Split Housing Market: Ugly vs Pretty Homes
Posted on July 27th, 2011
I just caught this interesting article in The Atlantic “Are Ugly Houses Preventing a Home Market Recovery?” Buyers are seeking good-looking homes and ignoring dilapidated foreclosures. Here are the key points that caught my eye. .)
Maybe Americans aren’t avoiding buying homes right now — maybe they’re just avoiding buying ugly homes. The housing market may be splitting into two sub-sectors: well-kept, good-looking homes and run-down, torn-up homes. He writes that demand is quite strong for nice properties; it’s the ugly stuff that nobody wants.
Case-Shiller fails to state that there is a huge differentiation between ‘good inventory’ & ‘bad inventory’. When a buyer gives me their wish list, it usually goes something like this…. I want open & airy, master on the first floor, updated, nice view. The shorts sales and foreclosures tend to be dark and dreary, closed-off floorplans, dated, unpampered, and ugly views. Therefore there is an excess of ‘ugly homes’ but not a lot of ‘good looking’ homes.
One of the reasons why there are so few nice homes out there is because construction levels have been so low. Picky buyers have limited options when considering existing inventory alone.
The disparity between these two groups of homes matters, because Lichtenstein has seen prices of the good properties remain relatively strong recently, as prices of worse properties have declined.
His observation has a logical conclusion: the market could be ripe for some renovate-and-flip business.
He is right, there has never been a better time to buy, fix and sell for profit. Looking at an example is this report, in Florida the average foreclosure discount for was 27% in the first quarter. So let’s say a foreclosed home’s list price is $250,000, but it sells for $182,500 due to that discount. If that buyer puts $35,000 into the home to give it a facelift and a few key upgrades, it may achieve a price close to the list price at resale. That would provide a 15% return on investment in probably a few months work.
This doesn’t mean that all foreclosures could be easily rehabbed for profit. Savvy investors would have to be able to tell apart those that have potential to be converted into more desirable homes without an excessive investment from those that don’t. Floor plan and location are probably key characteristics in that determination.
This gives investors three options: flip your deal to another investor who pays you an assignment fee for a below market deal; rehab and quickly resell those properties that have resale potential; or rent out the properties for positive cash flow and wait out the market improvement for your resale. Either way you can’t go wrong.
The next problem you have to tackle is how you are going to finance the purchase and rehab of these properites. Although mortgages are at 50 year lows, it is difficult for investors to obtain approval under today’s underwriting criteria. That means you will need to “Find and Raise Private Money to Fund All Your Deals“.
Great wholesale deals, selling for a fraction of their replacement cost, are closing all over the country. But if you don’t have the cash for the deals, you can’t play. Rather than be frustrated and stuck, it’s time to change things. That is why we have created this Brand New Live Professional Investors Webinar - to help you find and keep a steady flow of deal closing cash coming your way.
Similar Posts:
- Is That Asking Price Even Close to Reality?
- You Can Flip in This Market
- Obama’s housing chief: Now’s the time to buy
- Quick $10,000 assignment!!
- Inventory Shrinking, Cash Buyers Rising
Tags: Homes, Pretty Homes
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