Who Are The Buyers Right Now?

Warren Buffet said he would like to buy thousands of single family homes.  Why?  Simply put they are a great investment deal right now.  Did he do it?  I don't know but I am sure Berkshire Hathaway didn't just jump into the real estate brokerage business this year for no reason.

In June the Berkshire name replaced Prudential in Florida and recently did so in Newport Beach, CA.

So Who Are The Buyers?

On the buyer side, investors appear to be the main buyers right now.  They are buying the houses that need work, but the prices are rising due to the competition among investors.  For instance, a recent waterfront in my area sold for $1.835 Million and was torn down, several over the sumer sold at or very close to that price only to be knocked down.  

A very nice home just around the corner, is listed at $2.4 Million and can't get even a low ball offer.  It has been on the market for over two years.  Another is listed for nearly $3 Million and as far as I know, also has no offers.

Can you really build a home and make money in that gap?  The answer is yes.  A really good investor can build for $400,000 making a total investment of $2.235, and sell for $2.3 and net $50,000 or so after interest and fees but that isn't what they are doing.  Most of them are only putting 10% of their money into the project so making $50,000 on $200,000 or even $400,000 in one year wouldn't be bad, and again that isn't what most that I talk to are doing.

What they are doing is building very slowly, taking advantage of lower labor and materials costs, locking in a good loan rate and sitting on the homes waiting for prices to go up.  Some have a sign on them, others don't.  One trick to look for as a seller is them dragging out the escrow for as long as possible to minimize their holding costs.

Maybe I am seeing more of this as an investor because I have trained myself to spot an empty house three blocks away.  I used to look for the dumpy empty homes, but now I am watching the newly remodeled empty homes.  This is how you get a micro glut.  When prices to recover to 2006 levels many of these homes will hit the market and stall pricing.  That isn't a bad thing, just something to be careful of when buying, and something you can use to your advantage if you don't want a fixer.

Are you ready to buy?