I’ve heard some people complain that there isn’t enough housing inventory for people who want to purchase homes. For people who are willing to put sweat equity into the purchase of a distressed property, it’s a dream housing market. I live in Florida, which was hit hard by the Great Recession and housing collapse. Even though I don’t plan to move, I am interesting in buying a rental property. I am amazed by the short sales and foreclosures that keep hitting the real estate market every week. Even my peers who want to become “step-up homebuyers” are finding affordable foreclosures next door to million dollar homes. A recent piece by The Daily Ticker included an interview with Robert Shiller, who talked about a slowdown in housing. Evidently pending home sales are down 11 percent from one year ago. The cost of buying a home has meanwhile increased as mortgage rates climbed 1 percent compared to last year. A slightly higher interest rate won’t stop me from buying a rental property to generate income, but the extreme competition may.
Getting a chance to compete
According to The Daily Ticker, real estate investors may be pulling back. In my neighborhood, a short sale recently sold for $120,000 after being on the market for just two days. What’s astounding is that the same model home sold for $210,000 just one year ago. It’s difficult for everyday people to compete with sophisticated investors, but not impossible. If the big players take a respite from buying investment properties they can turn into rentals or flip for a profit, the average investor might have a chance to find bargains in real estate.
Avoiding new home construction
While some people are speculating whether it’s a new real estate bubble, I think that the real danger lies in buying overpriced homes. New home construction is considerably more expensive in my area compared to distressed properties and short sales. When I purchased my first single-family home in 2005, I was able to lock in a price when signing a contract. By the time we moved in one year later, our home had “appreciated” by $20,000. Some of my neighbors “flipped” a profit of $100,000 in two years during the housing bubble by simply selling their new construction homes purchased sooner than later. The difference now is the huge inventory of short sales and foreclosures that didn’t exist during the housing bubble.
Fixing up foreclosures
I think in many cases people who purchase foreclosures and fix them up well are doing a service to people who live in a subdivision ravished by the housing collapse. One owner in my neighborhood spent at least $60,000 fixing up a home before trying to sell it. When she couldn’t get the asking price, she decided to live in the home. According to a recent article by USA Today, home flippers averaged a gross profit of about $58,000 per home flip in 2013. Flipping homes was profitable for people in the past year, which should continue on as long as people keep defaulting on their mortgages.
While I lost the chance to buy the investment property I found for $120,000, I have not given up. I have decided my best approach is to start paying closer attention to which homes are in pre-foreclosure so I can put in an offer the first day. I have written down what I can afford to spend on a rental property so I don’t get caught up in a bidding war. I’m also researching neighborhoods so I can pass on short sales and foreclosures in undesirable areas. I don’t think it’s a new housing bubble, but it’s a great time to buy a bargain.
More from this contributor:
What We Gave up to Buy Our Dream Home
I’m Happy in our Smaller Home
Selling my Home in a Day