Ken Gerrans’s Blog

As we look to the New Year…and what it brings in our industry, I’m struck by one gigantic opportunity that no one seems to be talking about. The buzz is in all the wrong places.

We all have the bargain hunters  who have been looking for that “just right” property.  They initially call looking for “foreclosures” and then marvel at what terrible condition they’re in. Start figuring how much money it will take to make some of these homes inhabitable and they don’t look like good deals at all.

Some buyers consider themselves savvy, looking for the “short sale”. They know the lingo and, yes, short sales are generally in better condition…and there are deals to be had because banks would rather negotiate someone’s defaulting mortgage than spend 60-80 thousand to foreclose.

Next are the people driving around new subdivisions throwing out offers of 50 cents on the dollar for builder spec homes. That’s not such a good plan, either. Why? Because how many people have already taken a pass on these homes? If they were really great, they would have sold.

So,  think about this…

First some background…

Part of our current malaise is rooted in the fact that much of our inventory was built in 2006 or 2007. Rebuilding after Hurricane Katrina caused a sharp rise in material costs nationwide. Soon after that, petroleum prices also rose sharply. This caused petroleum based construction materials to follow suit. Homes built during this time were built with materials priced at all-time highs.

Today’s material costs are substantially lower. Lumber is cheaper, copper, steel, PVC, roof shingle…all these materials make building a new home right now your smart money play. The stock market may be going south or, at the very least, be unstable. If your securities investments aren’t exactly, uh, secure…think about this. With today’s low material costs coupled with falling land prices…labor that is, literally, fighting for work…and money that is so cheap to borrow. Why wouldn’t you build now?

I’m working with a 900,000 buyer right now who said he wanted to pay cash and buy his house outright. I asked him why he would do that. I told him to consider borrowing up to the Jumbo level (417,000) because borrowing that amount at 4.75% means that he 1) doesn’t diminish his cash position and 2) can invest that cash in, heck, tax free municipal bonds and he outperforms the cost of borrowing. That’s when it all made sense to him.

We’re in a unique market with factors at work that we’ve never seen before. Understand that you’re not working off some old real estate blueprint and you’ll be ahead of the game.

New construction. That’s the play. For insights like this, call me anytime. 630-946-4688.

I can’t believe how little investor activity exists in our market right now. Cash buyers or those taking low LTV mortgages have a tremendous opportunity in these times.  Consumers who  would have qualified for a mortgage two years ago and now can’t are somewhat of a rental risk, but they have to live somewhere. There are so many townhomes and condos on the market and these may be an enticing buy opportunity, particularly because of their price. I believe the real opportunity lies in single family homes. I hadn’t done much rental business, but I was shocked to see what consumers were willing to pay per month and how quickly these homes get rented. The key to making money in any market is capitalizing on the  opportunities that the market presents. The lending crunch, low interest rates, short sales and a large pool of “almost” mortgage qualifiers mean that the time is now for investors. Pay cash, buy below market, find a qualified renter, generate some revenue, ride out the market and either sell after the correction or just hang on to it…especially if you have a good tenant. If it were this easy, everyone would do it. I understand not everyone has the means to follow this simple advice, but for those who can…the return is certainly capable of beating many other investment alternatives.

Welcome to Ken Gerrans’s Blog! This blog will provide you with valuable information, tips, and general insight into the real estate market in Naperville.