Just a casual thought-
If America is going through an ‘age of reinvention’, where the return to ‘simpler times’ means families are leaving the suburbs and gentrifing older nieghborhoods, why is there not more corporate interest in capitolizing on this via old home restoration?
Even more specifically, why dont more individuals purchase/renovate/add/update/sell older homes in established ‘hoods?
I ask this question b/c wifey and I are getting ready to do our first project like this, after many years as a remodeler for other peoples homes.
I compare the love of old homes to the love of old cars- and we all know people spend LOTS of money on cars, which is bad investment, and you still need a place to sleep after you drive that car.
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my answer is that is IS happening. Your observation that it might not be is subjective or local. Remodeling is one of the great growth industries in this country
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A lot of people are remodeling older homes in older neighborhoods. Usually, it's the homeowner doing the work or having it done, not as 'flip' but as a place to live. A lot of contractors want to do spec remodels but many markets, there's not enough room in the sales prices to allow a purchase/remodel/sell equation that's profitable. Initially you have to put in more than it's worth, and hope that rising values improve your position in a few years. That's been possible in a lot of places in the last 10 years or so. Will it continue... who knows.
David, fundmentally, you're wrong on your description of the business "problem". The problem isn't that contractors can't get it done profitably. That's a misstatement.
I would say that most contractors don't realize that you have to buy houses "wholesale" less fix up costs. They try to buy at retail, then incur fixup costs, then wonder where their profit is.
Basically most contractors aren't very good at business. They don't invest enough time in learning about business and instead focus more of their energy and intellectual effort at improving their skills.
This site is proof....there are tons of tool threads...but far fewer business threads...
Finally, the type of profit you are describing is called appreciation. If you are "hoping for rising values" you are "speculating"....which is very risky and needless. There are too many safer ways to invest...
blueIf you want to read a fancy personal signature... go read someone else's post.
Here in MN, a corporation has moved in to this market. They are advertising all over the place with the logo "WE BUY UGLY HOUSES".
Since they buy (and perhaps sell) outside the regular real estate agent market, they have more financial latitude to flip these old houses.
They have certainly cut into the supply of houses around here with flip potential for independent contractors.
Nikkiwood
That "we buy ugly houses" has been around here(TX) for as long as I have been here.
They are buying on the cheap, real cheap, and doing just what they have to in order to flip the house. I don't think they are much competition to the person that wants to improve a house in a neighborhood that is on its way back up.
Maybe they are different in your area than here but I don't see the "buy ugly house" people as a real threat to the GC that does quality rehab.
Doug
Doug, you are correct about buying cheap...the marketing campaign will develop leads that are extremely lucrative. Most investors that buy ugly houses will usually offer 60% of the fixed up value, LESS fixup costs, if they pay cash. The most often used method of purchasing the ugly houses is to take over payments, usually with less than $1000 down, depending on the housing stock.
blueIf you want to read a fancy personal signature... go read someone else's post.
Nikkiwood, I doubt that they have "cut into the supply" of houses. Those I buy ugly houses are simply a way to get motivated sellers to contact them. That is the primary marketing method of real estate investors. Some target foreclosures, some target divorcee's, some go after bankruptcies, etc. All have acommon theme....motivated sellers.
The signs that you are seeing is called guerilla marketing. It is one type of marketing that is being taught in every single real esatate investing book and seminar.
The reason you see those signs is because they actually work!
blueIf you want to read a fancy personal signature... go read someone else's post.
Obviously the "supply" of houses stays the same. But here, there have been a substantial number of GC's that buy crappy housing stock, bring them up to neighborhood market value, and then sell them for a profit.
The "WE BUY UGLY HOUSES" people have seriously cut into the supply of such houses available to independents. I think the corp is called Home Vesters, or something like that.
As far as I know, they are not holding on to these properties for apprceiation; they turn them over as quickly as possible.
tlenoch "Just a casual thought-If America is going through an 'age of reinvention', where the return to 'simpler times' means families are leaving the suburbs and gentrifing older nieghborhoods, why is there not more corporate interest in capitolizing on this via old home restoration?"
Corporate interest? By that do you mean why are the Giants like Pulte, Toll Brothers, Hovnanian, and the like all doing it well remodeling is a very different business than new home construction. The short answer is for one thing those companies buy land and develop it en mass to gain some production efficiencies and the scattered nature of remodeling and restoration projects being spread all over the place. Also they are often building basically the same thing over and over again where there is a lot more, in fact tons more, variation in remodeling and restoration projects so the production organization model is a lot more tricky and difficult in remodeling. In the end new home construction is just plain old a lot easier than remodeling and restoration. (and as an afterthought after writing this post I think I've heard or read that Hovnanian might actually be getting into remodeling and restoration of neighborhoods in some regions)
"Even more specifically, why dont more individuals purchase/renovate/add/update/sell older homes in established 'hoods?"
They do. And that is happening more and more all over the place on the scale ranging from individuals to small businesses, small joint ventures and even some larger operations such as what nikkiwood mentioned "Here in MN, a corporation has moved in to this market. They are advertising all over the place with the logo "WE BUY UGLY HOUSES"."
In fact in the building and remodeling industry remodeling passed new construction a few years ago and is now one of the largest sectors of our economy.
"I ask this question b/c wifey and I are getting ready to do our first project like this, after many years as a remodeler for other peoples homes."
You might want to check out the latest State of the Nations Housing Report 2003 (PDF) from the The Joint Center for Housing Studies at Harvard University to see what the future of housing is looking like and there is also a study there called Measuring the Benefits of Home Remodeling 2003 (PDF) that you will probably want to read too.
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"I compare the love of old homes to the love of old cars- and we all know people spend LOTS of money on cars, which is bad investment,"
TLE,
NO it's not if you place minimal value on your time, and can view it as a hobby, ...just like fixing up old cars.
WSJ
Tlenoch, life is indeed passing you by:)!
You are describing a "new" business called "real estate investing", specifically a subset of investing called "rehabbing".
You can get low interest governmental loans, that can be converted into grants in every county in the USA. (go to HUD.gov)
This isn't a big corporation type business, it's more of a mom and pop service..but it's defininetly already out there and thriving.
blue
I have done the very thing you are talking about for 14 years, buying my own . Thats when I quit working for the public full time.
A comprehensive study has to be done in your own area. We all live in different areas and it becomes a different ball game to most who study the game . A lot of people here talk about doing high end work. We dont even have high end houses here! A new person in town that has a good business background relies on numbers only. An old person in town better rely on numbers only. 10 years ago there was better money in repos [hud] than building new houses. Now , there is better money in new houses. But , thats here. I would have to believe that where land or lots slim and demand is high , remodeling would set its price. The new trend in low interrest rates have made it a different ballgame , than high interrest a few years back. Houses were cheaper when rates were higher. Rates dropped and prices were cheap for a while , and it caused an explosion in building. With those people going first the rest kept following although prices have ski rocketed. Now that the building prices and the land prices have jumped caused by the influx , older homes is once again a feature. Its a different set of rules however than when rates were high. It can mean different things , so it depends on what your action plan contains. I bought a lot of houses "cheap" when rates were so high and kept them as rentals. Interrest rates hit bottom and I refinaced and created a retirement fund. It was luck.
Now what might happen is inflation in housing where we may see gains in our investments if at least three things happen; 1. an up swing in jobs created . 2. continued low interrest rates. 3 a continuing demand over the next 10 years for housing. The result ; a shortage in housing will cause prices up. The higher cost today of building will reflect the older market as well.
There are other formulas that experts say would do the same thing , but the above might happen. A lot of it depends on the fuel crisis and no one seems to be able to predict it .
There could be some very good money investing in it if you happen to be in a select area. The area can be rich or poor , but the need must be there. Get out there and get started panning for information and come back and tell us how you struck your fortune.
To more answer your question or one of them is why dont more people remodel? They do . Its a very big business. Theres so much of it going on with the lower rates people have refinanced to remodel since in some cases the payments are the same with rates bottomed out.
Tim Mooney
Edited 10/24/2004 11:43 pm ET by Tim Mooney
Thanks for your detailed observations
I am fortunate to live in an area where lots are plentiful but at same time expensive. Ft Collins is a college town (Colorado State) and most of my remodels have been in the "old town" area. 2 bed 1 bath 1930 'bungalow' on 60x130 lot w/ mature landscape runs $225 K. New 3 bed 2 bath in new part of town sells fro $250K ,nothing fancy. Buddy I know started project where homeowners bought 250K house, tore it down, putting upo $750 K 4 bed 3 bath.
Owners in my market seem to like detailed finishes, not really into raw sq footage or huge lots. Arts and Crafts revival is big here.
So, my homework Ive been doing last 2 years indicate deamnd is here. I just need to get after it and let you guys know how it went.
Good luck and come back and give us some pointers.
Tim Mooney
As many have said, interest in established neighbourhoods (old houses) is regional.
In Toronto, we also have a very well-established industry of renovation as well as big and successful companies doing extremely well in in-fill redevelopment. Usually this involves replacing smaller older homes on long-established streets for wealthier and spoiled new generation of buyers (although many of these examples I would not call loving or respectful of older homes or an older streetscape), but it can also involve loving restoration of older homes, as well as simplying updating the mechanical elements of the smallest homes in ways that match the budget of first-time owners (e.g., poke just enough holes to deal with the Knob & Tube so the kids can get insurance).
But the primary reason for this very healthy thing, is a very unhealthy thing, for a city. We have a massive urban sprawl problem (highways that, literally, are as congested as Los Angeles) and you just can't commute far enough to get a cheap lot any more. We just didn't learn from American cities that got choked out by commuting traffic a generation ago.
But, it is also due to a very healthy thing. We never did lose our great inner city neighbourhoods - we never got a bombed-out vacant urban core that many American and Canadian cities suffered when the populace moved out to the burbs so they could park 4 cars and get to the mall. Toronto's downtown residential sections have remained occupied and with good turn-over of one ethnic, and demographic group after another. See Michael Moore walking around the 'Danforth' neighbourhood in Bowling for Columbine for what those areas look and feel like. It's worth noting that T.O. is where Jane Jacobs has chosen to live for the past several decades. This is a healthy liveable city where you can raise your family in a fine brick home on a tree-lined street with safe parkettes, a family-run grocery store on the corner, and take a short ride on public transit to your office. We also, therefore, have a very very very healthy renovation market.
I could probably offer about 25 top tips for you to make a killing in infill development just watching this neighbourhood for about 10 years although some of it is not exactly the practice of 'fine home-building' or business practices for that matter.