Investing in Real Estate
Although real estate is one of the best investments a person can make, selecting the right properties at the right price is the key to ultimate success. Today, I am going to examine investing in real estate within the $150K to $200K market in and around Birmingham, Alabama.
Location, Location, Location
Location. Location. Location. Everyone has heard this expression when looking to invest in real estate regardless of the price range. Location is the foundation upon which your profits will be made. A good house in a good location will generate higher demand than a good house in a bad location. Heck, a bad house in a great location can create a bidding war, but switch it around and a great house will sit in a bad location for a long time before reaching a closing.
Today, I am going to focus on one particular price range in one section of town. So, for arguments sake, I am taking a look at the Montevallo / Calera real estate market where new homes are selling in the $150K to $200K range.
Market Overview
New Homes in Calera & Montevallo
As urban sprawl heads southward, places like Calera and Montevallo are growing at tremendous rates! New home construction is flourishing in these areas, particularly in the less than $200K market. First time home buyers are looking to these areas to find affordable housing. Families that are looking to increase the size of the home to match their needs are also seeking out Calera and Montevallo for new homes. This demand is feeding the growing new construction business in the area and is the cause behind all the new developments popping up along HWY 119 and HWY 22.
The New Construction Impact....
Currently, in Calera and Montevallo, a disproportionate number of homes for sale are new construction. This is hitting the resale market hardest where homes are between one and five years of age. If you look at the history of resale for these homes, you will notice that the appreciation has not increased at a high rate and is being capped by the price of similar new construction homes in the area. Basically, a home that sold for $150K two years ago is having a hard time competing with comparable new construction homes in the same neighborhood selling for $155K.
Investing in New Construction
Let me clarify one thing. Buying a home as a primary residence is different than purchasing as an investment.
That being said, in this particular area and price range, purchasing a home, either new construction or resale, for investment to flip, or rent, is going to be low on positive return in the short run.
How?
Let's say you want to flip the home for resale in six months to three years. The number of homes planned for future construction in these areas should keep builders busy for the next five to seven years. Odds are that your investment will not appreciate at a rate high enough to garner a good return on investment with this type of competition. In a nutshell, the market is and will continue to be saturated with new construction. This will decrease the demand on resale units and make selling the home for a good profit difficult.
Purchasing with the goal of having a rental property is not much more attractive. With interest rates on the rise, speculation is heard that more people will be looking to rent in these areas. This maybe true. But the investment into a home for rental purposes carries extra expenses such as property management. This scenario forces the monthly rent well over "would be" monthly mortgage payments making the units less attractive to rent.
What would I do?
"For just $39.99 you could buy my book......" Just kidding folks.
Investing in real estate is complicated. The above is just an overview of general real estate conditions and the observations of one real estate investor. But, if it were me, I would wait until the new construction slows in this area and turn my attention to other areas such as Gardendale, Leeds, and high demand areas like, Homewood, and Inverness.
The best advice I ever received was simple:
Buy the cheapest house in the best neighborhood.
Which all goes back to location, location, location.
