Investor Alert – America Faces an Acute Housing Shortage

by Tim Herriage

Investor Alert – America Faces an Acute Housing Shortage

by Tim Herriage

by Tim Herriage

us-housing-shortageThis is salutary news (10/18/16) for the nation and most affects those households that specifically need affordable housing. An ample supply of affordable housing in the foreseeable future is hard to forecast, unless the incoming Trump administration moves to address housing shortages relatively quickly.
WHAT DOES THIS MEAN TO INVESTORS?
Investors in single-family residential rentals can be reassured that the demand for existing well located mid- and affordable rentals will not wane over the mid- to long-term.
For those in the construction business, building affordable houses is not economically attractive as mid-market or luxury homes, whether it is for sale or for rent. By the time land is acquired and entitled, a house or housing is built to meet affordable expectations, are profit margins to slim to make this worthwhile?
LOCATION FIRST
Given the lack of land availability in relation to employment hubs, insatiable local body entitlement expense needs, tight labor and rising materials costs, plus tight financing, expect that existing stock (houses or land) will remain in high demand. Do not expect significant relief from new builds, especially in “far-burbs.”
With all the obstacles removed, it takes 12-18 months from financing and a land purchase to deliver occupier ready homes. This means existing stock will appreciate faster than usual in desirable locations. The purchase of mid-market homes at market prices means cash flow and investment returns require the investor to raise operating efficiency and discipline.
Then there are investors who appreciate location over property condition. Institutions and mid-cap investors originally tried to limit their house purchases to production properties that were built after 1990. This rule is being bent due to lack of affordable inventory. Older homes are now becoming more desirable, in spite of higher renovation costs to modernize and make them market ready. For some if these homes are in poor condition and do not fit current homeowner or renter expectations, they are removed and new rental stock built, again putting affordability out of reach.
CITY HOUSING & REGULATORY CONTRADICTION
The City of Dallas, (not DFW at large) just passed air conditioning regulation that governs effectiveness for rental properties in the City. Modern AC standards were applied to substandard construction, making these properties technically uninhabitable in high temperatures. The fix is to completely reinsulate, replace windows and maybe air conditioners on apartments generating around $500 a month. One landlord’s solution was to evict 300 already economically stressed families and tear down the non-complying buildings. The landlord warned the City this could be an unintended consequence. The land is now vacant until an economic alternative is found that does not depend on non-existent government money.
WHAT DOES THIS MEAN TO YOU?
You have three choices for SFR real estate investing: personal hands-on individual investment and operating responsibility, buying a turnkey rental in a particular city with a qualified turnkey operator or participating in a small fund where the management understands operating in tight markets, working to average risk and solid returns. Each with a declining degree of direct involvement and personal risk but investment returns that beat any traded asset.
“When you learn to look at the SFR rental as nothing more than an inflation indexed annuity, this industry makes a lot more sense,” says Tim Herriage founder and CEO of 2020 REI.
2020 REI offers to help you find and sell you rental houses in Dallas/Fort Worth, unquestionably one of the hottest markets in the U. S. Investable Realty are investment experts. As an investor interested  that combines cash generation through fix & flip as well as longer term returns through a growing rental focus, Elevate Private Capital Fund may be a better alternative.

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