Excursion into a Hot Market: Firsthand Tour
By Bryson Bennett, Director of Acquisitions
The Strongbrook REIC acquisition team took a trip recently to Phoenix. It was astounding what we saw. We have been traveling to Phoenix for over two years now and the transformation is eye opening.
Over the past two years, new construction has been all but nonexistent in the Phoenix market. There had been such a large inventory of resale homes there was no demand for new inventory. Well, that has changed overnight. There are hundreds and hundreds of improved lots that have sat vacant since 2006. Most of these areas have a few homes built, but have felt a little ghost-townish with all the empty lots.
The empty lots aren't so empty anymore. On this trip we saw construction in a few areas rival the level of activity we saw in the upswing of 2002-2006. In our travels around the market, we stopped by a new model home just opened by a large builder in Gilbert. Gilbert is a highly sought after area, and a 15 minute drive to areas that REIC currently buys in.
The average home price in the subdivision we toured is around 200k. As we have done several times before, we walked into the model home posing as a potential buyer very interested in that build’s home. They were framing and building about 6 homes in addition to the two model homes that were completed and furnished.
I was floored at the reception we received from the sales agent. They had been open for 6 weeks, and were sold out. Yeah, I heard that right, sold out! They had already sold 30 homes and had 20 lots remaining, but there is a 6 month waiting list at least, to try and get one of the available lots.
Every other lot had deposits and a home picked out to build on it with a 110-day building timeframe. As you can imagine the sales agent was nice, but was trying to sell us on another subdivision in Chandler, 30 minutes away, that had some homes available.
When we questioned him on prices, it was another eye opener. He stated the base model was going for $120 sq/ft, but the model we were in had upgrades to the $150 sq/ft level. It was a nice home but not too much more than the standard for that area.
We are still buying 6 year old homes 15 minutes away from this for $75 sq/ft. There is definitely a premium for new, but this was crazy. Here at REIC we analyze our deals based on an average of a $100 sq/ft for a replacement cost. That is very easy to justify now that you can touch and feel what is going vertical.
If you wonder whether now is the time to jump into real estate, this answers the question. End buyers are burned out trying to compete with investors for the discounted resale homes. They are willing to pay these premiums to get what they want, and know they can get it. Prices and demand have definitely started to increase, which is a good sign for our model at REIC. This is just what we predicted would happen and is a stamp of approval on our strategy. There is still a lot of room to go, so the ride is not over but just starting!
Giving Back Before Arriving
Are you waiting for "someday"?
One of my privileges over the years has been meeting with people to discuss their game plan, which always includes their goals and their dreams for the future. I am encouraged when I hear from so many about their desires to give back and to help humanity. Unfortunately, many of us wait for a “someday” that never arrives. It is risky to put off a dream that could be achieved today, waiting for the perfect moment that never arrives.
While so many of us have a strong desire to give back, I wonder what would happen to our portfolios if we were to do it BEFORE we consider ourselves to have “arrived?”
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Accumulation vs. Residual Income
The Accumulation Mindset
Americans are taught the only way to have enough money to retire is by investing in the stock market, making monthly payments into it for years and years, because the “market always grows over time.” It’s like running around for a lifetime like little squirrels storing up piles of financial acorns that we hope to one day live on.
We attempt to build piles of money in 401(k) and IRA accounts, or pile up gold because it’s a “hedge against inflation,” or throw money at savings accounts and annuities expecting the money will always be there.
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America's Broken Financial Paradigm
Have you been lured into accepting a job by an employer-offered 401(k) match?
I was shopping recently for my new baby at a popular baby supply store, and saw a sign when I walked in that read “Now Hiring. Full Benefits and 401(k) match. Apply today.” I felt a terrifying shudder up and down my spine as I realized that corporate America was calling yet another sheep it would slowly lead to financial slaughter.
Exactly how “Beneficial” Are the Benefits of a 401(k) Retirement Plan?
This retail store, just like most of corporate America, was appealing to the financially ignorant who have been led to believe that the stock market, 401(k)’s and IRA’s are going to create a lucrative retirement. The reality is that the 401(k), the IRA, and any other form of retirement tied to the stock market, is fundamentally broken.
Calling conventional financial wisdom like these retirement choices “broken” may ruffle some feathers, but is calling it “broken” really much of a stretch? How many Baby Boomers have lost half of their retirement to market downturns just as they reach retirement age? Those few individuals who have fared well in the market during these tumultuous financial times have most likely been in control over when, where, and how they have invested for their retirement. Most of us however, have given control of our retirement to Financial Planners and 401(k) Administrators.
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The Worst Investment In America
What scary form of investment do Americans throw millions of dollars a month at? It is a common investment that typically isn’t even considered an “option,” but a necessity to “invest” in. Let’s look at some features of this scary investment, called HOME EQUITY, that over 200 million Americans throw money at every month.
Imagine that you were sitting across the table from your trusted investment advisor, and he or she has invited you over for a meeting to learn about a revolutionary new investment opportunity that hundreds of millions of Americans will make sacrifices every month to invest in. Then imagine that he or she began to share the investment’s features and benefits, before telling you that it was home equity.
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