2020 Guide to Real Estate Speculation

Table of Contents

When it comes to investing, Real Estate is king. There is a good reason why 31% of investors chose real estate speculation as to their top pick of investment options in a recent Bankrate survey.

According to Forbes, the housing market in 2020 is ripe with opportunity for the savvy investor. Because of high demand and a decrease in houses on the market, the current listing price median of $350,000 is the highest it has been in three years.

Read on to learn how buying on speculation in real estate works and how you too can cash in on these trends in 2020 with this ultimate guide.

Ultimate Guide to Real Estate Speculation

Real estate speculation is the age-old fundamental investment strategy of buying low and selling high. There are many types of speculative buying in real estate, both short-term and long-term. We will explain most of them in this guide.

Short-term Speculation

Short-term investment strategies can be a little riskier than long-term strategies. This is because the investor must rely on sometimes volatile housing markets. Nevertheless, fortunes are still made using these short-term strategies.

Short Sales

Financially distressed homeowners facing foreclosure may have no choice but to offer their properties at below market value and often even less than their remaining mortgage or face losing everything to the bank. This is known as a short sale in real estate.

A short sale often called a pre-foreclosure sale provides the investor with an opportunity to buy property at an attractive price for resale. However, the investor must be careful here, after all, the property may have been on the market for a while with no interested buyers.

The investor always runs a risk that the property will sit in their portfolio for the long-term. The investor may have the same difficulty selling the property as the original owner did. A short sale is not exactly good for the seller and can result in a lower credit score and difficulty getting approved for another mortgage. However, it is the lesser of two evils when facing foreclosure, which can be even worse.

Bank Foreclosure Properties

Banks are very much in the business of providing families with the means of purchasing a property through home mortgages. They are not in the real estate business, per se. Foreclosure is the least attractive option to a bank and usually the last resort for lenders.

Despite federally ordered forbearance in home lending payments as part of Washington’s response to the COVID-19 pandemic; many homeowners continue to struggle to pay their mortgage. Those mortgage payments are not forgiven and are going to come due soon.

Foreclosure rates are set to spike on top of the already 10 million Americans that lost their homes during the financial crisis brought on by the lockdown response to the virus threat.

Banks will normally list the property for sale at the “break-even” price point in order to recoup their losses as soon as possible. If the property still doesn’t sell it may end up being auctioned off.

Real Estate investors love auctions because they are one of the only ways of buying a property substantially lower than the current market value. That being said, attractive properties at an auction will often go high in bidding wars. You might have been able to buy the property cheaper before the foreclosure.

Person doing real estate speculation on tablet

i-Buying

A relatively new concept in buying and selling real estate is i-buying (instant buying). There is much cost and time involved in buying and selling real estate. Some homeowners can’t or simply don’t want to go through the hassle of selling their home through traditional listings with real estate agencies.

These quick and hassle-free sales offer a way for investors to make purchases of homes generally in excellent condition and ready for immediate resale at a slight discount. Many i-buyers are actually investing firms backed by venture capital, but the platforms are open for anyone looking to buy a home fast.

House Flipping

The classic short-term real estate investing strategy of house flipping is a favorite among rookie investors and those investing in only one property at a time. At the core of this strategy is finding properties that are in serious need of repair, renovation, or remodeling.

In some cases, these properties are condemned. Sometimes government agencies have leans against the property, deeming it unfit for occupancy. These housing requirement violations will have to be remedied and a second inspection passed before the property can be resold.

For those investors that have the skill, making the renovations themselves can lead to huge profit margins for the right property in the right market. In many cases, the rental property may only need some TLC and a new color scheme to bring the home back to life.

Fair warning: the cost of fixing up a property for resale often has many hidden costs. This could end up putting the investor in a difficult position needing top market value to make a sale.

Tax Deed Auctions

Failure to pay property taxes is another way homeowners find themselves in danger of losing their homes at a loss. Their loss could be an investor’s gain.

Property taxes are any taxes associated with owning the property. Property taxes must be paid according to the relevant local tax laws of the municipality in which the property is located. After repeated warnings and deadlines to pay the overdue taxes the government will acquire a tax deed for the property.

This deed has the value of the overdue taxes and the government has the legal right to sell the deed (the property) in order to receive the taxes due. Much like banks with foreclosures, the government isn’t interested in making a profit but only in collecting the taxes. 

Buying a tax deed at a tax deed auction is the same as buying the property. The minimum bid for the property at auction is the balance of taxes due.

In rare cases, a property could be purchased for a few thousand dollars if there is little interest in the property at auction. However, there is often stiff competition from property speculation investors to acquire these properties. This drives up the sale price at auction.

Long-Term Speculation

Playing the long game is often the safest and most profitable way to make serious profits in real estate. This may be why it is a favorite strategy of some of the most successful investment names in real estate. Real estate is notorious for keeping its value and is one asset that is likely to go up in value over time.

There are basically two investment strategies used in long-term real estate holdings. The first is to buy land, homes, and building at a location that the investor feels is an up-and-coming area. The investor is betting that over many years the value of the property will increase as property values in the area increase.

Development Strategy

This one is not for the faint of heart and is usually reserved for the big boys with millions to invest. Development investing involves buying large plots of land or entire square blocks of a city. The developer has a long-term plan for improving the land or area for a massive payday.

Some of the greatest fortunes in real estate investing has been made with this highly risky but highly profitable speculation strategy. Developers are extremely good at predicting needs due to growth and prosperity at a particular location.

Armed with extensive research and backing from local businesses and even local government, developers set out to create and push demand in the real estate market. If successful a development project stands to profit millions if not billions for the forward-thinking investor.

The 2% Rule

The other long-term investment strategy, and one of the most utilized, is the landlord modal for investing. Owning their own home is a common dream of many Americans, but the reality is for many, buying a home is simply out of financial reach.

For others buying a home just doesn’t make sense because of the commitment involved. For millions of American’s renting is the best or only option. Enter stage right – the long-term investor with residual cash flow from renting a property on their mind. 

The 2% rule is a popular guideline for real estate speculation that many investors live by. The rule simply states that the property in question must be able to be rented at 2% of the purchase price per month.

A little quick math and we end up with a 50-month (a little more than 4 years) return on investment (ROI) from using this strategy. At this point, rental income, or the resale of the property minus expenses is pure profit.

This strategy is also referred to as BRRRR. The acronym stands for buy, rehab, rent, refinance, and repeat. Please refer to this article for more detailed information on how to implement this popular real estate investing strategy.

The right property, managed well, has the potential to earn the investor residual cash flow for years and/or a big payday when the property is put back on the market. 

Housing Market Predictions for 2021

Successful investing in housing speculation, much like stocks and commodities, is largely about predicting the future. Nobody has a magic crystal ball that tells the future of housing markets and if they did, they would likely keep it to themselves.

Nevertheless, wise investors keep an eye on the market and look for trends to use in their strategies. Many feared an imminent crash in the housing market during these uncertain economic times of 2020. Fortunately, that is not at all the case.

It is now November 2020 and the housing market in the United States stands stable and supportive of the country’s economic recovery. The housing market in 2021 will continue to be strong and here’s why.

Person holding model houses

Demand Higher Than Ever

There was an understandable slump in the market during the summer months of 2020. Despite this, in September of this year, the market bounced back with a vengeance.

The national median asking price on the popular site realestate.com for September 2020 was $350,000. This is an increase of 11.1% from the same time in 2019 and is mostly because of low-interest rates on home mortgages. Homebuyers are scrambling to take advantage of these record low-interest rates.

Managing Risk

With an investment of any kind, there is always at least some degree of risk. The very word speculation implies risk as speculating is an educated guess at best and simply a gamble at worst.

In a recent article written by real estate investor Paul Moore, this apparent difference between investment versus speculation is important to understand.  Paul mentions in the article a popular investment strategy called “value investing”

Value investing is a term you’re likely to hear often in stock speculation circles. The strategy applies to any kind of asset investments, including real estate.

The principle behind value investing is simple. The value of assets can drop in value sharply when the market overreacts to news and events which opens the door for an investor.

They feel the market is undervalued and expects a quick rebound.  In short, the best way to manage risk when investing in property is to know the true value of a property and find the deals that others might miss.

Information Leverage Profit

Don’t overthink things and confuse the matter. Real estate speculation all comes down to these three things:

  • Getting the right information on investment
  • Calculating the leverage, you have to sell the property at a profit
  • Finding the right buyer to make the investment a success

The savvy real estate investor is patient and proactive in all three steps. With experience, due diligence, and a little bit of luck you too could make millions in real estate speculation.

Profits Await You

If you do your research and manage your risk well, real estate speculation is a highly attractive investment in 2020 and into the future. We wish you the best in your real estate investing and when you land that big deal contact us to handle your property management needs.

Share via Email
Share on Facebook
Share on LinkedIn
Share on Twitter
Get help from DC's top real estate team.
Founded in 2005, Nomadic is the go-to full service real estate firm in the DMV. We've helped thousands of landlords, investors, and residents and we would love to connect with you next.

Check out more of our blog posts below!

Or search for a different topic:

Scroll to Top

Thinking of selling? Get an instant property value report:

Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.