How to Start a Modular Home Dealership

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Quick Reference

Modular homes (also referred to as prefab homes) are becoming increasingly popular due to their affordable price and speed of construction.  Opening a modular home dealership could be an excellent opportunity for you to cash in on the trend and have the freedom that having your own business allows.

Business Overview

A modular home dealership purchases the materials for modular homes and builds them to customers’ specifications to be placed on land that the customers own.  They also help to facilitate financing for customers by working with lenders.

Industry Summary

According to IBIS World, the manufactured home industry grew 2.5% annually over the last five years to reach $6.6 billion in 2021.  It did, however, experience a 10.2% decline in 2020 due to the economic slowdown that resulted from the pandemic.

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Industry Trends

According to Fortune Business Insights, the global modular construction market is expected to grow 6.1% annually through 2028.  The increased popularity of modular homes is due to factors such as their reduced waste, eco-friendliness, cost-effectiveness, and speed to build.

Target Market

Your target market will be people seeking cost-effective housing solutions.

Skills, Experience, and Education Useful in Running a Modular Home Dealership

There are several specific skills that you will need to open a modular home dealership.

  • Experience.  Experience working in a modular home dealership would be valuable.
  • Knowledge.  You’ll need to research construction materials and methods and hire experts to help you.
  • Business knowledge and experience.  You will need to have a basic understanding of marketing, finance/accounting, and human resources.
  • People skills. You’ll need to build rapport with your customers so that you retain them as customers and keep them coming back.

Steps to Starting a Modular Home Dealership

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your modular home dealership should be to write a business plan.  The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your start-up expenses will be and what your ongoing costs will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.

How to write a business plan
Free sample business plans

Step 2: Name the Business

Finding the perfect modular home dealership name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.  Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).  Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

RelatedComparison of Business Entities

Step 4: Select your Location

You will need a location that offers sufficient property to have display homes, in addition to offices to consult with clients.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

You may need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. Check with your state for specific license and permit requirements for your modular home dealership.  Some other common local, state, and federal registrations a modular home dealership may need include a sales tax permit and an Employer Identification Number.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing but getting the funding to start a modular home dealership is another.  In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.

Step 8: Get your Marketing Plan in Place

A modular home dealership will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a modular home dealership include social media marketing and online advertising. Networking with realtors will also be beneficial as clients purchasing land may be looking for additional options for building.

Related: Low-cost ideas to market a new business

Step 9: Get Insurance

A modular home dealership needs several types of insurance for full coverage:

General liability insurance can help protect you from third-party claims of bodily injury and property damage.

Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.

Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hiring Employees

You will need employees to help you run your modular home dealership.  Make sure that you select people with appropriate experience and training.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your modular home dealership is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How Much Can You Potentially Make Owning a Modular Home Dealership?

The profit margin on a modular home is around 9%, and the average sales price is about $72,000.  If you sell two homes per week at the average price, you will make $673,920 per year.

Things to Consider Before Starting a Modular Home Dealership

Running a modular home dealership or any business will have its challenges.  You need to be prepared and make sure that you know what you’re getting into.

Marketing and acquiring customers will be your biggest challenge and an ongoing expense. You will face competition, so you need to ensure that you are offering a high-quality product.

You will need to research suppliers for your materials so that you keep your construction costs as low as possible while still maintaining quality.

Talk to other business owners for tips on starting a business and do your homework to determine costs.  Research other modular home dealerships to see what they offer and what prices they charge.

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