Real Estate Investment Articles

New home construction is the slowest it has been in 17 years and new subdivisions are rotting on the vine. Pre-construction — investing in new property before it’s built — may seem like a thorny thicket, but, as always, all real estate is local. There are some juicy berries hidden deep in niche markets. Here’s a look at why some preconstruction deals are still sweet.


THE CAN’T MISS MARKET
Manhattan, Kansas is home to Kansas State University and Fort Riley. Local officials predict a population increase of about 30,000 troops and students in the next two years.

Kurt Hackman is building 52 four-plexes holding 208 units on 32 acres overlooking the city skyline and the Flint Hills. The site is five minutes from the fort, in what Hackman calls the “second-nicest neighborhood in Manhattan.” Infrastructure is complete and construction began in June.

“Our goal is to go after military families,” Hackman said. “We find with our research if the husband goes off to war, normally the family stays. You have more security with that property.”
There are other reasons military housing is a great market. The Army will not tolerate non-payment of rent. Troops almost always rent because they’re transferred every few years.
Major shopping chains are coming into Manhattan, and that’s one of two things soldiers look for. “When these soldiers come to this market, they can go to Junction or Manhattan,” Hackman said. “Manhattan does not have a lot (of housing) available right now. They’re looking for schools, and then shopping. Everything’s happening in Manhattan.”

The Department of Defense plans to grow Fort Riley. “The government has a 50-year plan,” Hackman said. “The base has thousands and thousands of acres. It’s a strategic location, and there’s plenty of room to grow. If you talk to the housing office at the base, they have 50 years of housing funds allocated to the base. It’s really going to be impressive.”

Hackman is selling the majority of the project to investors. Four-plexes are selling for $492,000. The price includes $22,000 worth of upgrades like granite countertops, 9-foot ceilings, basements, and other options. It allows $20,000 in builder concessions for closing costs and homeowners’ fees. With steady 5 percent appreciation, “there is not another rental property even close to what this has to offer,” said Hackman. Twenty units have sold to date.
“We’re making these cash-flow out of the gate,” he said. “We’re not going to build all the units at once. We’re trying to work with the flow of demand. Our whole concept is a little bit different from what anyone else does. The way we work, investors can buy these without commissions. There is less risk for us on this project because 20 buildings have been sold.”


QUICK TURNS
Three years ago, if you invested in pre-construction, you spent at least nine months paying for land while the house was being built. That’s almost halved, said Tom Thiede of Showcase Custom Homes in Scottsdale, Arizona.

“For pre-construction right now we’re getting higher prices from our subcontractors and less turnaround time because there’s less construction going on,” said Thiede, who has been constructing investor-built spec homes for decades. “That allows the investor to turn it into a market-ready product quicker than in the past. From foundation excavation to completion is running about five months right now” on a 2,400- to 2,800-square-foot home.

But new homes aren’t selling, right? “Not if it’s at a fair price point,” Thiede said. Again, all real estate is local: the right house, in the right neighborhood, at the right price, is selling, he added.

“If it isn’t (priced right), that house is not going to move. In the previous market these products were always sold at full price contracts prior to completing the project, and that is a perfect world. Now people think because the market has slowed they might be stuck coming up with more money out of their pocket. We’ve been doing this for many years and know what product to put into what geographic market. Every house has four bedrooms and three baths and they’re on an acre of land. Over the years we’ve fine tuned this and feel it’s a product the investor can feel comfortable with.”

Thiede likes Buckeye, on the west side of Phoenix. It’s a better buy than the East Valley, with better access to the interstate and much less traffic. “We’re very enthused about Buckeye because it’s close to I-10 and the football stadium and construction. With everything coming it’s shaping up to be a real boom.”

Thiede’s homes sell for about $350,000, and investors usually see about 12 percent of the sale price in returns. “It’s still an excellent investment,” he said. “It’s still the best deal going today.”


HALF OFF — THE SWEETEST TWO WORDS
Chris Anderson‘s Horizon Development has been building large upscale home sites in dramatic desert settings in Arizona and New Mexico for 15 years. Anderson has more than 14 projects on the books, ranging from 1.8 to 8,400 acres.

Lots in one of his projects previously priced at the mid-$200,000s to low $300,000s are now selling at $100,000 to $120,000 off.

“Two years ago you wouldn’t have got that,” he said. “I’m selling it for a great deal. We reduced our price about 40 percent. When you’re buying a pre-built, the opportunity is great. There are great buys out there, whether you’re buying my product or someone else’s.”

In 2004 to 2005, builders put two to three years’ supply of homes on the market. Between that and the mortgage industry loaning money to anyone with a pulse, “you had a perfect storm of overbuilding,” Anderson said.

Now, builders are choosing to make less money, so they’re making more affordable homes, plus offering buyer incentives.

“The product you’re buying now — a lot of these in great locations and dramatically lower than two years ago — the easy answer is they’re great deals,” he said. “People should be buying right now. I have some great product that we’ve priced to sell. It’s just that everyone is looking for someone to say now is the time to buy. If they read it in the newspaper, then they’ll think someone knows what they’re saying. There are millions of dollars being made in real estate by people who can afford it. Now is the time to invest in real estate.”



RESOURCES
Kurt Hackman
For Sale By Developer
www.fs-bd.com
913-226-1101

Chris Anderson
Horizon Development and Arizona Acquisitions
www.horizondevelop.com
480-962-4900

Nuway Development
www.mynuway.com
801-484-0291

Owner Built Custom Homes of Arizona
www.obchaz.com
Tucson 520-400-4712
Phoenix 602-708-7455

Tom Thiede
Showcase Custom Homes
480-551-5206

UBuildIt
www.ubuildit.com



WHEN THE WIND CRYS BUY ME*... WHEN NOT TO BUY
One preconstruction buy to stay away from at all costs are big masterplans far out in the suburbs or exurbs. , Especially if no one is living there or if it’s just infrastructure. Gas prices are killing these places, making them poor choices for renters versus an urban or near-suburban location.

Do not be the first to buy on the promise “the market will come.” At one point that argument might have had some validity, but that was before $4 and rising gas prices. If it’s too far away from airports, malls, stadiums, restaurants, shopping, churches, and government offices, the new market will not come. This also applies to masterplans where the developer has gotten so far as streets and lights, but no actual houses. If the wind is blowing across the lot when you do your due diligence, turn your back to that wind and that deal.
* Borrowed with apologies to Jimi Hendrix and The Wind Cried Mary 1967 Jimi Hendrix Experienced.

Scott Seckel