The perfect wave

By: Peter Yao

I have been interested in personal investment since 2005 when I joined Metlife investment division as a programmer. Finding the next great opportunity is exciting for me amid the ups and downs of the market. Over the years, my wife Evelyn and I made some decent investments, but missed some of the great opportunities, such as the housing slump during the 2008 financial crisis. Nevertheless, we did learn from those experiences and were able to catch the opportunities in the housing market during the COVID period and acquired a few profitable rental properties.

During the summer of 2020 while COVID was still rampant, Evelyn and I started looking to buy rental properties in our local area. We own single family homes in other cities but don’t have any locally since the return didn’t seem very appealing. We explored the market without much urgency, assuming the market would stay quiet, like it did in the last few years.

On 11/9/2021, our friend Feng advised us to check on a home in Fuquay since the asking price of $265k was lower than market price. We went to see the home the same week and liked it, but the selling agent told us on Saturday that there were multiple offers already. We made an offer of $271k on Sunday-- $6000 above the asking price. But we didn’t hear anything from the agent when the listing changed into pending status on Monday.

We were disappointed but the setback only hardened our resolve to find one home. We signed up with Feng’s agent Lucy, who had many years of experience in the real estate market. Within the next few weeks, we checked over 25 existing homes in the $300k-$400k range, some in fair condition, some not so great. But to our surprise, each one of them went into pending status within a week, usually over the asking price. To our dismay, another offer we made on a house we didn’t even like was rejected again.

Out of frustration, we started checking new homes but were surprised that most builders didn’t have any lot to sell. One day we came across the Meadow Brook community by Lennar, which had only one cul-de-sac lot available. We reserved the lot before the release without knowing the lot premium. A week later it was released, but we were told that the lot premium was $20k and the home price went up by $3000. Since Evelyn didn’t like the price hike within such a short time, we told Lennar that we didn't want the lot anymore since the numbers wouldn’t work. The builder agent didn’t mind and told us there were people waiting to get it.

Soon after most builders stopped selling to investors completely, which made us kick ourselves for not taking the Lennar lot. Not ready to give up, I checked new homes online daily and signed up for many builders’ VIP lists to get notifications for any coming communities. In December, I came across a ranch home by Mattamy in Fuquay for $350k, but it was not open to investors. I called the onsite agent Dan and asked him to check with his supervisor if they would consider selling to investors, given that it was an inventory home finishing in April. Then came the good news that we indeed could buy it. Moreover, on the night before signing the contract with Mattamy, one of Lennar’s new communities in Garner opened and investors were allowed. Because we sensed, through our search, that the market was going through a repricing phase, we decided to go bold and buy both lots. We signed with Mattamy on 12/17 and with Lennar on 12/18. Then in January we signed one more with MI homes – three houses within five weeks, all of which were around $350k.

In Spring of 2021, the housing market went out of control. The stories of bidding wars were all over the media. Builders were raising prices with each release -- a delight for us now that we had locked in the price. We closed the Mattamy home in April 2021, and the other two at the end of August.

These three homes were probably the best investment for us so far. Not only did each home appreciate at least 50% at the closing compared with the down-payment, but the mortgage rates were super low (between 3% to 4%) and the rents were higher than expected – leading to positive monthly cash flows. Reflecting on the journey to this success, we obviously got lucky, but other factors were also very crucial, such as saving money diligently, building solid credit, spending time in research, and not giving up in the wake of blunders.