How to Make Money in Real Estate… Even in Today’s Housing Market
Going by recent headlines on the sagging North Florida housing market, you might think real estate investing is dead.
Jacksonville hasn’t seen the major price corrections that have nailed the South Florida housing market and the West Coast - at least so far. But like in those places, Northeast Florida’s home flippers - those guys who bought for $200,000 and sold for $300,000 a few months later - have almost left the buying side of the market completely.
If you’re looking to buy a home for investment purposes now, you can’t expect the home to show the same price appreciation that was seen last year. But for those looking for a Florida mortgage to buy, builders have offered impressive incentives to offset the cost of a new home.
The number of home sales dropped 23 percent between September 2005 and 2006. The sales drop off gives buyers a wide range of homes (with anxious sellers) to choose from, and that competition may have already caused home prices to ease in the area: They were down 2 percent between September 2005 and 2006.
Officials from the Northeast Florida Builders Association say the current climate is exactly what makes it a good time to buy, but if you have the choice to buy your home now or later, you have to ask yourself if you think the local market’s reached bottom or if there are more discounts to come.
Regardless, the buy-and-flip model of investment is on the skids for now. But there are several other ways to make money in real estate.
BUYING INTO THE BIG TIME
Perhaps the toughest segment for an investor to break into is office or commercial real estate space, where large development companies dominate the buying and selling scene.
The value of those investments act much differently than homes. An office park’s value grows only as the amount of rent the owners can charge grows. Office space that isn’t built specifically for a company is most often owned by investors - organizations that have been in the business for a long time and have much more capital than you can probably muster.
To capture some of the income that commercial ventures afford, it can make much more sense to invest in those companies themselves. Shares of public real estate investment trusts (REITs) trade just like ordinary stocks on the open market. Also, REITs can be grouped into mutual funds that focus on specific regions or just track the entire industry.
TURNING TO TENANTS
In the new North Florida real estate market, where buyers can’t expect to flip a home for a substantial profit in just a few months, some investors are turning their second and third homes into a steady income.
Savage, who owns 19 rentals, said it takes a certain personality to manage tenants. His personal philosophy is to invest only in houses that can be rented for at least 1 percent of their market value. A $200,000 home, for example, would need to rent for $2,000 per month. Anything less than that and the return on investment is too low to warrant keeping it.
BUYING ON THE BLOCK
In Jacksonville and beyond, the real estate bargain basement doesn’t end with discounted resales or with new homes that have piles of incentives.
As adjustable-rate mortgages start saddling homeowners with payments they can’t handle, investors might be able to find great Florida foreclosure deals. Jacksonville has had one of the highest foreclosure rates in the country of late, clocking in at one foreclosure per 189 households. That ranked 22nd out of the 100 largest metro areas in the United States.
While foreclosure investors sometimes are derided as taking advantage of homeowners’ distress, in reality, they sometimes help those owners get out of a bad Florida mortgage loan situation without losing everything. And it sure beats the alternative: Once a home reaches the courts, the situation is out of the owners’ hands.
