I have been asked numerous times to spill “the secret” to making money in real estate when a bubble has burst. Sorry, there’s really no secret at all. The closest thing to a post housing bubble secret is this: When the market is bad for flipping houses, don’t try to flip houses.
I know, not very exciting, is it? But everyone I talk to seems to think that buying and selling houses is the only way to invest. I got news for you, there are a whole lot more techniques you can use besides flipping. Here are three for you to chew on.
As the weakness in residential median home prices tightens, developers are forced into the unenviable position of trying to maintain profitability while suffering lower sales numbers both in units and dollars. To maintain stock values many of these companies are profiting by selling off land that they have held for years, originally with the intent of utilizing it at some time in the future. While this land cannot be bought at fire sale prices, it can be bought fairly and because it is currently part of significant plans, developers may well be willing to sell the land with the agreement to buy it back at a predetermined time and price. In this way an investor could lock in future profits. In addition, if you are able to get a firm contract to resell the property, you may be able to use this contract as additional collateral when borrowing on the land and therefore be able to ramp up the amount borrowed to allow you to purchase, carry and profit from the deal all at the same time. Another option with this type of land may be to convert its use from residential to commercial. If the residential area around the site has been build up, perhaps there is a need for a strip center, convenience store, etc. Many people have profited by converting residential land into commercial land. Check with you local governing body to see if the conversion is possible. If it is you may have a diamond in the rough.
In addition to land purchases, a wise investor will look at residential multifamily property even more closely now than they may have before prices started to fall. This may seem contradictory, but it is not. There are few things in life that cause us greater heartburn that being “taken” on a deal. As home prices inch downward, buyers will wait longer to buy in even greater numbers. The mindset simply exemplifies the unwillingness to buy now only to lose value immediately. This “wait for the bottom” mentality, when coupled with the natural increase in market demand will keep more renters renting at even higher rates. Rental housing should continue to do well as this demand is pent up awaiting the proof of a rising residential single family market.
Another area of opportunity is in storage units. Once used to warehouse land, storage units are now a mainstream product that can produce surprisingly attractive returns. The segment of the market that was caught between selling one property and buying another, must store their belongings somewhere. This element adds a push to the prices charged for storage units. In addition, as more affordable homes are built, they will for the most part be smaller. When buying mid range homes, new owners have traditionally not wanted to just get rid of their excess belongings, so they go into storage. There are many other factors that also point to strong storage needs for the foreseeable future.
There are numerous opportunities to benefit from real estate techniques, trends and opportunities regardless of what is happening to any one market segment. Learn all you can, then choose wisely. The quality of your life and portfolio are in direct proportion to the quality of your decisions. Make good ones. Good luck. If we can help, we’d love to.
There, now go forget the “housing bubble” and invest.