Why NOW is the Best Time to Invest in U.S. Real Estate (Part 2)
While the news may be filled with economy doom and gloom, the truth is the U.S. real estate market is booming. In part 1 of this article, we reviewed facts and expert observations about the lack of new homes in the country, and how non-distressed markets are experiencing an upswing.
Here, we’ll take a look at the strengthening of the real estate sector in distressed regions, such as Miami, Las Vegas, and Phoenix.
In past years, these prime regions offered strong job markets, and residents were able to comfortably afford luxury and premium homes. However, the bubble burst in the latter half of the 2000s, resulting in unemployment and massive foreclosures.
Foreclosure markets are recovering
After the crash, these desirable regions struggled with huge inventory issues. Millions of foreclosed and distressed homes flooded the market alongside the regular resale homes. But today, investors are recognizing the potential of these distressed homes—and buying them in bulk for resale.
The outlook is brighter in regions like Ohio, Northern California, and Phoenix. The record low number of new homes being built, combined with distressed properties that are bought and sold quickly, is leading the real estate market into a period of recovery.
Celebrated MIT economist William Wheaton says of the distressed markets, “We had levels of inventory even higher than this in 1990 and 1991. But they were traditional listings, not foreclosures, so they didn’t create the big discounts you get with foreclosures.” This means there will be a steady stream of foreclosures through at least 2013, because the number of foreclosed properties is close to 600,000.
The good news? These properties aren’t sitting empty. They’re being converted into rental properties by the owners or the investors who buy them.
A strong rental market in distressed regions
Economist Gleb Nechayey, with the real estate firm CB Richard Ellis, confirms that the rental market is in great shape compared to the distressed real estate market. The most obvious reason for this is the high number of foreclosures, which creates new renters.
Many turnkey investors are realizing substantial profits through fixer-upper foreclosed properties. For rehabbed homes in or near busy metropolitan areas, there’s no shortage of renters, because these cities are generating new jobs as the economy stabilizes and developmental projects are launched. In fact, investors report rental yields of around 20% in the first year alone.
International investors have also identified the market potential of foreclosed or distressed homes. Real estate firms who work with international buyers are seeing investments amounting to $20 million or more.
In addition, investors benefit from the attractive cap rate, currently resting between 8 and 10 percent. This rate is double the return of 10-year funds.
What does the future hold?
Home prices are going down in distressed regions, and may even become lower than renovation or rental costs. However, this means the prices will swing back up soon. Now is the time to invest in foreclosed homes, and to secure future profit in the real estate market.
If you’re looking for expert guidance on real estate investments in this high-potential market, contact us at NexGen Invest today.