Cheap housing via a local market niche

How to avoid signing your life over to a mortgage
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mathiverse
Posts: 162
Joined: Fri Feb 01, 2019 8:40 pm

Cheap housing via a local market niche

Post by mathiverse »

white belt wrote:
Thu Jan 14, 2021 9:23 pm
The 2 story rowhomes were all designed for working class families in the early 20th century and are not very popular among contemporary home buyers because they are small with only 1 bathroom (the ones that sell have been re-done with modern decor/amenities and additional bathroom on the ground floor). They are also not large enough to split into multiple units, so real estate investors stay away from them unless they are going to do a complete demolition and build a shiny new multifamily house on the lot. That leaves a sweet spot of opportunity for me on properties that are outdated but not in bad enough shape to justify a full tear down (maybe you can find similar niches in your area?). The city has tax abatements for improvements so I don't have to worry about increasing taxes from appreciation for a few years.
How'd you find this niche in your area? If someone wanted to find a niche in their area, where would you suggest they turn? Realtors? Real estate investors? Other sources of information?

I think this would be an interesting topic for folks trying to understand the opportunities in their own area.

Other ideas
  • Look for tax abatements for certain properties
  • Consider what type of house is being torn down in your area?

white belt
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Joined: Sat May 21, 2011 12:15 am

Re: Cheap housing via a local market niche

Post by white belt »

mathiverse wrote:
Thu Jan 14, 2021 10:06 pm
How'd you find this niche in your area? If someone wanted to find a niche in their area, where would you suggest they turn? Realtors? Real estate investors? Other sources of information?
I am familiar with the town because I have friends and family that live there. I have 3 friends that own new condos they purchased in the past 5 years and other friends that live in newly constructed apartments. I also have done some research into real estate investing in the area and talked to friends who work closely with builders or other real estate folks.

If you're starting from zero knowledge, I would look for threads on Bigger Pockets forums that talk about real estate investment strategies in your area. Try to go to a local real estate investor meetup and also talk to any people you know in your area that are landlords or property managers. You should be able to get an idea of housing stock and demographic trends just from sitting in and listening to the discussions happening. Also just look around your area and see what kind of new construction is taking place, what types of properties sell quickly on the market, and what kind of properties stay on the market for extended periods of times. That should help you to get an idea of what is "desirable" housing stock in your area.

For example, I know that Philadelphia has had a new construction boom in certain neighborhoods over the last 5-10 years because of a combination of 10 year city tax abatement on new properties and federal tax incentives from the Opportunity Zones program (check if your city has any of these zones). I suspect, just by looking around at the amount of new housing stock, that there is probably an oversupply of new properties. COVID and long term economic trends are stratifying the city into the haves and the have nots; the well off white collar workers who can afford to buy the shiny new construction, and the lower class workers who are facing high unemployment/low earnings so they are forced to rent. These trends in combination mean that older single family homes (~100 years old but not the quaint 150-200+ year old historical houses) are likely not in high demand, especially when they are in neighborhoods in the early stage of gentrification. Just a cursory look at prices right now tells me this is the case.

Having an understanding of how your own preferences diverge from the typical buyer (or renter) in your area can also help you to take advantage of cheaper opportunities. For example, my permaculture design incorporates a garden roof, split air AC unit, tankless water heater, and wood stove/masonry heater that vents through the existing chimney stack. This means I don't really care if the water heater needs to be replaced, the house doesn't have any ducting or central air/heat, the roof needs to be replaced, the kitchen is outdated, the walls are ugly, etc. Of course, I would still do my due diligence with inspections and such to make sure there aren't serious structural issues and my modifications are feasible. I also care a lot about which direction the house faces for purposes of rooftop garden and passive solar heating, but a typical buyer is not concerned about such things. On the other hand, a buyer might want a kitchen with modern appliances and quartz countertops that are in vogue today, but I really don't care about any of those things. Etc etc.

Edit: As 7WB5 pointed out, understanding the history of your local area and when/why housing was built is another useful tool.

Edit 2: Housing materials are another thing to understand. In many areas, it is often the case that the new construction looks nice but is pretty shoddily constructed because the developer is trying to flip it for maximum profit, which means there are often quality control or long term durability issues. On the other hand, a 100 year old rowhome has demonstrated it is quite hardy just by the fact that it is still standing, along with the fact that the external walls are made of masonry brick as opposed to 2x4's covered in siding.

UK-with-kids
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Location: Oxbridge, UK

Re: Cheap housing via a local market niche

Post by UK-with-kids »

Advertised housing will by its nature sell for roughly the market rate - if it was way underpriced then somebody would outbid you.

In my experience it has to come through social capital. The cheap niche housing that springs to mind from people I know has been for example: 1) living in something non-standard like a houseboat on a river, moored on land that was owned by a friend of a friend, 2) offering to fix up and then rent an unused and rundown annexe of a property owned by a friend of the family, 3) house sitting for a contact in your social network, and as a result looking after and living in a very desirable home for a couple of years completely free, 4) Renting a very cheap room in a housing cooperative that isn't well known and is never advertised. These are all real examples from an unaffordable UK city.

white belt
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Joined: Sat May 21, 2011 12:15 am

Re: Cheap housing via a local market niche

Post by white belt »

@UK

Very good points on leveraging social capital and alternative housing. I think the ERE book has a pretty good section on housing options as well.

Another trick that real estate investors use when searching for properties is to look through tax records to see who owns a house and then contact them directly to see if they are interested in selling (with some sleuthing you might even be able to find out which owners are in financial trouble). Direct mailing is also popular. You’re likely to find at least one person who is interested in selling but they don’t feel like putting in the work to get their house “market-ready” so you can get it at a bargain. Of course, if it’s not on the market that also means others can’t bid on it. As an individual person, you might even be able to emotionally appeal to the owner’s sense of sentimentality if you show that you’re going to live/preserve a property as a home, not just bulldoze it to make new apartments.

UK-with-kids
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Location: Oxbridge, UK

Re: Cheap housing via a local market niche

Post by UK-with-kids »

Yes, a private sale is a good idea, especially in areas where there are shortages of property and you get bidding wars. The local dog walker who talks to everyone actually told us about a house on our street that he thought the owner wanted to sell. There have been leaflet drops around here trying to get people to sell privately, but the personal connection would probably be needed to swing it.

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Sclass
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Re: Cheap housing via a local market niche

Post by Sclass »

A friend of mine bought a triplex in a strongly rent controlled town. The rental properties were really depressed. You had to be crazy to operate one so they sold for 1/2 the price of homes with the same square footage.

Right after buying he moved the tenants out. Knocked down walls and converted the place into a 3ba, 3br, 3 kitchen home with lots of dens. It was pretty a pretty cool layout. He showed me the knocked down walls and little stairways to connect the floors. They were designed to easily come out if he wanted to rent it out as a triplex someday.

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