Should I use modular construction to build a rental property?
What's going on, YouTube? It's Matt Faircloth, thank you for watching Mentorship Monday.
My name is Matt. My company is called The DeRosa Group, and this is our Mentorship Monday
series where people email questions to HelpMe@DeRosaGroup.com, that is HelpMe@DeRosaGroup.com, and I'll answer
the question right here on the YouTube channel for you and everyone else to learn from. If
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So, today's question comes from David. Hi, David. Thank you for your question. David
is straight up about it. Hey, Matt, I saw your posts on building versus resale. You
mentioned modular. I've been looking for a company who can build duplex buildings as
prefab modular. Do you know a few companies, and how is the maintenance and wear and tear?
I've not done many modular projects, haven't done any yet. We've looked into a lot of it.
If you're down in Florida, there's probably better companies down by you. We've looked
at companies that are up in the Pocono areas, it's a lot of the modulars get built in that
area, because a lot of them get used in the Northeast. But there's modular companies all
over, so if anybody watching either has a modular company or recommends a modular company,
feel free to promote them in the comments. Just leave a comment down there with information
on a modular company and I'll leave it in there. Because I don't have any companies
that I'm promoting or anything like that that I can really mention. But, to David, happen
to know there are companies down in Florida you guys can talk to.
So, bottom line, so those of you guys that don't know, here's what modular construction
is. Typically, when you build a... Whether it's a home or a small multi-family, whatever,
let's just say you got a open piece of grass, where you go out and you dig a hole, then
you pour a foundation, and then you build stick frame on top of it. You do your stick
frames, just pieces of wood, and then you do your plumbing, your electrical, your HVAC
for heating and cooling. You put the roof on, you Sheetrock, you do the kitchens, baths.
Not all of it doesn't happen in this order, but is a process to do all that stuff. And
you just have people in the field go and do this stuff at your property, and then they
leave and go work on somebody else.
So, the way modular works is they have a factory where they just go take boxes and they just
build, like Legos, right? They just take boxes, and inside that box, a wooden box, they'll
put all the plumbing, the HVAC, the Sheetrock, even kitchens, I've even heard that they'll
ship it to you with appliances in it. And they'll just take all the stuff that you need
and put it inside this box. And if your property you need is bigger than the box, they'll just
take a couple of boxes and stick them together, right? So, one, two, three boxes on the first
floor, and then they'll do one, two, three boxes on the second floor, put a roof. They
could even put third and fourth floors for properties, if you're going to do a multi-family.
I've even seen modulars made out of steel, out of light steel, where they were enormous
properties like college dormitories made that just showed up on trucks. These boxes just
get shipped out to the site on a flatbed truck on the back of an 18 wheeler, and they just
take a crane, and pick it up and set it in place. And they connect the plumbing and the
electrical between the boxes and all that. So, again, not to get too deep on what modular
is, but that's how it works. It's just boxes that get stuck together at the site. And there's
finished work that has to get done.
Modular is a benefit. It can be a benefit at cost, on the cost to build. It's no longer
half the price. And some people think that modular is a way to get stuff done super,
super cheap. Not really anymore, because they have to pay the same labor rate pretty much
in the factory that they do somebody working in a field, give or take. It's not that much
cheaper. There is a certain amount of design efficiency, there's a lot of material waste
they're able to save, so they're not just cutting lumber willy-nilly out in the field.
They're able to measure it ahead of time, cut it, and they use precise machinery and
all that, so there's a lot less waste. So, the cost is a little bit less, but what modulars
save you on the most is time, right?
Here's a few things that you should remember. When the boxes are shipped from the factory,
they are inspected by a third-party licensed inspector. So, once they show up in the field,
most of the time, in the states that I've talked to, they don't have to be inspected
by your local code officials. They've already been inspected, they've already been stamped.
The only place that they can inspect is the junction points in between the boxes. That's
a big benefit to you on time. So, secondly, they're able to build these things pretty
quickly, sometimes four to eight weeks, give or take. I'm not quoting, that's just what
I've heard. I'm not building these things, you can't hold me to that number, but four
to eight weeks is what it typically can take to deliver the boxes to your site from the
time that they're ordered, depending on the factory's timeline to build the stuff. So,
time is the biggest saver in modular that you get.
Additionally, some people would argue that if you're stick framing a property, and it
rains for a week, and they can't come out and address the issue and work on the property,
the wood and all of the exposed elements and everything like that are exposed to the elements
outside. You've potential for mold, you have a potential for exposure to the elements,
and just bad stuff happening to your property. Maybe a potential for vandalism or something
like that. And that you eliminate a lot of that with modular, because it's pretty much
done when it gets shipped to the site. It's airtight, it's buttoned up, you're not going
to have rain get in it or anything like that. Those are some of the many reasons why modular
is a good idea. Yet, again, if you guys have done modular and you want to leave a comment
pro or con against modular construction, leave it in the comment box.
So, to your question, David, bottom line it all, how about the maintenance, wear and tear?
Now, here's a few things about new construction. In most states, there are laws that require
new construction to have a warranty from the builder. So, in New Jersey, where I'm sitting
talking to you today, New Jersey requires a 10-year structural warranty, two years on
everything and 10 years on the entire structure. Here's what's great for you on that. If you
have any maintenance issue, aside from a tenant caused maintenance issue like flushing a G.I.
Joe down the toilet, that's the tenant's fault. But if there is anything that's a property
fault, a roof leak, or this is wrong, this is leaking, this is having a problem, whatever,
you can go back to the modular builder on a warranty claim.
Additionally, new construction, if it's built right, tends to have less problems in general.
So, David, I would say that you're going to have less maintenance problems on a new construction
property in general. And I would also, obviously, make sure that the warranty is very solid,
and that the modular construction company has someone that can enforce that warranty
and go out and do work for you if they need to. So, I'm a big fan of modular. I've seen
people do very well in apartment buildings that they build with modular, even small duplexes
and whatnot like you're referring to here, so I give it a thumbs up. You just got to
find the right builder for it.
Thank you for your question, David. Like I said, guys, email your questions to HelpMe@DeRosaGroup.com
and I'll answer them right here on the YouTube channel. And I appreciate all you guys for
watching, and have a great and profitable week.