"…if I had a way of buying a couple hundred thousand single-family homes…I would load up on them and…take mortgages out at very, very low rates…it’s a leveraged way of owning a very cheap asset now and I think that’s probably as an attractive an investment as you can make now." Warren Buffett, CNBC Squawk Box interview
If you aren’t investing in real estate right now, you are making a mistake – it’s that simple. Yes, you might have been burned by the real estate market collapse, or maybe you just knew someone who was – it doesn’t matter – if you aren’t buying property today you are missing out. This is a bold statement, but as you can see, one that is supported by one of the greatest investors of all time. Don’t take our word for it – or Warren Buffett’s for that matter – we are prepared to back up our statement with facts that non real estate investors should find very interesting.
Real Estate Fundamentals Are Changing
The United States is quickly transitioning from a homeownership society to one of renters. Homeownership in the U.S. currently sits around 66.4 percent, but that number is expected to drop down to 59.7 percent over the next several years, as delinquent borrowers drop out of the market – according to a recent Morgan Stanley Housing Market Insights report. The real estate market collapse has caused a few of things to happen. First and foremost, there have been a lot of foreclosures – this isn’t news to you we are sure. But what is often overlooked, is that just about every time someone loses a home to foreclosure, a new renter is created. That isn’t the only thing causing an increase in the number of renters, though.
In addition to the foreclosures, banks are now making it much more difficult for people to become homeowners. Only a few years ago, just about anyone who wanted to could buy a home – that is no longer the case. Gone are the days when people with marginal credit could get 100 percent financing, or even 90 percent financing for that matter. In order to buy a home in today’s market a person must have a decent amount of money to put down, as well as fairly good credit.
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Lastly, the real estate market collapse did something else – it caused many people to fear buying a home. After all, who is going to invest in a home if they feel like the value will just continue dropping? A large number of people who could purchase a home, are sitting on the sidelines waiting for the market to recover – or truthfully for the media to tell them that it has. Good investors, though, know that many markets in the U.S. have already started to recover – despite what the media says. If you wait for the mainstream media to tell you it is okay to start investing again – you’ve already missed out on your chance.
Prices Are Low, And Rental Yields Increasing
There are many different types of real estate investment, but we are of the mindset that nothing beats the tried and true buy and hold method. If you buy a property with the intent of holding onto it over the long haul, then you should – for the most part – be able to judge the validity of an investment before you ever buy it. It is not hard to figure out what the going rent should be for a particular property, nor is it difficult to figure out what your expenses for the property will be. So if you are able to figure out how much you are going to spend, and how much the property will generate in income – then before you ever invest a single cent, you should know whether to buy it or not. If the property isn’t going to generate significant cash flow for you – don’t buy it. If you are banking on appreciation, then you are bringing on added risk. As long as the property makes you money every month, you can hold out through the ups and downs of the real estate market. So many investors seemed to overlook this basic principal of real estate investment during the bubble, and we all know what happened to those investors.
Today’s real estate market offers an incredible opportunity for investors. Thanks to the real estate market collapse, prices have fallen by as much as 50-60 percent in some markets, while rental rates for the most part have stayed the same or increased. As we brought up earlier, the rental market is only getting better for landlords. With the number of renters increasing, rents rising and property prices lower than they have been in years – now is the time to buy.
We, at HomeUnion, are in the business of reducing the risk for investors in a number of ways. First, we only operate in stable cash flow zones (more about them in future articles) in 6 markets (Chicago, Atlanta, Memphis, Pittsburgh, Birmingham, Memphis & Kansas City) that offer our investors great yields – with minimum risk. These 6 markets are in no means the only markets investors should be looking at, but they are a great starting point for investors considering to get into real estate. These markets enjoy stable economies, and are large enough to provide investors with lots of choices in terms of investment properties and tenants.
Commercial Investors Are Beginning To Invest
Typically when you think of single family real estate investors, you don’t think of commercial investors like hedge funds, insurance companies and the like. However, these larger investors are beginning to see the incredible investment opportunity present in today’s market, and they aren’t about to pass up on easy money. The FHFA recently announced a program that will allow large investors to bid on foreclosed properties in bulk, and the interest doesn’t stop there. This article from the Wall Street Journal, talks about several hedge funds that have begun to invest in single family homes in order to increase their fund’s performance.
We understand that you aren’t going to be buying properties by the hundreds or thousands like these funds, however, there is a reason they are buying single family homes when historically they have avoided them – like Buffett, they see the potential to generate significant returns. Buying single family properties presents significant challenges for large investors, and represents a dramatic mind shift in investment philosophy for them – don’t overlook this. These people are paid a lot of money to find the very best investment opportunities in the world, and they are able to invest in a lot of things that normal people can’t. The fact that they are saying the very best investment available to them right now is single family real estate should speak to you.
Overlooking single family real estate as the incredible investment opportunity it is – at this very moment – is going to be one of the biggest mistakes millions of investors make in their entire lifetimes. Hopefully our article has inspired you to not make this mistake, but if we haven’t convinced you yet, we urge you to at least look into it further. Don’t take our word for it, do your own due diligence, you will be amazed at what you discover.
