The real estate housing market is eternally changing and fluctuating. As investors, we must adapt to the market to identify opportunities as opposed to waiting until the market matches our preferred strategies.
After what seems like an eternity in a down market, the bottom seems to be clearly in our rear view mirror and it is time to once again adapt our strategies.
Here’s what we’re seeing in the market according to AOL.com/Real Estate and Realtor.com: Sales of existing homes hit a 6 ½ year high reducing inventory to 4.9 months which is considered a housing shortage.
So we have clearly moved from buyer’s market to a seller’s market although sellers are slow to realize that.
Think about your Economics 101 course…What happens when supply is low and demand high? That’s right – prices increase and that’s exactly what we’re experiencing. Home prices are up 12.4% over the previous year.
So how does that affect you as an investor and what should you do? Here are three ways to optimize your investments in the changing landscape:
- Rentals: If you listened to me over the last few years and bought rentals properties while rents were high and prices low, now it is going to really pay off. With a housing shortage, renters still will not be able to buy their own house keeping your occupancy rates high, except now the value of the property will be increasing.
It’s not too late to get into the rental game. Prices are still low, and you can get some real bargains. I recommend foregoing the cash flow today and make additional principal payments to get your rentals paid off in 10 years. You’ll appreciate the massive cash flow and the huge equity – all provided courtesy of your tenants.
- Rehabs: In a housing shortage, what is needed? More livable houses. It is time to get back into the rehab game and make big dollars quickly. There is no need to get into large gut level projects – you can make a great profit from just a medium level rehab.
The great news is that with a housing shortage you’ll sell quickly. Just remember to have value for the buyers. They define value as:
Price + Amenities = Value
In other words, plan your project from purchase through rehab so that you can offer the best looking house at the middle of the range price. You’ll be among the first to sell in the area every time.Another tip is to look for resurging areas where buyers are drooling to live. As long as you are providing the nicest house, you can even top the price market and expand your profit.
- Wholesales: Over the last few years we have had to focus on locating properties for landlords. With the market taking a positive turn rehabbers will be back in the game and looking for profitable deals.
Start identifying niche markets in which to market where you’ll find great rehab deals. One of my favorite niches is 25-30 year old “tired” looking residential areas. They must still be good family areas, but ones where the homeowners are not investing back in their homes. You’ll find great deals; and since the houses are not too old, they won’t require typical structural and systems renovation. Rehabbers will eat these deals up.
The point is not to ever be scared of the dynamics in the marketplace, but rather to be dynamic yourself in how you take advantage of the opportunities that each change provides.
Expect abundance,
Lou Castillo
