Guide to Prefabricated and Modular Homes for Homeowners and Investors
By Michelle Clardie on 04/29/2025.
Reviewed by Dan Gatsby.
Prefabricated (prefab) and modular homes are growing in popularity as homeowners and investors seek out affordable, sustainable housing solutions.
In 2015, prefab homes represented just 2.14% of new home construction in the US. By 2023, 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 2024 to $60.03 billion by 2033, 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 1976 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.
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.
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!
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