What's A Real Estate Investor To Do When The Housing Bubble Bursts?
Real estate investors have had a heyday for the last ten years or so. Although the market has slowed down considerably and housing values have not yet bottomed out, the smart real estate investor can still find real estate deals worthy of their investment dollars.
The Lucrative Rehab Business
The housing boom was evidenced by the scores of popular television shows that followed real estate investors as they rehabbed residential real estate. The typical show depicted an experienced investment company as it purchased a run-down property that was sorely in need of a makeover. The investors purchased the home with the purpose of "flipping" it - fixing it up and reselling it for a quick profit.
Once the purchase was complete, teams of subcontractors descend on the house, swarming over it like a hive of busy bees. During the first phase, the real estate investor's team does the "demo" or demolition. They remove all the trash left in the home by the prior residents - who were often renters. They remove all the outdated appliances, cabinets, plumbing fixtures, countertops, and damaged substances like moldy drywall or outdated tile.
After demo has completed, the real estate investors would start rebuilding the house from the ground up. New flooring goes down; new walls go up. Granite, tile, or concrete countertops are installed in the kitchen, and new kitchen cabinets go in. Sparkling new shower surrounds, toilets, sinks, and vanities are installed in the bathrooms. New light fixtures and landscaping complete the rehab picture.
The real estate investor sometimes replaces the infrastructure of the home, installing a new furnace or air conditioning unit, and replacing the roof. Occasionally these are unplanned repairs, which are discovered during the rehab process. The unplanned repairs wreak havoc with the real estate investor's budget, but in a seller's market, the investor always made a handsome profit.
The Future of Flipping
With the current mortgage lending crisis, homeowners are abandoning perfectly good homes because they can no longer afford their house payments. Banks consider themselves lucky if they can resell these homes for the amount owed on them. They are not run down enough to support a rehab and flipping effort, and real estate investors are scratching their heads, wondering how to make a profit in this market.
The answer seems to be to hang on to these investments and wait. Real estate is one investment that withstands the test of time. Although the market is in a downward cycle at the moment, housing values are certain to turn around and go back up.
The Rental Market
In the meantime, the rental market is strong, as housing horror stories are making a new generation of would-be homeowners reluctant to buy homes until they are certain they can afford them. Real estate investors who become landlords can have their own mortgage payments made by renters and hold on to the property for several years, or longer, until they can make a profit once again.
