Believe it or not, a housing shortage is looming.
In July 2008, the U.S. Census Bureau released some incredible population projections. Take a look at these numbers:
- The U.S. population is projected to increase by 135 million people, or 44 percent, by 2050. (That’s equivalent to the entire populations of Mexico and Canada moving to the U.S.)
- This population boom will require 52 million new housing units.
- More than 1.25 million new housing structures must be built each year—beginning now—in the U.S. to keep up with the increase in population.
We know new construction has slowed dramatically, and there is nowhere near 1 million new homes being built each year to meet this future demand. However, we do have a large market of foreclosed property, which we can trace back to the mortgage market. Up until 2003, the mortgage market for interest-only and negative-amortization originations did not exceed 6 percent.
In 2004, 25 percent of all mortgage originations were interest only or negative amortization. In 2005, 29 percent were interest only or negative amortization. And in 2006, 23 percent of all mortgage originations were interest only or negative amortization.
You know what happened next. Real-estate values continued to climb until 2008 when the market crash took place. With decreasing real-estate values beginning in 2008 (and continuing in some areas), it is estimated that 25 percent of homes in the U.S. have mortgages greater than the current appraised value. The key fact here is most interest-only and negative-amortization mortgages have a five-year recast schedule from origination.
What’s coming? Foreclosures will continue to occur as the next wave of negative-amortization and interest-only mortgages hits maturity. With home values falling, many owners are deciding that maintaining an asset that has negative equity doesn’t make sense. They are letting the banks take these properties. In addition, home-mortgage interest rates are the lowest they have been in 30 years. This is a remodeling opportunity and a first-time home-buyer’s dream.
Based on the present real-estate marketplace, remodeling contractors can take advantage of their skill set and leverage their relationships with subcontractors and suppliers. In most parts of the country, there are thousands of foreclosed properties banks will sell at discount prices.
Here’s the opportunity: Purchase a foreclosed property. Complete the remodeling work on a wholesale basis. Put the property back up for sale. Do this three or four times per year. If you are short on capital, locate investors—perhaps past clients—who would be interested in partnering on properties you purchase and remodel at wholesale prices. This could be a win-win proposition:
- Banks benefit when they sell foreclosed property.
- Remodelers financially benefit when they remodel these homes and put them back on the market. They also benefit from positive public relations.
- Investors benefit when they can get an excellent return on their investment for a six- to 12-month loan.
- Home buyers benefit by purchasing newly remodeled homes with low-market interest rates.
- Neighborhoods benefit when foreclosed properties are recycled.
I know a former remodeling contractor who does this regularly. He began his real-estate career in 2006 and has made more than $1 million since then. I’d like to share a case study of a foreclosed property he purchased, remodeled and resold so you can follow his method. The property in the case study was completed in less than one month and the sale made him $30,000. E-mail me for a copy of the case study or look for it on www.qualifiedremodeler.com. It demonstrates what’s possible for you in a down market as a housing shortage looms.
Bonus: Read a case study that details how remodelers can buy foreclosed properties, renovate and sell them for a profit.