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Upside of a Down Market

by Richard Warren on September 3, 2012 · 4 comments

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down real estate market

The real estate market experienced such a prolonged downturn that it created a number of new opportunities for those who stopped wallowing in misery and got on with their business. Few areas were hit as hard as Las Vegas yet many investors and realtors are thriving. So many real estate agents left the business that it reduced competition among those who remained. It also allowed the truly skilled to standout. Some whined about the lost commissions of yesterday while others adapted by becoming experts in foreclosures and short sales. Guess which ones are thriving?

Those investing in real estate experienced a similar shakeout. The pseudo-investors who flipped houses like pancakes and later lamented the loss of double-digit monthly appreciation are gone. What remains are true investors who make decisions based on hard facts and numbers that pencil out. Good riddance to those who subscribed to the greater fool theory of finding someone even more reckless than them to pay ridiculous prices.

Next Wave

Lately I’m seeing something I thought would take a decade or more – stalled projects are coming back to life. Whether investing in a low-cost fixer-upper or a multi-billion dollar project the factors are the same, only the scale is different. There is the cost of acquisition, carrying costs, and development costs. Many of these stalled projects wound up in foreclosure where investors were able to buy them at a fraction of their original price. Interest rates are at historical lows which greatly reduce the carrying costs. There is such a surplus of construction labor that those prices have been slashed as well. This means that the finished product can be sold at a realistic price.

When a white elephant comes back to life it changes the way people feel. Who wants to invest in the vicinity of a failed real estate project? When work begins again and a development is completed it contributes to increased optimism. When people are more optimistic they buy and the market improves.

A Long Road

I’m not suggesting that things are going to instantly turn around. I am saying we are rebounding. There is no sign of the irrational exuberance that characterized the real estate bubble. The market is strengthening in a way that should be sustainable and that is good for everyone.

Opportunity is missed by most people because it is dressed in overalls and looks like work.Thomas A. Edison

Photo Credit: jonsigler

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{ 4 comments… read them below or add one }

Travis September 3, 2012 at 10:28 am

Good article, Richard.

I’m seeing some interesting turn-arounds as well. In the last month I’ve been to Nebraska and Washington to see what sort of building has been going on. In all the cities I visited, as well as my own area (Utah), I am seeing something rather strange. The lots in subdivisions that are anywhere from 10-20 years old are now being built out. These lots sat there all through the boom, but now people are building on them. And they’re selling. Fast.

Based on what I’ve seen in each area, these lots are being built out because 1) they are in great areas and 2) there are no/few new subdivisions going in. Developers have slowed down on new subdivisions, but there is still a demand for new houses in these areas. So, the only option for builders right now is to build in these older (but still very nice) subdivisions. Some of the subdivisions have maybe only 3 or 4 lots left. Others might have a dozen. Overall, I have seen at least 200 homes being built in the last three weeks and I bet at least half of them already had “SOLD” on the sign or in the window even though the framing hadn’t even been finished.

Hopefully this is a sign of a turn-around for developers. If they see the older subdivisions being built out and the houses are selling quickly, they should feel more comfortable moving forward on their own plans to create new subdivisions.

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Karen Rittenhouse September 3, 2012 at 10:35 am

Richard – Fantastic post.

One of the fabulous things about real estate is the diversity. No matter what the market, there is money to be made if you’re willing to roll up your sleeves and go to work.

It’s far more than the economy, it’s the attitude.

Thanks for all the good news.

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Dale Osborn September 3, 2012 at 10:35 pm

There are many opportunities out there. Many have quit looking making it much easier for those that are still in the game.

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Kevin Yeats September 11, 2012 at 11:03 am

Opportunities are never lost. Someone else will always find them.

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