How do I say this without scaring everyone? Looming over us right now is a massive housing shortage. The Census Bureau, in 2008, released some of the most incredible projections for our population. Just read these numbers and see what I mean:
- Our U.S. population will increase by about 135 million, 44%, by 2050.
- This rise in population will call for an additional 52 million housing units.
- Starting today, over 1.25 million housing units must be built each year, to keep up with this explosion in population.
Let’s face it, new housing starts have slowed almost to a halt. Presently, we’re not even close to 1 million new homes being constructed yearly to cover this huge future demand. However, there is an enormous supply of foreclosed properties, whether in the process or as REO properties; these all stretch back to the mortgage debacle.
Until 2003, interest-only and negative-amortization loans accounted only for about 6% of all mortgage origination's. In 2004, these numbers jumped to 25%. Then in 2005, they soared again, this time to 29%. Then in 2006, they slumped to 23%.
As this was happening, real estate values continued to skyrocket until 2008 when the market took a dive. With plummeting values beginning in 2008, and continuing today, professional estimates report that over 25% of the homes in America have a loan that is much greater than the value of the property! The important detail here is that most interest-only and negative-amortization loans have a five year recast calendar from the day of origination.
The reality of all this? There are more foreclosures coming in the next wave of resets.
Falling home values are resulting in many owners coming to the conclusion that retaining an asset with negative equity just goes against common sense. Many are just walking away and letting the banks take back these homes.
Additionally, home loan interest rates are the lowest since the 1950’s. Right now, you can get a 15 year loan at 3.57%! This is as crazy as the 18% to 22% was in the late 70’s and early 80’s! This is your remodeling and first time home-buyer’s opportunity of a life time!
Within the present real estate market, any contractor can take advantage of their skill set and leverage their sub-contractors and suppliers. All over the country, there are thousands of REO and distressed properties that banks are willing to sell at discount prices.
And the opportunity? Buy a foreclosed property! Next, do the necessary work to repair any existing problems at wholesale prices. Next, put it back on the market, either as a FSBO or with a Realtor. Then repeat; do this multiple times each year. And if you’re short on capital, find investors. They could be past clients or your doctors who might be interested in becoming a partner and making money on any properties you buy and fix up.
This is a win-win process for everyone:
- The banks will benefit by selling their inventory;
- The contractors benefit when they buy and fix up at wholesale prices and sell at retail prices. They will also benefit by receiving some positive community relations;
- Your investors will benefit because you can afford to give them excellent returns on their 6 to 12 month loans to help you out;
- Your buyers will benefit when they buy homes that have just been fixed up and at lower market interest rates;
- Each neighborhood benefits because the homes are being repaired and vacant homes are being occupied.
I know many contractors who have been dong this for sometime. They choose the properties they work on and fix them the way they want to. Additionally, they don’t have to sit home waiting for clients to call them for their next job.
All this is just one more demonstration of how easy it is to make money in a down market!
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