2/17/13: Clues in the News – The Market is Speaking…Are You Listening?
In this age of information overload, sometimes it’s hard to sift though the noise and find nuggets of news that matter. But do not fear, The Real Estate Guys™ are here!
In this episode, we delve into recent headlines and glean insights into where the market is headed and how you can position yourself to build and protect your real estate empire. Good stuff!
In the studio, magnifying glasses in hand:
- Your Sherlock Host, Robert Helms
- Your Watson the news, Russell Gray
As much as we like professionally prepared real estate market reports, whether from the National Association of Realtors, the Census Bureau, the Bureau of Labor Statistics, or any number of market research firms, the challenge with most of this data is that it’s historical. In some cases, it’s actually stale, or worse, irrelevant.
On the other hand, by definition, “news” is current. What’s missing from the news is the big picture. Today’s news is just a point on the curve. However, when you monitor the headlines on a daily basis like we do (we know, get a life), trends begin to emerge.
So, if you’ve been listening to The Real Estate Guys™ radio show for any length of time, you know that ever since the financial crisis, in addition monitoring home builder and consumer confidence, changes in rents, vacancies, selling prices, foreclosures, etc., we’ve been watching (like a hawk) the Fed (interest rates, bond market activity, easing), the Government Sponsored Enterprises (“GSE’s” like Fannie and Freddie), and the mortgage industry.
Why?
Because the real estate market imploded not because people stopped wanting properties, but because the funding mechanisms that delivered purchasing power to Main Street (via the mortgage backed securities market, mortgage bankers and brokers) stopped working.
Think about that.
If real estate values imploded when leverage was taken OUT of the market, what happens to values when leverage returns? And are there clues in the news about leverage coming back into the market? After all, who wants to invest AFTER the prices have run back up?
As you’ll discover in this episode, the news is in fact reporting signs of leverage and rising prices creeping back into real estate. Of course, this is no shock. It’s what the Fed, the banks and government have been trying to do for nearly five years. If they could fix the bob market, it probably would have happened a lot sooner, but that’s a different discussion. 
Now think about this: If you, like us, wish you’d have been paying closer attention to the clues leading up to implosion (like our friend Peter Schiff did), isn’t it a good idea to watch the headlines for hints of the next explosion? We think so.
So put on your detective cap and tune in for an exciting exposition of current headlines – and consider how you might adjust your investment decisions based on the clues in the news.
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2/10/13: Musical Chairs – Profiting from Demographic Shifts
Shift happens. When it comes to demographics, sometimes those shifts affect supply and demand.
As an investor, if you get on the right side of supply and demand, you can make a lot of money.
Sitting in the musical chairs in The Real Estate Guys™ mobile studio:
- Your host and radio show front man, Robert Helms
- Your shifty-but-happy-to-have-a-chair co-host, Russell Gray
- Returning special guest and top international broker, John Turley
When you make your living selling real estate on a tiny little island in the Caribbean, it’s hard to climb into the upper echelon of worldwide top producers for one of the biggest real estate franchises in the world.
But John Turley has done it. And in a big way! In the huge worldwide RE/Max franchise, Big John is in the top 3 of all international brokers. All from a tiny island in the Caribbean.
How? And why should you care?
Whether you’re an investor or a real estate broker, the message is that when people move it creates demand for real estate. If you’re there first, then you can profit when all that purchasing power shows up. Hey, it’s working for John and it can work for you, too.
What John Turley discovered is that the baby boomers (you know, that HUGE demographic of people who’ve powered wave after wave of business profit as they move through the stages of life) are facing an interesting dilemma as they approach their golden retirement years…
There aren’t enough desirable retirement destinations to go around.
So if you’re the purveyor of such things (as a landlord, developer, flipper or broker), you have an amazing opportunity to ride the wave.
Here’s the good news: Though the race is on, the boomers are only on the front end of their shift into retirement. Most don’t yet realize the shortage that’s coming. This means there’s still plenty of time to get in on the action.
But don’t wait too long. Because when the music stops, there might not be enough chairs for everyone. And those that are available will probably be expensive. That means the earlier you get in, the better chance you have of singing a happy tune down the road.
So listen in and discover how demographic shifts affect your opportunities in real estate.
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2/3/13: Searching the Globe for Real Estate, Banking and Privacy
Being homeless isn’t something most investors aspire to. Then again, it depends on your definition of homeless.
In this episode, we visit with a man who is a self-described “perpetual traveler”. As such, he doesn’t really identify with any particular country. He’s what you might call a sovereign man.
What does that have to do with real estate investing? That’s what we wanted to know!
Planted behind the microphones under The Real Estate Guys™ cone of silence:
- Your perpetual host, Robert Helms
- Our special guest and sovereign man, Simon Black
Many investors buy property wherever that happen to live. It’s a great strategy if you’re in a great market. But what if you’re not?
We say, “Live where you want to live, but invest where the numbers make sense.” Then again, there may be more to your investing choices than simply return on investment. Some markets make sense for other reasons.
Some investors are concerned (and rightly so) about things like privacy, asset protection, personal security and lifestyle. And in a rapidly changing world, there’s a lot to think about!
Now you may be a raving fan of big government, deficit spending, and ever-increasing regulation. Or you may think that all of that is a short path to economic and societal collapse. We’re not here to debate the right or wrong of what’s going on. We just want to understand the possible outcomes and put ourselves in the best position to survive and thrive.
Regardless of your feelings about the the size and scope of government, it seems quite obvious that government is getting bigger and more expensive throughout much of world, and certainly in the United States.
So who in the world is Simon Black?
Simon Black (not his real name) is a kind of mystery man. He claims to have a background in military intelligence who eventually came to distrust the U.S. government he enlisted to serve. Interesting….but so what?
As a result of his experiences in government, Simon decided to step back and look at world dynamics from something other than a U.S. centric point of view. To gain this perspective, he began to study, travel, explore, invest and muse. We discovered him through reading several of his many musings.
We always find conspiracy theories interesting, but they aren’t really easy to invest in. And we’re not saying Simon is a conspiracy theorist, but he certainly does question some of the motives behind ever-growing governments.
Nonetheless, some of Simon’s observations about the economic and political happenings around the world translate directly into things like population growth, demographic shifts and land use.
Land use! Okay, NOW it starts to get interesting. After all, we are The Real Estate Guys!
We like real estate because it serves essential human needs. This means, for the right real estate, people will pay to use it. Duh, right?
The key then is to identify what makes a chunk of dirt “right” for what and for whom. Ahhhh…now it gets a little tougher.
Obviously, in a society where people and the economy are growing, real estate investing is easy. Just buy anything people can live or work in.
But what happens when that wave of prosperity recedes? Detroit used to be the United States’ wealthiest city. California used to be a compelling reason to “Go west, young man” because it was a low cost land of opportunity. Not today.
The point is that things change. And the pace of change today is greater than at any other time in history. This means it’s important to pay attention to what’s going on. You don’t want to get left behind…or worse, trampled.
So we set up a secret meeting with Simon Black to find out what his world travels have taught him. It may well be a perspective you’ve never heard before. We think you’re going to be intrigued at the very least. And who knows, you may just be enlightened into a whole new style of real estate investing!
We’ve long been enamored of diversifying into global markets. Stock and bond investors have been doing it, so why shouldn’t real estate investors?
And while we know that income property is valued by the income it produces, we’ve also learned that sometime it isn’t what sits on top of the land that makes it valuable. Sometimes, it’s what comes out of it. Just ask Jed Clampett (that’s a reference to The Beverly Hillbillies, in case that got by you younger folks).
Simon sees a whole new opportunity, and it isn’t about oil. But we don’t want to spoil it for you, so take a listen. And as you do, think about how many people share Simon’s concerns about privacy, private property rights; less dependence on big, easily controlled and disrupted institutions and supply chains.
You may or not look at the world the way Simon Black does. And banks, governments and multinational corporations may continue to be the dominant economic and political forces they are for many decades to come. If so, how does it harm you to have a modest Plan B in place?
And if these big institutions struggle, wouldn’t it be nice to have at least a little bit of independence and anonymity? History tells us that when major institutions that the masses depend on for their essentials falter, the resources of the prudent often come under attack. You may not be able to avoid that forever, but why be the low hanging fruit?
Since real estate is a fundamental component of human survival and prosperity, doesn’t it make sense to have some of it in a variety of places – perhaps a little off the beaten path?
Think about it as you listen to our interview with international sovereign man of mystery, Simon Black.
Listen Now:
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1/27/13: Creative Deal Structure – How to Think Like Leonardo Da Vinci
It’s been said that if you do what everyone else does, you’ll get what everyone else gets. To dig a little deeper, you might say that if you think like everyone else thinks, then you’ll act like everyone acts, and ultimately you’ll get what everyone else gets.
Therefore, if you want to break away from the pack and achieve and acquire extraordinary things, to quote Leonardo Da Vinci, “You must become an original thinker.”
So what does this have to do with real estate investing?
In the studio to discuss this intriguing topic for this episode of The Real Estate Guys™ radio show:
- Your creatively brilliant host, Robert Helms
- Special guest, author and consultant, Michael J. Gelb
One of the most enjoyable and challenging aspects of real estate investing is the uniqueness of each individual deal. Many properties are one of a kind, but even when you’re negotiating on a cookie cutter property, market and seller dynamics almost always create a one-of-a-kind situations. Add to that your own ever-evolving personal investment philosophy, financial resources, experiences and relationships.
Sound complicated? Maybe. But here’s the good news: We live in a super connected world. This means we can easily access the creative brilliance of others. So we stimulate your thinking by sharing a few of the many creative deals we’ve seen over the years.
You’ll hear about how the Pizza Principle was used to help one investor get a free house. And how another investor sold a vacation property, but is still able to use it when on vacation. Then there’s the story of a guy who ended up with an orange annuity out of a deal. Really.
Plus, you’ll discover how one creative developer uses entities to substantially mitigate transfer tax. Good stuff!
Of course, if everyone is just copying other people’s original thinking, sooner or later there are no more original thoughts. And when it comes to a great idea, do you want to be the last to know or the first?
The best way to be the first to use a great idea is to be the person who comes up with it first. This means YOU need to develop a creative mind.
To help you, we sit down face to face with Michael Gelb, the author of the classic book “How to Think Like Leonardo Da Vinci“. Michael makes his living training people in the creativity concepts he’s gleaned from studying Leonardo Da Vinci, arguably the most creative mind that ever lived.
So feed your creative genius and listen in to this brilliant episode of The Real Estate Guys™ radio show!
Listen Now:
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1/13/13: Embracing Change in the New Year – Getting Investors Up to Speed
Technology is changing the way people live, work and play. Now that’s not a bad thing, but it’s easy to get left behind.
But just like calculators made doing math different, those who use them most effectively understand the basic mathematical concepts behind the speedy calculations.
So what does that have to do with real estate investing? That’s what this episode is all about.
Talking tech and embracing change on location in sunny San Diego:
- Your talkative and embracing host, Robert Helms
- The Godfather of Real Estate, Bob Helms
- Special guest, internet marketing guru, Pol vanRhee
Since Bob started investing only moments after God created dirt, we start out the conversation capturing Bob’s observations about the impact of technology on the business of real estate. You can bet he’s seen a LOT of changes over the centuries.
In the beginning “high tech” was a calculator. That’s a big step up from those old mechanical adding machines.
Then copy machines replaced carbon paper. Really. We’re not making it up. People used to take two pieces of paper and put a dirty piece of paper in between them and type…or even write by hand. Then the dirt from the middle sheet would make impressions on the bottom sheet and presto! Instant copy. Amazing.
Then things picked up. Word processors replaced typewriters. Fax machines became all the rage. Then everyone had a desktop computer. Before long, there were pagers, cell phones, laptops, smart phones, tablets and implants.
Okay, we’re not at implants yet. At least not for communication. Then again, a nice set of implants says something…but that’s a different discussion.
Did we mention the internet, and search engines and social media?
You get the idea. More change is coming faster. It’s easy to get overwhelmed.
But remember…technology is primarily designed to make the basics of human activity more efficient, which doesn’t necessarily mean it’s more effective. There’s a big difference between being efficient and being effective.
Efficiency is about getting things done fast and right. Of course, you can be highly efficient doing the wrong things – and that’s not very effective.
Effectiveness is about getting the right things done faster. Which brings us back to focusing on the principles behind the technology.
Real estate is a relationship business. Sure, there’s lots of data and financial analysis. There’s records to create, share and store. But the CORE of the business is connecting with people and doing business. From that stand point, all business is based in relationship. Yet, we contend that real estate is different.
Why?
Because homes and offices are PERSONAL. And the numbers are BIG. There are emotions involved and people want to work with people they like and trust, in relationships where they feel understood. You might buy a book or a pair of socks on line, but a $300,000 four-plex? You probably want to talk to someone.
Yet with all this wonderful technology at your disposal, it’s easy to forget the human factor. Technology should ENHANCE your relationships, not replace them. It sounds obvious, but it’s really easy to forget. Why take the call, when you let it roll to voicemail? Why call back, when you can text or email? Be careful.
Beyond that, even the holy grail of marketing, “word of mouth” has a new meaning because of technology. Someone may simply forward an email, share a link, like a page, tweet a URL, etc. Your mission is to make that easy for your tenants to tell other prospective tenants about your property. And to be keenly aware of how quickly bad customer service can spread. There’s little margin for error in today’s connected world.
Pol vanRhee explains how the internet allows people to perform research, seek out products and services, and share information with unprecedented speed. This means you have more competition when you’re searching for deals or marketing your properties. It can be good or bad, but that’s not the point. It’s here, like it or not.
So get ready! It’s a brand new year and there’s lots of change and opportunity on the horizon. Open your mind and arms and get ready to embrace it!
Listen Now!
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1/6/13: Real Estate Perspectives, Predictions and Precautions for 2013
Even though we’ve survived the Mayan doomsday, we’re still paddling towards the fiscal cliff and Congress hasn’t produced a budget in over 1350 days. Plus we’re banging up against yet another lifting of the debt ceiling.
But don’t worry, the recession ended in June 2009, remember?
Meanwhile, real estate just keeps chugging along.
So what does 2013 portend for real estate investors?
Well, every year at this time, all the pundits and prognosticators whip out their balls (crystal, that is) and tell the world what they think is going to happen. And just for fun, we sift through all the noise and try to pick out some interesting tidbits to comment on ourselves.
So sitting behind The Real Estate Guys™ big shiny crystal ball is your one and only intrepid host, Robert Helms. Co-host Russell Gray had to sit out this session because his ball was too small to add any real excitement to the broadcast.
Now that we’ve gotten past our juvenile crudities (c’mon, you smiled a little), we’re really here to talk about the state of real estate and where the market is…and more importantly, where people who spend most of their time paying attention think it’s headed.
We know that the banks just bought another multi-billion dollar get-out-of-jail-free card for all their violations of mortgage and foreclosure law. Billions may seem like a lot, but compared to the damage they did and the legal consequences they escaped, it was a bargain.
But whether you like it or not, the settlement moves the marketplace yet another step closer to flushing the foreclosure inventory. This means continued downward pressure on pricing, more people renting, and lots of motivation for the Fed to hold interest rates at ridiculously low rates for a little while longer.
Now, what’s an investor not to like about lower prices, more renters and low interest rates? Just be careful not to stand around admiring all the bargains and overlook actually getting in on the action. We continue to think this will go down in history as one of the greatest real estate buying opportunities of our lifetimes.
Builder confidence is on the rise, but still very low compared to the heyday. Still, more new product is beginning to come out of the ground. Since some of the existing inventory is selling below replacement costs, it will either be very hard for builders to sell their product at a profit, or the new product will start to pull prices up. Considering how much money they Fed continued to pump into the system, we’re betting on the latter.
The population continues to grow, but employment isn’t keeping up. That means a more competitive labor market and downward pressure on incomes. And if you’re a saver (noble ideal, but bad strategy when facing inflation), trying to live in interest income, you’re getting squeezed by higher prices and lower interest rates. All that to say, that if the squeeze continues, people and businesses will continue moving to lower cost, lower taxed areas. Keep that in mind when selecting markets and product types to invest in.
One thing the last few years have proven once again: markets cycle. Some of the worst hit markets in 2006-2009, have become some of the highest appreciating markets over the last 3 years. Seems obvious in hindsight, but how often do we freak about about buying at the bottom? That’s where perspective comes in.
So listen in as Robert reviews and comments on the chatter in the market. Just be careful not to get lost in the forest of information and miss the big picture. Worse, don’t let fear of uncertainty keep you from getting in the game. After all, the only thing 100% certain is the past…but by then, you’ve missed it.
Your job as a real estate investor, is to study, think about the possibilities, and act on the probabilities. As long as you don’t bet the farm on any one deal, even when you get it wrong, you should live to invest another day. And since doomsday didn’t come, we can rejoice that (at least for now) we all get some more days to live.
Listen Now:
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12/30/12: Happy New Year! Your Real Estate Investing Plan
As 2012 fades into the history books and 2013 rises on the horizon of your life, it’s a great time to take a step back from the day to day hustle to think about the future you’re busy building.
Just like a sports team finishing one season and preparing for the next, it’s important to take a look back and see what worked and what didn’t, then assess where you are today and apply the lessons from the past to chart your course for the future.
Sound hard? Maybe. But it’s not mysterious and it’s certainly worth it! After all, what successful business or sports team do you know that just wanders out into the future with no plan?
In studio to ring in the New Year:
- Your ageless host, the Dick Clark of real estate radio, Robert Helms
- Your happy hapless co-host, Russell Gray
- The father time of real estate investing, The Godfather Bob Helms
The big picture of real estate investing and business is planning is being clear on what you want the enterprise to do FOR YOU. This is important to make sure the business serves you and not vice versa. So from the beginning of your planning project, take time to ask yourself what you REALLY want – in terms of lifestyle, finances, stress, etc.
Once you have your “dream” scenario in your mind, you need to take a look at the realities of your situation. What you have to work with play a very important role in the strategies you use to build your portfolio. People with great credit and documentable income have different options than those with poor credit who are self-employed. Both can find success, but the paths are different.
On the same note, there are external realities which have to be taken into account. You have no direct control over interest rates, availability of inventory, rental demand and overall economic factors. Sure, you can look for optimal geographic markets and certainly some are better than others. But the point is that external circumstances will open and close doors and require adjustments in your planning.
Navigating all of these variables is the art of planning. It’s part science and a lot of creativity. That’s what makes it so fun!
So as you look at the blank canvas of a New Year and consider what you want to build for your future, embrace the challenge of planning. And you can start right here and now with this episode of The Real Estate Guys™ radio show!
Listen Now!
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12/23/12: Ask The Guys – Education, Vocation and Agendas
If you want great answers, you have to ask great questions.
Think about it. When you go to the doctor, or visit your auto-mechanic, or work with any true professional who is helping you solve a problem, they always start with asking questions. And the better the questions, the better the diagnosis and the better the chances of applying the right solution.
When you’re trying to solve the mysteries of real estate investing, it’s no different…you have to ask great questions. That’s why we do Ask The Guys. it gives you a chance to hear the questions other people are asking, to jump in and ask some of your own, and to learn to discern the difference between an effective question and one that really doesn’t help at all.
So with that tee-up, here’s who’s in the studio for this edition of Ask The Guys on The Real Estate Guys™ radio show:
- Your audacious Answer Man and host, Robert Helms
- Your questionable co-host, Russell Gray
- The unquestionably wisest guy in the room, the Godfather of Real Estate, Bob Helms
Since our email letter bag is always stuffed, we jump right in…
Should you pay off your personal residence BEFORE purchasing investment property?
Great question. Of course, there’s no one-size-fits all answer. The answer lies in your personal investment philosophy, what you have to work with, current market conditions and the highest and best use for the money. Because your personal residence is involved, it’s not just a simply math question. So we take some time and talk through several important considerations.
How to find a non-biased, fee based real estate investment planner?
This questions comes up a lot because virtually all financial planning is done from a stock market centered perspective. Most “planners” are either stock brokers, insurance salesman or both. It doesn’t make them bad, but they get paid when you buy specific financial products and services. Ditto for real estate and mortgage brokers who may hold themselves out as “trusted advisors”. So we talk about some ideas for those of you looking for a sounding board for your real estate investment decisions.
Where to go to get the essential education to become a professional real estate agent or broker?
Another common question. Lots of people who want to invest are attracted to real estate as a vocation also. There are some advantages to doing this. You get some favorable tax treatment, you are closer to the deals, you learn the tricks of the trade, and you get into more and better strategic relationships – all very good things. There are some disadvantages too. We talk about both. And probably more important, we expound on the important difference between getting the education necessary to obtain a license, versus the education necessary to make a living in the business.
How to assemble a team of out of area advisors that will be loyal to you?
Another great question! We say all the time, “Live where you want to live, but invest where the numbers make sense.” We also talk about the importance of building a team ahead of building your portfolio. Sounds great, but HOW? We discuss this in depth on this episode.
Where to start when you inherit an investment property?
Some of us are fortunate enough to have relatives who were smart enough to buy and hold on to income property. But when the inevitable occurs and you find yourself the owner of an asset you know nothing about, it can be as bad as winning the lottery.
How can winning the lottery be bad? The winner didn’t earn the money, so they never grew into a person capable of managing it. That’s why most people who win the lottery end up broke again. The same can happen with inherited real estate.
The key is education, good advisors and patient diligence. The same kind of things it takes to be successful in anything you do.
You have questions. We have answers…on The Real Estate Guys™ radio show!
Listen Now:
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12/16/12: The Return of Equity – The Fed Strikes Back
When the evil Debt Star blew up the mortgage and real estate markets, it was a major blow to the balance sheets of many investors and institutions.
The shroud of the dark side of leverage fell. The foreclosure wars began. Suck, it did. And for many, suck it still does.
In response, Supreme Chancellor Bernanke was granted emergency powers. The old republic of independent mortgage banks was wiped out and reformed into the Great Galactic Government Sponsored Enterprise.
Before long, the Fed’s balance sheet was bigger than Jabba’s fat Hutt. And, through QE4ever, it continues its epic growth to unprecedented proportions. And while some are into that kind of thing, to us it isn’t a pretty sight. But (get it?), we digress….
So what does all this mean to the real estate market and real estate investors? To find out, we assembled three storied members of the Equity Council:
- Your host and pilot of the Millennium Microphone, Robert “Helms Solo”
- Your “not a Jedi yet” co-host, Russell “Luke Skytalker” Gray
- The ancient and lovable Equity Master and Godfather of Real Estate, Bob “Yoda Man” Helms
For 800 years (or so it seems), Bob has invested for equity. Yet there are things happening in this market that even he’s never seen…like 30 year fixed interest rates BELOW 4%. Powerful, Bernanke is.
Now that Emperor Bernanke has announced to the world that he’s planning to print a TRILLION dollars in the next year (we didn’t make that up, we got it from quotes in the Wall Street Journal), and hold interest rates at essentially ZERO until unemployment is below 6.5% (which the Fed estimates will be in 2015), the question is….
So what?
To find out, we dusted off a VHS cassette and watched a prequel. And we noticed the last time the Fed flooded the market with currency and credit (under former Fed Emperor Greenspan), it created an explosion of equity.
Apparently, the market is starting to buy it. Home builder confidence is up. New construction is starting in some markets. And even though there are still tons of foreclosures and anemic economic growth, people are starting to spend money and buy properties. In short, equity is happening again! (Hopefully, that will be good for book sales. There are still a few shopping days left before Christmas. )
Of course, having seen this movie before, we know there’s a ton of money to be made on the front end of a wave of equity growth. We also know (school of hard knocks) that if that big wave of equity your riding crashes on top of you, you can quickly find yourself underwater and in danger of drowning in debt.
The main point of all this is that while you may or may not agree with all this “inside the beltway” market manipulation, when you’re living on Main Street in the Outer Rim, all you can do is watch and do your best to go with the flow. After all, the forces at work are a lot more powerful than you are, so (to borrow from a different sci-fi series) resistance is futile.
The good news is that even though many people (like savers, workers, small businesses…you know, “the middle class”) get hurt by all this “easing”, YOU don’t have to. You can borrow essentially free money to purchase assets and income streams that grow with inflation plus throw off tax breaks that are even more sacred than the perhaps soon to be extinct homeowner’s mortgage interest deduction.
With so much distress remaining in the resale market (foreclosures are still holding down prices), you don’t have to settle for passive equity. You can buy stuff in bad shape, pretty it up, and “force” the equity. And if you get some appreciation, cash flow, tax breaks on top of that…well, more power to you!
So listen to Yoda Man, and “force the equity” young padawan. Twenty years from now, you’ll be happy you did.
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12/9/12: Competing in a Down Market with New Construction
Sooner or later, new construction has to happen – at least in residential markets where the population is increasing. After all, those new people need someplace to live.
And while home builder confidence is improving, it’s still a far cry from “happy days are here again”.
So how can a small time real estate developer compete in a fragile economy? We get some great ideas in this episode of The Real Estate Guys™ radio show.
In the studio to talk boutique residential real estate development:
- Your well constructed host, Robert Helms
- Special guest, real estate developer Beth Clifford
Real estate development is a great way to “force equity” (a term from our book Equity Happens for making money by changing the use of a piece of real estate). But when the economy is soft, building properties “on spec” (building without a specific buyer secured) can be risky business.
Big developers look for growing economies that push populations out to undeveloped areas. This is the famous “path of progress” everyone talks about. But it takes a growing economy and population growth to feed the sprawl.
Usually development begins around some piece of infrastructure. Early in a country’s development, it’s usually a river, ocean or some other natural resource or means of transportation. Later, it’s around existing population centers and just pushes out (downtown to the suburbs to the country, which eventually becomes the suburbs).
At some point, the development sprawl meets some natural resistance point. It could be physical (like a mountain range or body of water), political (like a border), or the population’s resistance to travel longer distances to access amenities near the center (commute times).
When this happens, the big developers have a hard time because they need big chunks of land to do their huge developments. This opens the door for small, “boutique” developers to do “in fill” projects on smaller patches of land inside the already developed area.
So whether you’re in an up or down economy, there’s always opportunity for in-fill development. But in a down economy, you need to be very careful about your project so you don’t end up sitting on inventory you can’t sell. Soft local economies, especially those where existing product can be purchased for less than replacement cost, will not allow fat margins. And carrying costs on unsold inventory can quickly erode those thin margins.
Beth says the key is to pick the right market, product type and price point. Then manage your project carefully. It may sound obvious, but there are some nuances Beth cautions us about.
In Beth’s case, she’s active in the Washington DC metro. It’s dense (not just the politicians ), so there are no big developers to compete with. No one can find a big chunk of land to dump a bunch of inventory on the market. That’s good for the little developer.
DC is also affluent. The U.S. Government is a huge operation which pulls in lots of money from all over and dumps it into the local market. It’s a very powerful market driver. It also attracts a lot of people to the area, so when it comes to residential real estate you have little supply, high demand and good capacity to pay. That’s our favorite recipe for equity!
So listen in as Beth shares her practical advice for creating new construction profits – even in a down economy!
Listen Now:
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed. Visit our Feedback page and tell us what you think!
