The media and real estate professionals have been declaring the beginning of a new housing recovery for quite a while but how do you know when the recovery is becoming a full on boom again?
A surge in talk about turning to building spec homes among real estate investors on the web certainly suggests we are entering the beginning of a new, extended real estate boom period.
However, before being seduced into going down this path it is essential for real estate investors to triple check their figures and carefully weigh their potential returns against the real risks of this type of ‘strategy’.
Many spec builders are still holding their properties which were finished in 2005. Plus, in many areas of the country homes are still selling for dramatically less than the cost to build new, despite major home builders beginning to plan new developments (who it is important to note can usually build cheaper).
The argument leading some of the real estate investing community to want to flip from wholesaling or rehabbing to spec building is almost understandable but that doesn’t necessarily mean it is the smartest move.
Competition for distressed properties may be increasing depending on your acquisition strategy but the latest estimates in the news put the average profits from flipping a house at between $24,000 to over $60,000. Even if the spread was only $5,000 for wholesaling a property but it was guaranteed money and it could be done in volume isn’t that better than gambling on the low ROI of spec building from the ground up?
Of course there is no need for investors to ever take that little on a wholesale deal either. There are still many making over $100,000 without even doing any rehab work.
Whatever you decide remember that protecting capital is the most important priority. There are profits in building or home builders wouldn’t be in business, but developers are also dramatically changing their models in favor of buyer financed ones too.
If you want to build homes don’t just do it for the dollars, do it as art or to create a legacy.
Perhaps we aren’t in a full boom yet but even when we do enter that phase historical cycles predict another decade or more of positive growth, offering many ways to profit from real estate investing. Which way you decide to go is a personal choice but make sure you are sticking to sound principals and maximizing ROI.