In the middle of this economic downturn, this is not something you may want to read. You know how hard things are, and you may be tired of this kind of rhetoric. You may also be familiar with the old saying “when one door closes, another one opens”. What I want to review this week is a simple fact that in any economic downturn, there are new opportunities are being created for those that are nimble enough to respond.
The remodeling market has lived on increasing real estate values that are showing positive improvement depending on parts of the US. Inexpensive money is now available for homeowners to remodel and expand their homes. People still need a good place to live. It’s a basic necessity.
An interesting opportunity that is presenting itself now is the purchasing and remodeling of foreclosed and discounted real estate. In most parts of the country, there are thousands of foreclosed properties coming back to lenders, properties that need work that lenders will sell at discount prices. Here is the key to this opportunity – in July 2008, the U.S. Census Bureau released some incredible population projections. Take a look at these numbers:
Projected increase of 135 million people (a 44% increase) in the U.S. by 2050 (to give you perspective, that’s equivalent to the entire populations of Mexico and Canada moving to the United States)
The Census Bureau estimates this population boom will require 52 million new housing units
Due to the current economic climate along with high building and development costs, these additional 52 million housing units are not being built. What does this mean? It means that affordable housing will be in high demand. A population boom combined with increased costs of goods and a demand for land will drive increased home prices. This is a recipe for strong long-term performance, and now in 2013, more opportunities exist.
The benefits of purchasing and improving discounted real estate are 4-fold:
- You can create remodeling work for yourself, and put employees and trade contractors to work on the properties you buy
- Because you are a remodeling contractor, remodeling repairs can be completed at wholesale prices (most investors don’t have your skill-set)
- If you are short on capital, investors will be interested in partnering on properties you purchase and remodel at wholesale prices (investors are looking for safe investment vehicles)
- Buying and holding 1, 2, or 3 houses a year will build wealth for you and your family, providing a passive residual cash flow when you decide to exit your business.
I bring up that last point because most remodeling contractors don’t put much attention on retirement, or planning any kind of exit strategy. Most are too busy, don’t really know what to do about it, or are living under the mis-conception that they are going to sell their remodeling business one day. The lack of a strategy and lack of planning for the future will lead to failure.
This strategic opportunity is one that many remodelers are already taking advantage of. To begin to evaluate this for yourself, begin to educate yourself on the potential benefits and liabilities. Call a local real estate company in your area, and ask to speak with the broker or agent that works with foreclosed properties. Speak with 2 or 3 of these folks to better understand what they do.
If work is slow, take the time to spend 4 hours a week beginning to visit properties either for sale or in foreclosure. Get to know those areas that you think would be a good for investment. Spend 3 months understanding the real estate market in your area. Secondly, call some local banks in your area and take some bank officers to lunch. Your real estate contacts can give you some direction on who to call. Tell them what you want to do, and ask them what they would need to consider if making a loan and working with you. Learn the rules of the game.
Understand that buying investment property also has its downsides. You will need to understand the value of properties so that you don’t pay too much. You will learn that from taking the time to understand and study real estate values in your area. When you do this right, you will know when you have found a good deal.
If you buy and hold property, you will also become a landlord, and be responding to tenants who will rent your properties. There are numerous property management horror stories, but these can be avoided by taking property management classes and learning how to become an effective landlord. Successful landlords can teach you how to do this right. Learn from their experience. Take advantage of their experience.
A good real estate investment will, in time, create cash flow, and build equity. This is a sound financial building block for any small business. I have a series of “tips” for those that would like to know more about working with investment real estate. To receive tips 12, 13, and 14, just e-mail me and I will forward those to you.