step 5: Secure Permits and Prepare the Building Site
Apply for building permits and hire contractors to prepare the land. The land may need to be graded, the foundation laid, and the water, sewer, and electrical connections established. A qualified general contractor (GC) can oversee this process for a smooth experience.
Step 6: Construction, Delivery, and Assembly
While the site is being prepped, construction on your new home can begin in the factory. Once the components of your new structure are ready, they can be delivered to your land and assembled or installed quickly on-site.
Step 7: Hook Up Utilities, Pass the Final Inspection, and Take Possession
Your team can hook up utilities, install the finishing touches, and schedule the final inspection, in which the local building authority will send an inspector to make sure the home meets all local building codes. Then you’re ready to take possession of your new property and move in yourself or move your new tenants in!
Build Your Prefab or Modular Home with Gatsby Investment
Gatsby Investment is a California-based real estate company that specializes in adding much-needed housing inventory to the Los Angeles market while providing strong return potential for investors.
Gatsby is best known for offering real estate syndication deals to investors (deals in which multiple investors pool funds to finance a real estate project and share in the proceeds). However, the housing shortage, exacerbated by the devastating wildfires, has motivated us to add built-for-you single-family developments and built-for-you multi-family developments to our offerings.
We’re proud to help locals build residential housing! Whether you’re looking to build your new home or build a new investment property, Gatsby has a team of real estate analysts, developers, GCs, architects, and designers ready to work for you. Instead of managing your prefab or modular home build yourself, leverage Gatsby’s experience, knowledge, and industry connections to minimize your risk while optimizing your results!