Legacy Housing, LTD Aims at Quality, Affordable Homes Sold by Independent Retailers

by Eric Miller

"This will make you proud to be an American when you see how everything comes together."

For anyone who hasn't seen the production process for manufactured homes, a visit to a factory is an eye-opening experience. I joined partner Kenny Shipley and production manager Andy Nauert on a recent tour of Legacy Housing, LTD in Fort Worth, Texas.

Built from the ground up in 2005 and the only independent manufacturer of manufactured homes in Texas, there's obvious pride in the company and the manufacturing process.

"This will make you proud to be an American when you see how everything comes together," says Legacy's co-founder and President Kenny Shipley as we enter the plant.

After decades in retailing, Shipley started Legacy Housing with a handful of industry entrepreneurs including Curtis Hodgson, Conley Bigham and Ray McKay. The goal was simple: produce a quality product and produce it at a lower cost by cutting out the corporate overhead.

Surrounded by associates in their cubicles performing accounting, graphic design and managerial functions, Shipley sits on a worn sofa and comparing today's market with that of past decades, explains how Legacy Housing is providing value to the customer.

"We don't have the overhead the other guys do. We don't have some corporate Taj Mahal out on the expressway that costs a fortune to keep up," Shipley says. "All those savings and that value go back to the retail customer."

Shipley compared a product produced by Legacy Housing today with one produced by Melody Homes in the 1980s.

In 1981, he says as a retailer he was buying a 14x80, shingle roof and hardboard siding home by Melody for $22,500. "Today we sell that house 16x80, hardy siding, 3 bedroom, 2 bath, shingle roof and the wholesale invoice is $22,500."

Putting these numbers in an inflation calculator, the total inflation rate from 1981 to present would put that at about $53,000 in 2009 dollars.

"The increase in the square footage price of a manufactured home hasn't increased near what a site built home has," Shipley says. In fact, judging from the inflation calculator, in relative terms it has gone down.

Statistics support this statement as well. The average cost of a new home in 1980, not distinguishing between manufactured and site-built homes, was $68,700. According to the National Association of Home Builders, the cost per square foot to buy a home in 1992 was $55.18. By 2009 it had risen to $83.89. The average cost of a new home in 2009 was somewhere around $238,800. To be fair, the manufactured home numbers are wholesale and do not include the land, which has experienced price increases.

Moreover, Shipley says the quality of the home provided by Legacy Housing today compared with the Melody home of 1981 has improved substantially.

"Today our 16x80 is vaulted throughout and has tongue-and-groove floor decking. There's more value for their money than there was 30 years ago," Shipley says. "Meanwhile 30 years ago, for a site built house in Lubbock, Texas, you could build a house for $40 a square foot vs. $120 to $130 a square foot now.

"We've found ways to build these more efficiently in a controlled environment; meanwhile the rest of the world is selling houses that are costing more."

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The tour of the plant reveals that every component of the homes is produced on site. This starts with the under-carriage. My learning experience started here with a demonstration of how the camber (the degree of arch put into the beam) needed to be adjusted to accommodate the weight of any one of the more than 60 designs built at the plant.

The steel frame will later meet the floor being constructed elsewhere. When it's set on the steel frame, the electric, plumbing and ventilation systems will already be in place. At the opposite end of the factory, crews are working on roof components and finishing interior ceilings, all which will meet in the center where the completed product comes together.

The end product is one that seeks to fill a broad niche.

Shipley says "People buy because they can. Some can buy 10,000, some can buy $50,000, some can buy $100,000. We're not after the $100,000 guy."

Nauert explains the thought process, starting with the components the customer needs, then adding things the customer may want and be willing to pay for.

"We want to do what we do best," Shipley says. "That is economical housing, maximum bang for the buck. We do have some options, but we try to keep them to a minimum."

Other changes

It's apparent that Legacy Housing was built with retailers in mind. Its feedback is from those retailers the company uses in order to continually provide product the customer wants.

"We're motivated to do business with independent dealers," Shipley says, explaining how staying in business has become more difficult over the years. It's a difficulty he knows firsthand.

In the town of Lubbock, Texas, he says, when he first went in business there were 20 retailers, now there are five. San Angelo went from four to none.

Some of that difficulty stems from finding floorplan financing. From the point of view of a manufacturer, Shipley says it doesn't make sense to use outside financing.

Legacy Housing's Chief Financial Officer Conley Bigham explains that what's being offered to manufacturers would require the company to provide two-thirds of the financing for retailers.

"Essentially if we build a house for $20,000, if we give the lender $16,666 cash, they will floorplan it for the dealer. They will pay us LIBOR1 plus; when the dealer finally pays the home off, they'll give us our money back."

"If we're going to put 66 percent up, we might as well consign it ourselves," Shipley says.

Today its LIFT program2 aims to allow dealers to finance their floorplan with minimum monthly payments.

"We've got mom and pop stores that just need a financing source and need a good product," Shipley says.

It's not only the retailers who have been hurt by the current economy. Shipley says manufactured home communities are hurt by banks that charge higher interest rates if a home will be placed in a community. Most of the homes being produced at Legacy today will have the final destination of a lot owned by the purchaser. That's a significant change from the early 1980s. To demonstrate, Shipley tells this story of a realtor who called on behalf of a buyer looking to purchase a recently-constructed manufactured home community.

Shipley says the buyer was looking for a product that doesn't exist. "I don't know of a community that's been built since the 80s."

The story of Legacy Housing is the story of an independent manufacturer that has survived despite difficult economic conditions. It is one that has also helped the independent retailer survive.

The aim is also to build a long-lasting product of high quality. This is evidenced in the superior materials demonstrated, including hardy panel that's virtually indestructible and the Beaufloor, which as demonstrated is almost impossible to tear.

Every step of the process includes a thorough inspection, with a sure-fire method of catching any mistakes and correcting them. Nauert says most of the supervisors at the plant have some 20 years of experience.

Today Legacy employs some 400 people including 275 working in two Texas plants. Those numbers are down from a few years ago. The plant in Fort Worth is currently producing 48 homes a week with a maximum capacity output of 70.

"It's on the rise again," Shipley says. "Thing are better than last year when there was nowhere to go but up."

¹ The LIBOR is among the most common of benchmark interest rate indexes used to make adjustments to adjustable rate mortgages.

² LIFT is the name Legacy Housing gives its LIBOR program.

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