Setting the Table
Although the United States was already experiencing an economic recession when the crisis peaked in the fourth quarter of 2008, the downturn deepened in response to the collapse, or near-collapse, of several major firms associated with the packaging and trading of these mortgage-backed products. As banks scrambled to protect what little cash they had on hand, it became increasingly difficult for the average consumer or business owner to obtain credit.
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Opportunity in Crisis
Although home prices across the country finally appear to have bottomed, tens of thousands of unsold older homes remain on the market. As sellers grow increasingly desperate to unload their properties and get on with their lives, they continue to reduce their asking prices even as newly-built homes push up real estate prices in the aggregate. As such, many of these older homes are listed at a significant discount to the broader market.
Likewise, the residential construction industry has yet to recover fully from the downturn. While the balance sheets of publicly-traded upmarket firms like Toll Brothers and Lennar have shown signs of improvement in recent months, many smaller companies remain on the ropes. Hundreds of “mom-and-pop” construction firms have shuttered their doors since the housing crisis hit, resulting in the layoff of hundreds of thousands of workers. Job and wage growth in the sector remains anemic: Just 43,000 jobs were added during 2011.
As the housing market’s weakness persists, many would-be homeowners are beginning to question the logic of putting hundreds of thousands of dollars on the line to purchase a risky asset. Many more simply need a place to live in their new hometowns as they try desperately to sell their existing homes back from whence they came. Renting is the logical choice for members of both of these demographic groups, and a shift on their part towards temporary occupancy appears to have contributed to a historic rise in rents during the downturn.
For entrepreneurial types with a reasonable time horizon and a willingness to get their hands dirty, each of these three trends presents an incredible opportunity.
Investing in the Future
The inability of many current homeowners to sell is but one factor that has pushed home prices down recently. Foreclosure is another: Hundreds of thousands of American homeowners either lost their jobs or saw their hours cut during the recession, which reduced their spending power and put their monthly mortgage payments out of reach. Declining housing prices made it impossible for these individuals to borrow against their homes to make up the difference.
Many of these foreclosures remain on the market, and thousands more come online each month. Likewise, many homeowners are choosing to unload their homes via short sales. The short sale process is time-consuming and complicated: For the sale to go through, the mortgage lender must agree to accept a sale price lower than the outstanding value of the mortgage. However, buyers lucky enough to get their hands on a short sale can secure high-quality homes at just a fraction of fair value.
Finding foreclosures and short sales is easy. Searchable real-estate pricing services like Zillow and Trulia offer up-to-date local home listings, providing a geographical snapshot of the housing market’s health. Both sites give prominent placement to foreclosures and short sales. They also employ algorithms to determine the fair value of each listed property, lending some rigor to a once-inexact science.
These cut-rate homes offer value for two main types of real estate investors: owner-occupants and distressed-property specialists. For the former, foreclosures and short sales represent a golden opportunity to secure a starter home for a growing family at a tremendous discount. Although foreclosed homes are typically associated with inconvenient or blighted neighborhoods, this reputation is undeserved: Tens of thousands of American foreclosures occupy prime parcels in pleasant neighborhoods.
For the latter, distressed properties present an exciting business opportunity. Many foreclosures are in decent shape and require little more than fresh paint, new wallpaper and some plumbing updates to regain their luster. More ambitious distressed-property specialists may personalize their properties in order to make them more attractive to prospective buyers. In either case, well-organized buyers willing to use leverage to purchase multiple homes at once can make a successful living by refurbishing and repackaging foreclosed homes for sale in virtually any real estate market.
A Steady Income
Not all residential real estate investors choose to become owner-occupants or serial “house flippers”. In fact, many purchase their properties with the intent of milking them for years to come. The recent rental boom has enriched established landlords and provided countless opportunities for newcomers in areas devastated by the housing crisis.
Prices for existing multi-unit buildings and larger apartment complexes remain elevated thanks to a proliferation of former homeowners forced by economic necessity to rent. On the other hand, prices for duplexes and single-family structures have yet to appreciate dramatically. Many of the recession’s most successful landlords continue to make waves by converting large single-family structures into duplexes or triplexes. To ensure that they are attractive to prospective renters, these properties should be convenient, aesthetically pleasing and fully modern.
Upgrading for Less
Likewise, the housing crisis has opened the door for contractors and builders looking for cut-rate heavy-duty machinery. As the construction industry consolidated and shrank during the recent turmoil, thousands of excavators, dump trucks, forklifts and other types of used construction equipmentflooded the secondary market. The subsequent collapse in equipment prices has presented an incredible opportunity for business owners looking to upgrade their existing equipment or mount an expansion.
The market for used heavy machinery is noisy and often opaque. At times, it can be difficult to discern deals from boondoggles. Fortunately, the Internet makes it possible both to purchase equipment directly and to find reputable local dealers and auctioneers.
Looking Ahead
The recent recession devastated the country’s economy and upended the livelihoods of millions of Americans. At the same time, it has continued to present entrepreneurial consumers and business owners with a number of exciting opportunities. Depressed home prices and a rash of distressed-property sales have made the concept of investing in residential real estate more attractive than it has been in years. The rental market is booming, drawing new blood into the stodgy business of land lording. Finally, a saturated secondary market for construction equipment and other types of heavy machinery is shaking up the contracting business and offers real value for a wide range of buyers. These days, one consumer’s pain is another’s gain.
By Jessica Bosari
Taken from: http://www.forbes.com/sites/moneywisewomen/2012/09/12/finding-value-in-the-economic-downturn/
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