Steve Hanley remembers vividly the August day in 2005 when he was sitting in his office and sensed the housing boom was over.

“My blood turned cold, and I knew,” said Hanley, who builds homes in Fairfield, Calif., a community about an hour west of San Francisco.

What Hanley, who was building more than a dozen homes a year during the busy years, didn’t know was how long and deep the bust would be. This year—2009--will be the first year in 30 that Steve Hanley Construction has not built a home.

“I really thought I’d be able to build my way through this,” said Hanley, speaking in San Francisco, where he is attending the Pacific Coast Builders Conference this week.

But he’s still in the business. Hanley is keeping the lights on by buying foreclosed homes built 40 or 50 years ago, remodeling them from top to bottom with updates, and then leasing them out. “That’s my income stream,” he said. So far he’s got eight homes finished and in the works.

Survival strategy is a theme at PCBC this week. While this year's show is sparsely attended compared to previous ones, those who are attending PCBC at San Francisco’s Moscone Center are eagerly soaking up whatever information they can to help them make decisions that will help them stay in business in the short term and thrive long-term.

Many are taking the tack--in one form or another--that Hanley has chosen and are tapping into the foreclosure market to stay in the housing business.

While that 2005 realization jolted Hanley into working through his most expensive land and spec houses quickly to avoid servicing debt in a downturn, it didn’t leave him with any sense of comfort about the fact that his lifelong profession was, for the time being, dead.

“That was a little bit hard to take,” he said. “I was stressed out, but then I decided I was going to create a new business.”

Hanley’s son, a real estate agent, funnels him leads on distressed houses. He buys the sturdy little homes, looking for ones with low prices and good locations. He usually pays around $80,000 for such a property and then starts modernizing it. (He purchased one house for as little as $40,000.)

To update such homes, Hanley builds bigger closets for the master bedrooms and finds ways to open up kitchens to living areas. He adds contemporary touches like a tech area in kitchens. “Then I can compete on the rental market,” he explained.

Long-term, he hopes to get back into building homes from scratch. In his local housing market, which is home to Travis Air Force Base, he thinks it will take some time.

He said that D.R. Horton, which has re-tooled itself into a builder of extremely inexpensive homes, has been getting some traction in the market, as has Standard Pacific, which is selling stripped down models locally. But Hanley said he finds it impossible to get his costs down to the low levels that the public builders have.

“I don’t know when housing prices are going to get priced high enough to build a house and make a profit again," he said.

Still, Hanley remains hopeful. He is interested in buying distressed lots in the hopes of restarting construction. He wanted to invest in raw land, but his bankers, even though he has a good relationship with them, wouldn’t finance it. But he hasn't given up.

“Housing is housing,” he said. “If you love what you do, you will find a way.”

Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.

Learn more about markets featured in this article: San Francisco, CA, Los Angeles, CA.