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New Homes: Hottest Inventory of the Moment?

Published on Friday - May 17, 2013

Are new homes currently the hottest form of inventory for real estate investing?

New homes aren’t normally the first choice of savvy, hands on real estate investing pros. The numbers usually don’t make sense from an investment standpoint. This is particularly true in an environment with depressed housing prices and rising labor/material costs.

However, as the volume of publicly available foreclosures has begun to contract and competition increase, giant private equity funds have now made new homes a top priority in the hunt for more inventory.

Multi-billion dollar private equity firms devoured distressed homes in markets like Phoenix and Atlanta, as some individual firms bought as many as 8,000 homes since last year.

Foreclosures may have been slowing on a national level, and these real estate investment firms have built models that require high volumes. Unfortunately, this also means they must continue to do so, no matter the cost. This can be an extremely expensive mistake, and one clearly understood by real estate investing pros that lived through the last boom.

Home builders are obviously ecstatic about the prospect of selling huge numbers of new homes in bulk, even if it means a discount. This is especially true of buyouts and selling out initial phases that can add excitement to new developments and help secure funding.

However, this doesn’t mean it is a real estate investing strategy that is wise for all investors to mimic. There are certainly some investors that will find acquiring new homes and renting them out highly profitable. Yet, those interested in flipping houses and bringing in larger lump sums of profit in the short term will likely find the numbers work far better on existing homes.

The main takeaway here should be that it is smart real estate investing strategy to look for ways to get around the herd of competition. This can be achieved by looking into new destinations, but also by simply switching price ranges and housing styles within local markets. Mortgage notes, probate properties and construction REOs can all be attractive alternatives too, but with private equity leaving town there could be a lot more room for smaller investors and more competition.

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