In an article in the Wall Street Journal from May 7th, 2016 by Chris Kirkham, we learn how builders of new homes have to focus more on the second-tier and higher product. The reason is that land costs (including local fees) have increased, as well as building costs. Builders have a harder time squeezing a profit from the lower-priced new homes.
This is becoming an issue with families seeking to buy new affordable homes.
As investors, this points to a certain window in time in which we can get brand new homes at reasonable prices. We are still buying new homes for $130K-$170K, mostly in the middle of this range. Rentals are strong (partly because some would-be-owners become tenant due to lack of affordable homes to buy), and needless to say, if the more affordable homes will become scarce, it is likely to bode well for their appreciation, as the higher priced home in a subdivision will provide comparable values which will help the appreciation of the more affordable homes. This is how it happened historically.
The ability we still have as investors to buy the more affordable (yet quality) product, coupled with the still-low mortgage interest rates, creates a sweet spot in time to add to our real estate investment portfolio.
The WSJ article by Chris Kirkham can be found here.
We will discuss this, as well as a host of other relevant and important issues, at our quarterly ICG 1-Day Expo near the San Francisco Airport THIS SATURDAY – May 21st. For details, see www.icgre.com/events. Anyone mentioning this blog can attend free – just email us at firstname.lastname@example.org and write in the subject line, “Read your blog on construction homes getting scarce.” We will have experts about complete insurance and umbrella coverage nationwide, 1031 exchanges, property management, and lending, among others. Looking forward.