Thursday, April 19, 2012

American real estate websites are interesting

For fun I sometimes look at real estate websites in the USA. I especially like real estate websites from Hawaii, just because its exotic.

Lets take for example, a website which specializes in Memphis real estate investing which basically means they take your money and invest it in rental properties, rent the property out and then you receive a portion of the rent.

Its an interesting concept... but what is more interesting is the question of how much these properties are actually worth. Remember that Memphis was hard hit during the US recession of 2007-2009.

From 2006 to early 2009 the median prices of homes in Memphis dropped from $105,000 and dropped down below $75,000. Right now the median price is hovering around $85,000.

Compared to prices here in Toronto, real estate in Memphis is dirt cheap.

Now I admit that is not as cheap as some other locations (ie. Detroit), but it is still a bargain.

What does therefore is hunt around for bargains, then flip them as rental properties and eventually (when the real estate market has recovered) sell it for a profit.

Lets say you buy a property for $100,000 and rent it out for $1,000 per month. 2 years later, depending on the demand, you might be able to sell the same property for $110,000... and better yet you've pocketed $24,000 (minus property taxes, income taxes, maintenance costs and lawyer fees) from the rent.

If you look at the ROI (Return on Investment) for many of the properties on it varies between 32% and 48%. It really makes you realize that renters in the USA are getting bushwhacked by high prices and that investors are cleaning up and laughing all the way to the bank.

I do think you could do this yourself, assuming you had enough spare cash. My uncle David and an investment partner did this years ago back during the 1970s and 1980s. They bought several properties near Niagara Falls, waited for them to shoot up in value and then sold them all. Then (for fun) the two of them had the bank give all the money to them in cash, bought some champagne and rolled around in the cash. My uncle even has photos of the event of him and his buddy rolling around drunk in all the cash.

So you can make a lot of money investing in real estate. You can go through a company or broker that specializes in it or you can do it by yourself or with an investment partner.

And in places like the USA where the economy collapsed a few years ago its easier to find deals where if you invest wisely (and spread the money over multiple properties, thus alleviating the risk) you can make a bundle.

During the height of the recession in Detroit there was properties being sold for $1. Just one dollar. They had been seized by the federal government for failure to pay back taxes. If a person wanted to buy those properties they could fish around, check which properties could be snapped up for $1 and whatever the back taxes were and they could get a chunk of land which 10 years from now might be worth $50,000 to $100,000 or more when the economy has recovered and Detroit becomes a desirable place to live in again. Too late now. All the really nice properties have been snapped up.

Cities like Memphis in comparison are less risky. The economy there is better. The prices are higher and the ROI is less, but at least there is comparatively little risk.

Food for thought.

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