Why Flipping Houses is Stupid and Retail Is Dead
I’m going to tell you about an unstoppable game today. It’s called affordable housing. I have a saying, “rent one door, own many doors.” If you’re out there flipping homes, if you’re buying shopping centers, if you’re buying a house, this message is for you. I’m going to predict the future of real estate.
Malls are going to bear the brunt of changes in retail, because retail is moving online. First, it’s going to be the strip centers, the little strip centers with the Radio Shacks. Five years ago, the Radio Shacks started failing. What happens when they empty out? When the Radio Shacks isn’t there anymore… so who fills in? Maybe a burger joint? Maybe a telecom place—a Sprint. Maybe a Starbucks, don’t you wish?
Then the vacancies start spreading to the bigger malls. The JC Penny’s, the Macy’s, the Sears, the Dick’s Sporting Goods. What happens when hundreds of feet of well-located space becomes available?
America has 31 square feet of retail for every single person in America.
The U.K. is 2nd with 10 square feet of retail per person. What happens when it starts to empty out? What happens when the vacancies start spreading when retail goes under? Office space will get smashed. You could move your office to an empty big box retailer.
I pay $40 a square foot for my office space right now. What happens when 20,000 square feet empties out at Dick’s Sporting Goods? When retailers begin failing everywhere, it won’t be $15 per square foot like they rent now, you will be able to get it for like $1. So those who invest in office spaces will get slammed once retail fails on a massive scale.
Oh, and who lent money to all those people? Now the banks get smashed.
The cycle looks like this:
- Retail Pressure—more and more people buy online
- Retail Empties—bye bye Blockbuster, Payless Shoes, Ross, etc.
- Vacancy Spreads—more and more empty spaces will be for rent
- Rents Drop—more empty space makes less competition for space
The game I play is very specific and predictable. I’m not into buying retail spaces or office buildings, I buy affordable housing. I am a chicken, gutless, coward when it comes to investing money. I’m an extrovert getting money, but an introvert keeping it.
That’s why I invest in affordable housing, stuff in the $900 to $1500 a month range. These types of apartments will always be needed and demand will only increase in years to come because it’s not being built now due to the cost of materials and labor.
There are several classes of multi-family housing, which I will define as followed for simplicity:
- Class A: $1500+—the luxury places
- Class B: $900-$1500—this is the nice but affordable places
- Class C: Under $900—getting less attractive
- Class D: Government stuff (Section 8)—straight ghetto
The only thing being built right now as far as apartments go is the Class A stuff, the expensive stuff. The only safe-haven will be in multi-family affordable housing, the Class B stuff. Keep in mind this scale isn’t the same everywhere. $1700 is affordable in Miami, so this will change according to the city. In LA, New York, and Silicon Valley the Class B properties might be $2500+.
My parents always said, “Never rent.” Were you told the same?
Don’t just take half the message! What were your parents really saying when they said, “Never rent”? They were saying to, “Own rentals.”
Get more involved in multi-family real estate. Whether you’re not involved at all, or you’ve been in real estate for 20 years, you need to get MORE involved in multi-family. And, want to learn more, join my team, and invest in real estate with ME? Visit CardoneCapital.com to learn more and get into the Class B properties with me.
Have you invested in real estate? What kind is it? How did it turn out?