May 2010

Real estate WOW
(Words of Wisdom)
 by Jerry 

Overlooked Opportunities in Today’s Housing Marketplace

How to’s for benefiting financially from the transition of the housing market

HOUSING TRACKS CAN BE CONVERTED INTO

MANUFACTURED HOUSING DEVELOPMENTS.

The first overlooked opportunity in my opinion is buying finished lots at bargain prices & creating lot and home packages.

In order to create lucrative returns later, manufactured housing dealers can lead in creating lot and home packages in their community.   Then as the market begins its trip back up, manufactured housing dealers will be able to deliver houses quicker than the stick builders as the demand increases. The opportunities exist in both small and large communities. They may look different but they can have the same profitable results.  In small communities this may be buying 1-5 lots at a price that will allow the

dealer/ developer to create a home and lot package that will compete with the local stick builder. We must remember that many of these builders are now out of business, so the window of opportunity is wide open.

 The same principles apply to larger parcels in big metropolitan areas.  Presently stick builders are buying the defunct finished single family lot developments at 20% on the dollar of 2008 prices.  Pulte would be the best example.

The second part of the market that is being overlooked is the defunct townhouse projects.  These lots are not attractive to a stick builder.  However these attached unit lots can be rezoned into smaller lots and filled with smaller homes which are very adaptable for manufactured housing dealer/developers to provide .  The first time buyers or empty nesters who desire to downsize are a consistent market.  However it is important to determine the quantity, timing and type of homes to provide based on a simple market study in each community.

How to take advantage of these opportunities to produce profitable results:

The basic rule is to take the average home sale price in the community and determine the price per finished square foot that a new home must be sold for to be competitive.  Using that information the dealer can now determine what size home that he should be building for his marketplace.  By working backward, he can determine the price that he can pay for the lot and still make a good profit.  I have always used the rule of thumb that the cost of the lot cannot be more than 22% of the wholesale price of the home and lot package.  Using this formula, the dealer can determine if there is a good market in his surrounding area.

Manufactured housing dealers have the upper hand in many areas for taking advantage of these types of opportunities.  The manufactured housing industry has created new products that can compete with the local stickbuilder, do not have to be build onsite ane can be ordered and delivered in 30 days.  Also the dealer/developer does not have to build 20 houses at a time.  Selling off a well designed model complex can allow the dealer/developer to keep his overhead down and still deliver homes in a more timely fashion than the stick builder.

I recommend that the dealer/developer when he has his plan together, talk with his local banker to arrange not only his finances for the land development, but also for purchasing the home when it is delivered to the site.  This puts the foundation costs and the home and lots all in the hands of one finance package.  It will also allow the dealer/developer to be very competitive, saving time and money in completing the project.  I recommend that the dealer/developer employ an outside market company to help him determine the type of product for his marketplace during his acquisition process.  This is a technique that the stick built industry has used for years.

Here are the basic steps:

1) Find groups of finished lots in your area for 20-30 cents on the dollar (2001 prices).

2)  Form a syndication and buy these inventories using investors in your area or encouraging investors from others areas.

3) Do rezoning if required

4) Do a down and dirty market study

5) Research and prepare the houses to be ordered based on the market demand

6) Take the money to the bank

7) Complete and repeat

Our company, Govan Group, has often done this in the building industry and we are available to assist you in putting this process into action in your community while the timing is right. If you want to know how to analyze your marketplace, give me a call.

702-498-1976 or email me at jerrygovan@aol.com.