3 Unusual Ways to Corner the Real Estate Market
Whether you’ve been looking to buy or sell a house or not, you’ve probably heard that the real estate market in the U.S. has been heating up ever since COVID made apartment living look less desirable.
And thanks to the simple laws of supply and demand, it's likely to stay hot until there are more sellers than buyers.
So I’m guessing, since you’re reading this and subscribe to a publication called Wealth Daily, that you’ve been thinking about how to make a little loot off the flaming-hot real estate market.
And I’ve got a couple of suggestions I’ve seen lately that range from somewhat ridiculous to downright reasonable.
But first, just in case you aren’t sure how hot this market has gotten, let me break it down for you with a few hard numbers…
That’s how much of your income you can expect to spend on a home in New York City. With a median asking price of $958,000 and a median income of $63,998, the Big Apple is the most expensive (or least affordable) place to own a home in the U.S..
But that’s not really too surprising. NYC is known for its pricey pads. What surprised me was that thanks to the amplified housing boom Florida’s been seeing since March 2020, Miami is now No. 2 on that list.
It’s got a median household income of only $39,049. And thanks to that explosion of interest in the Sunshine State, Miamians are now looking at paying 81.55% of their incomes just to own the roof over their heads.
That’s a pricey market. I was actually contemplating a winter home down there back in 2019. Didn’t find the perfect property and failed to pull any triggers.
I probably could have bought the worst house I saw for the highest price they were asking and sold it for a profit a year later. But I didn’t, and I digress.
That’s how much the median home sale price in the U.S. had risen in the 12 months between June 2020 and June 2021.
It was sitting at an all-time high of $363,300 by the end of this June. The median listing price hit $380,000 by August.
And that’s a national median. In some states, it’s far higher and has risen far more:
That’s the size of the down payment many people are making on many of these houses. Nearly half of all buyers in the first three months of 2021 put down 20% or more on their purchase.
Between July 2019 and June 2020, the average amount put down on a home was 12%. As of early June 2021 it was closing in on 21%.
More impressively, 21% of buyers paid all cash in the first three months of 2021.
That makes this a pretty much entirely different housing market than the bubble we all remember bursting in 2007.
After that happened, there were rules put into place that you have to put at least 3.5% down on your house… because many people were making 0% down payments before the crash.
But this time, buyers have the means to actually pay for the house they’re getting. They’ve been saving and they’re putting down meaningful deposits.
So this hot market might make you think back to the early 2000s, but it’s got a lot of differences after the price appreciation.
And that means there’s likely still some profit to be made even with real estate selling for all-time high prices.
So let’s go from potentially ludicrous to super-smart and talk about some ways you can make money while the market’s still hot.
Make Me Move
Like I said, I’d been looking at properties well before the pandemic hit. So I’ve watched the market grow and grow and seen some pretty silly prices out there.
I’ve been calling them “make me move” listings. People heard the market is hot and saw their neighbor’s house sell for a few hundred thousand, so they figure, “Why not me too?”
And they ignore the fact that their neighbor’s house had been completely remodeled the year before and also has a pool. And they list their house for just a little more than their neighbor’s place got.
I’ve got a standing search on Zillow for waterfront property in Maryland. I’ve always dreamed of just walking through the back yard and getting on the boat.
And I’m getting some pretty interesting results these days. Here’s a run-down little home that needs to be torn down on a tiny lot on a river that’s often too dirty to swim in:
Asking price: $400,000. Now, you’ll have to pay about $100,000 to tear it down and another $300,000 to build a new one worthy of that view.
And that’s not even counting the potential hang-ups you might run into with county zoning and EPA regulations. This one was built in 1955, so there's probably at least some asbestos to abate (which can add as much as $100,000 more to your reno). Maybe some lead paint too.
When you’re done, you’ll have a house that will probably sell for somewhere around $700,000. And you’ll have paid between $800,000 to $1 million to get it. And you’ll still be on a river you can’t go swimming in.
That’s a “make me move” listing. Those folks have likely lived there for years. The house is falling down around them, but they can’t afford to fix it. And they don’t really want to sell it.
But they see an opportunity to sell at a premium to buyers who don’t know any better or feel pressured to take whatever they can find or are buying sight unseen.
So they’re listing their homes at unreasonable prices to see if anyone’s willing to make them move.
That’s one way you could make a profit off this hot market. List your house at a “make me move” price and see if any fish are biting.
Of course, you’ll have to find yourself a new place to live, but hey, you’ll have all that extra dough from selling your house for a ridiculous price.
Or you could keep a roof over your head and find another way to invest in real estate…
Real Estate Investment Trust Me on This
If you’re not interested in flipping your home and moving to a new place, I don’t blame you. It’s not for everyone. That’s why I called it a potentially ludicrous idea.
But thankfully it’s not the only idea I’ve got on how you can make some money investing in real estate.
And this one doesn’t involve buying a house, selling a house, or even owning a house, for that matter.
It’s my favorite way to invest in real estate and one of the most successful strategies in the history of investing.
The title of this section gave it away, but in case you couldn’t tell, I’m talking about real estate investment trusts, or REITs.
REITs are a special type of investment vehicle. Their structures allow them to avoid paying any taxes on profits by passing them through to shareholders in the form of dividend payments.
And that’s what really great about REITs. By law, they’re required to pay out at least 90% of pretax income to shareholders.
But that’s not the only way they’re special. They’re also companies that own assets and rent those assets out to other companies.
The assets in question are often specialized buildings or properties. And that, my friends, is real estate too.
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And that real estate market is also sizzling. The average home price is up 23% since last year, but as of the start of September the U.S REIT industry was up 30% in 2021 alone.
And the U.S. residential REIT market had posted a whopping 44% gain since the start of 2021.
So there just might be some more potential for profit from this investment than actually buying and selling a house… even in this hot market.
And when it comes to residential REITs, you’ve got a pretty good selection.
There are about 20 for you to choose from. They own assets from single-family detached housing to multifamily apartment buildings to student lodging around college campuses.
And all of them pay a nice hefty dividend that should grow as their properties get more and more valuable in this hot real estate market.
For student living, there’s American Campus Communities (NYSE: ACC). It’s the largest owner, manager, and developer of student housing communities in the U.S. and it pays a 3.76% dividend.
It might be a very contrarian play with so many college students still going the remote route this year. And it’s only up 20% this year compared with the industry average of 44%.
But it could set you up well for the return to campus (whenever that really happens).
If you’re interested in apartments, what with homeownership getting so expensive, look to AvalonBay Communities (NYSE: AVB). It owns nearly 80,000 apartment units in major metropolitan areas across the country.
Apartments, like on-campus living situations, aren’t exactly en vogue this year, but they’ll be back. Especially if homeownership keeps getting more and more unattainable.
AvalonBay pays a 2.85% dividend and its shares are up 45% this year as investors bet on that.
But if it’s the housing market that’s got you all hot and bothered, and apartments aren’t going to cut it for you, then I’ve got a third option in the residential REIT space.
It’s a relative newcomer to the game. And there aren’t a ton like it out there. But as ownership gets more expensive, I expect to see more of these specialists spring up.
It’s American Homes 4 Rent (NYSE: AMH) and it specializes in single-family homes.
It owns close to 53,000 homes in 22 states, with the largest concentrations in the bustling markets of Atlanta, Dallas, and Charlotte.
AMH is lagging the residential industry and its apartment-owning peer AvalonBay. But it’s still up 40% in 2021. And that lag means it could have even more room to run than the others.
The company pays a 1% dividend now, but as the market for its units continues to get hotter, that could easily grow, since the company has one of the lowest payout ratios of the bunch.
That, to me, seems like a much more reasonable plan than selling your house to someone willing to pay an unreasonable amount.
It sounds much friendlier too. With REITs, nobody else has to lose for you to win.
But if it still doesn’t sound like a great way for you to take advantage of this flaming-hot real estate market, then I’ve got one more idea to throw your way…
Invest in UNDERVALUED Real Estate
If everyone and their brother is talking about how hot the housing market is, then we can probably assume that real estate is pretty much fairly valued (maybe even overvalued).
And we can be pretty darn certain it’s not undervalued (even if we argue about the overvaluation).
So my final idea for you to profit from real estate is for you to find some undervalued stuff and invest in that.
I know what you’re thinking: “Thanks, Captain Obvious…”
But hear me out before you judge me.
I’ve got some real estate you can invest in that’s still severely undervalued… because nobody’s heard of the company that owns almost all of it.
The Keeper of the Kingdom
You’ve probably heard a lot of talk about 5G and how great it will be or already is. But one thing you might not know about it is that 5G relies on a very special type of real estate.
It’s for wireless communication, so obviously it needs antennas to broadcast. And those are often mounted on towers. So the companies that own the towers (also REITS) are already looking pretty pricey.
They’re not undervalued anymore because everyone knows they’re important for 5G to succeed.
But what most people don’t know is that they’re not the most important piece of the 5G puzzle.
And that’s because, even though 5G is all about wireless communication, the most important thing for making it work is… WIRES.
Well, actually cables. But to the untrained eye, they all look alike, right?
It’s these cables that will allow the antennas on those towers to be connected to storage centers where all the data on the network can live.
You see, fast connections are worthless if we can’t get the data they create off the network. And in order to do that, we must connect the 5G network to another network of high-speed fiber-optic cables.
And there’s one company that owns more miles of fiber-optic cable than any other company out there. It’s even got more than its 10 biggest competitors COMBINED.
And that’s why every major telecommunications company in the country has deals in place to use this company’s real estate.
Even its competitors are jumping on board because “if you can’t beat them, join them.”
But because the story about 5G has been all wireless and cell towers, this company, with all that latent value packed into it, is trading well below its future value.
It’s real estate that’s still undervalued. But that’s not going to last.
Inflation is going to drive up the values of hard assets. And investors are going to catch on to the fact that this is one of the few places they can get a bargain.
Those factors combined are likely to send this company’s share price soaring. But today, you can still get a piece of the action for less than $15.
That’s right! This company’s real estate is still so undervalued it’s trading for less than $15 a share. And it’s paying a higher dividend than any of the REITs in the residential sector everyone is watching.
You can get all the information about the company, its real estate assets, and the potential for massive profits by clicking this link.
Then you’ll have everything you need to make an investment in undervalued real estate before that corner of the market gets discovered and heats up too.
If you take a little time today, you’ll be all set to get yourself invested come market open.
And I’ll be back next week with a few more interesting ways for you to add a little cushion to your nest egg.
To your wealth,
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter, and co-authors The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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