Why Do Mobile Homes Depreciate In Value?
One of the significant differences between mobile homes and traditional houses is that mobile homes depreciate. This fact is a headache for many new and existing owners. It is especially relevant whenever you’re trying to buy or sell a new property.
But few people know why this happens. We are going to answer the common question why do mobile homes depreciate?
What is depreciation?
Depreciation is an accounting term that refers to how much of an asset has been used up. Therefore, it is a method of allocating the cost of a tangible or physical asset over its lifetime.
Taking this into account can help businesses by allowing them to earn revenue from an asset while expensing a portion of its cost each year – something that factors into tax deductions when tax season rolls around.
However, the effects are quite different for personal property like a mobile home. Mobile homes are not considered real property because they aren’t tied to the land. So they fall under the category of vehicles and chattel property. (Note that not all mobile homes are personal property. Sometimes, mobile homes can indeed be real property, but that’s a topic for another article).
Mostly, this idea of depreciation means that your mobile home won’t be able to sell for as much money as you spent when you first bought it.
But it usually isn’t a straightforward calculation. The actual rate depends on several factors, including the type of depreciation. There are four main types, namely:
- Double declining balance
- Units of production
In general, accountants tend to use the straight-line method for these assets. To get a rough estimate of how much your mobile home has depreciated, we recommend that you use a calculator like one of these.
The salvage value is the money that you can expect to get when you sell an asset that has depreciated. You can work this out by subtracting the amount the mobile home is likely to depreciate over time from its initial price.
Why do mobile homes depreciate?
So, why do mobile homes depreciate?
There are several possible reasons for this, and each of them can affect different properties to different degrees.
The main causes of depreciation are:
- Wear and tear of the asset
- Usage right expiration
- Natural resource usage
But not all of these are applicable to mobile homes. In this case, the main concerns are wear and tear of the asset and obsolescence.
Wear and tear of the asset
Almost everything will experience some degree of wear and tear over its lifetime. The effect is usually much worse on any asset that you can move around. Eventually, the damage will become so significant that you can no longer repair the object.
Once this happens, it might no longer be usable and has to be scrapped or discarded. Typically, the manufacturers give an expected life span based on the usual rate of decline.
According to the U.S. Department of Housing and Urban Development (HUD), the expected lifetime of mobile homes is 30 to 55 years.
In this case, wear and tear could refer to:
- Plumbing that is beginning to leak
- Worn siding
- Damaged fixtures
- Scuffed floors
That’s one reason why regular and thorough maintenance is so important. You can possibly slow the rate of depreciation due to this cause with repairs and upgrades.
Accountants use depreciation to account for this decline in the quality and condition of the asset. And the potential expenses faced by the new owners to cover repairs.
Obsolescence and inefficiency
One more critical cause of depreciation is the obsolete nature of some assets. Unfortunately, the novelty of everything wears off at some point. Manufacturers develop newer products, materials, and methods all the time.
These new developments render previous ones inefficient and often completely obsolete.
There are several ways this can affect mobile homes:
- Older techniques or materials used by manufacturers might no longer be deemed safe or reliable.
- Designers create multiple new models each year. Over time people will no longer want to buy older ones.
- Improvements in the construction of mobile homes mean that the quality of newer models far outshines that of their predecessors.
- The architectural style or decor style might have become too outdated for modern tastes.
An example of this on a wide scale happened when HUD first released construction and safety standards for mobile homes. Afterward, models that were built before this date fell out of favor, and their value decreased significantly.
What else impacts your mobile home value?
The above are the most significant reasons why mobile homes lose value over time. But they aren’t the only reasons.
Rates of depreciation and changes in value are also affected by:
- Inflation rates
- The state of the relevant housing market
- Initial price paid
- Availability and demand for the specific model
- Whether the owner will sell it with a lot or not
- The community in which the owner has parked the home
Therefore, if your house is in a very favorable location, it could slightly increase in overall value. You can also keep the rate of decline steady or reverse it by renovating or adding additions to the home.
Getting the best deal
Now that you the answer to “why do mobile homes depreciate,” you need to know why this matters. The main reason you should take depreciation into account is to make sure you get the best deal if you’re trying to sell or buy a second property.
To find out more about the value of mobile homes – and what affects it – take a look at does mobile home value change throughout the year?