Manufactured Homes as ADUs and Insights into the Prefab ADU Business Model

Steve Vallejos is the owner of a company called Prefab ADU based in the Bay Area of California. His company has now built roughly 120 ADUs, making him the most prolific builder of ADUs in the country (at least, as far as I know). This experience alone merited an interview with Steve, but what made me want to interview Steve was his knowledge about manufactured housing.

His company builds ADUs with manufactured, modular, panelized, as well as site-built, stick-framed homes. Manufactured housing is a concept that is largely unfamiliar to me, as this is not an allowable form of ADU in Portland, Oregon, where I’m based. But, California allows manufactured housing in all residential zones. Since Steve is familiar with these various building standards and types for ADU development, I took the chance to explore the differences of these building types with Steve. 

This transcription of our conversation is paraphrased for readability.

Kol: What’s the difference between a mobile homes vs manufactured homes?

Steve: Mobile homes were built in CA till 1976, then the state of CA and HUD changed some laws to shift the classification of this housing from an RV type of product to a more factory built home that was effectively meeting a ‘lighter’ version of the standard building code, but one which was built on a transportable chasse. Changes that occurred at this time were things like moving away from aluminum siding, 2x3 lumber, a low insulation requirement, and the electrical and plumbing standards changed as well.

The terms are still used interchangeably, but ‘mobile homes’ are no longer an allowable form of construction in CA, though there’s still legacy mobile homes from that pre-1976 era. Similarly, a ‘trailer home’ is not an technical industry term, rather it’s an older, slang term.

Kol: What are the primary benefits of manufactured housing ADUs over site-built ADUs?

We build using the full suite of construction methods. Manufactured homes have traditionally not been valued as well as stick built homes for primary residences; in part because the financing for them has been more challenging. But, when you use the manufactured home as an ADU, it’s a different scenario. The financing is primarily focused on the primary home, so financing for manufactured homes as ADUs has been financed the way that ADUs are typically financed.

The speed and efficiency of this product type is its competitive advantage.

But, just as importantly, we tend to have more customer satisfaction with manufactured homes. When we build conventionally with stick built homes, homeowners have to see every individual step of the process. They have to see every single trade. Often, there’s too much opportunity for homeowner to second guess their decision-making. When they see the foundation, people might 2nd guess the size of the foundation--saying, 'this is too small', or 'this is too big'. Immediately, it plays on people’s minds. There’s a lot of anxiety on the consumer during a conventional build.

Conversely, when it’s a factory build, the construction happens in 2-3 weeks in a factory, then the foundation takes a week or two to build, then within a week, we’re scheduling the delivery for the build. So, we’re going from nothing to 80% built within a month. There’s often more of a feeling of excitement and joy in this faster process. Overall, the consumers have a better satisfaction on this process which leads to a better process for everyone.

Kol: Is manufactured housing actually quicker than conventional building once you account for everything--the design, the permitting, site work, the finish work?

Steve: Well, if we ran 10 projects simultaneously, they’d all come in complete at different timelines. There’s many variables at play, decision making, materials on site, factory backlogs. I’ve seen them come in faster than stick built homes, but I’ve also seen some take just as long or longer than stick built homes. But, generally speaking, manufactured housing is faster.

The other thing is that the physical time that we’re actually on the buyer’s site is reduced. We’re not on their site every day for 3 months like we would be on a conventional build. The duration of the whole project itself may be just as long, but the duration of the time that we’re on their physical property is significantly reduced with manufactured housing.

Kol: Are their design limitations to manufactured housing?

Architectural embellishments don’t fit as well with manufactured housing, or the efficiency model of this industry. So, there are some limitations.

It takes a certain type of client that are more interested in functional spaces and not so enamored by really unique architectural aspects. In other words, we’re traditionally looking at doing things in squares and rectangular shapes for this type of ADU construction. But, generally speaking, our clients are interested in picking the size of the unit that works for them and most focusing on function and matching their primary home.

Kol: How do manufactured and modular housing differ from each other?

Steve: The two could look identical, except the manufactured home would have two steel i beams beneath it, where the modular home wouldn’t have that.

The real difference comes down to where they’re coded and permitted. The manufactured home is built to a federal standards, so a municipality can’t have control over those things.  The local authority only has authority over the finish attributes such as the size and finish.

A modular home is still built to the local building code.

Kol: In Portland, Oregon, there’s a code on the books that doesn’t allow manufactured housing on residential lots when the homes are less than 1,000 sq ft. So I haven’t seen any manufactured ADUs, which are limited to 800 sq ft by code. Is this a common prohibition?

Steve: A lot of issues predate my involvement with manufactured housing, but stem from fears of things that happened with manufactured housing in the 1980s. A lot of things happened manufactured housing in the midwest, or were related to natural disasters such as tornadoes, and had nothing to do with what happened here in CA. Manufactured housing was being put everywhere back in the 1980s in the midwest. Then, natural disasters and an economic downturn hit, and lenders would get stuck with a lot of inferior inventory. With that stigma attached to it, a lot of jurisdictions worked to eliminate manufactured housing from their area.

Meanwhile, the manufactured housing industry has worked hard to increase their standards, so it is a quality built product. Unfortunately, we still have a lot of regulations that prohibit the use of these products because they just don’t want to damage their housing market, by allowing what was an inferior product into the market.

My personal opinion is the CA did the right thing by allowing manufactured housing to be built anywhere a conventional site built home is allowed. At the end of the day, it opens up the opportunity to utilize different products to provide affordable housing in communities. Setting an arbitrary 1,000 is completely arbitrary. I just don’t see any logic to that.

Kol: How are manufactured foundations different than standard foundations?

Steve: For most site built units, we do a slab foundation. The ADU built as a manufactured home is built on a raised foundation. The perimeter is very similar to what you’d find a conventional site-built home. The difference is on the inside.

Most conventional homes use rafters that span the whole foundation, or use a grade beam that allows them to use shorter floor joists.

With a manufactured home, there are little metal piers that actually go underneath the home. They’re integrated into the house onto i beams. The piers sit on concrete pads, and are bolted to the frame, giving it interior support.

Kol: What is the most common form of manufactured housing installation once the product has been delivered to the site on a flatbed truck? Is it typically by crane or some other method used for installation?

Steve: For the most part, 75% of factory built homes are installed using a ‘roll set’. It’s rolled over the foundation and then bolted into place. Then, we finish it out as need to get it ready for occupancy. We rarely crane them. Craning is a little bit more expensive.

Kol: I am sure this is a tough question to answer generically, but how much does it cost to ‘deliver and install’ a manufactured home? Let’s talk about a range of cost, from low to high.

Steve: The home itself is going to cost 50% of the overall budget. The remaining 50% would be for the site work, and the delivery. In rare cases, the installation can be more expensive than that.

Kol: How much would one of these ADUs actually cost? Give me a range, or tell me the cost of the last project, or give me the average. Include all out of pocket expenses that a homeowner would expect to pay.

Steve: The home we just did in Dublin, CA, (see video below) is a 640 sq ft ADU. It’s a standard conventional foundation. It’s a 2 BR, 2 BA.  It’s going to be stuccoed and it has a composite roof. This was a modified version of one of our standard plans.

This one came out to $179,951 with the delivery included. They paid $9,800 for the design and the permitting. The permits came out to $16K or so.

So, if you tally up those up, you get $206K. That’s roughly $322/sq ft.

Kol: So, I’m guessing that for that market, this is substantially cheaper than the same ADU would have been if were site built by most builders.

Steve: Oh yeah. The going rate in this area for conventional building, not even for an ADU, is $400-450/sq ft.

The cost savings aren’t necessarily due to the method of construction. We don’t pitch a certain type of build. Our products will come out to be roughly the same amount regardless of the construction method. Instead, a lot of our cost control is centered around our business model, which involves heavy focus on standardization: standardizing our finishes, products, and process.

If we were everything to everybody, it would be difficult to keep these costs down.

We approach the market differently than others. We remove all of the decision making that comes along with a customized build process. Pick a plan, pick your finishes, and we do everything else.

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Here's a floor plan of the ADU shown in the video above. 

Kol: You’ve had great success with standardized designs. Many companies across the country have attempted to provide standardized ADU designs with little market success. Why have you been successful when so many others have failed or not gained market traction?

Steve: I think there’s a real simple answer to that one. What you have is a lot of people with great intentions, with a lot of ideas about what the consumer wants, saying “We’re going approach this logically and standardization makes a lot of sense”. The value proposition is there--I don’t need to go over that.

What’s missing here is experience.

When you have these startups that have ideas for a standard plan, and they put that product on the open market, it may have a huge disconnect with the consumer. It could be the design itself, and lack of functional use of the space. But, more often than not, it may just be the configuration of the plan itself on the lot. There’s a lot of moving pieces to what makes a good standard plan.

What makes us different is that we had those ideas on the front end as well. And, thirteen years later, we’ve been able to tune those plans to what we actually, physically see in terms of customer design requirements and lot configurations.

When you take that collective knowledge base and evolve a set of plans, that’s where it becomes more practical to use those plans repetitively. Whereas when you sketch out a set of plans on paper out of the blue and say, let’s see what happens, that’s destined for failure. But, that failure is what creates a set of opportunities.

We went through that as well. The difference is that we kept pushing, and adjusting, and continue to do so even today. Our plans evolve as the market evolves: where the trends are moving, adjusting the product to meet that new set of consumers.

End of Interview

Like my other posts, this one is a little dense. Here's another post by owner Crest Homes in Southern California that also describes the difference between manufactured homes and stick built homes. Enjoy!

Steve Vallejo's contact information:
(707) 429-3300 office

www.prefabADU.com