How Do You Buy Quick Equity?
Not to be confused with get rich quick, creating quick equity is very possible. In fact it is possible to even purchase property with equity already built into it. I help people do this every day. It is knowing what to look for and how to manufacture it. Manufacturing equity (something I like to call “The Value Play”) is simply taking a piece of property and quickly adding value to it. You may have heard the expression used by appraisers “highest and best use”. It is the simple principle of making changes to a property that will give it more value. There are many ways this can be done.
A few examples of Manufactured Equity:
• Rehab a property. This is a common practice of buying a property, remodeling it with updates that will indeed increase the value of the property and give you quick equity. The idea is to be smart about the rehab, remember you are not going to live in it. You want to do improvements that will maximize a home’s attributes and minimize its flaws. Properly done you have created manufactured equity.
• Increase its rents: for true income producing properties such as multifamily rental units the values are established by the revenue it generates. If you are able to raise rents the value will go up creating instant manufactured equity. Example. You do some minor updates and replace old white appliances with new stainless steel appliances. You attract a different caliber of tenant that are willing to pay more in rent. I once raised the monthly cash flow of a 4 unit building by 12 hundred dollars per month with this strategy and the extra cash flow generated increased the value by an additional $100k. That was quick equity.
With a little thinking this is a powerful tool to manufacture growth.
• Changing properties use: As the term “highest and best use” implies when you utilize a property for its highest and most efficient use the values will match that highest and best price. As an example rezoning a residential home (on a street that is now becoming a popular main traffic road within a city) to an office space such as dental, real estate, attorney office this newly zoned property on a street is much better utilized as an office building on the busy street than a residential property.
You see a pattern emerging. It is easy to manufacture equity when you get creative and think outside the box. The best investment opportunities are often ones that are passed by. When thinking outside the box it is possible to create equity very quickly. If you keep an eye on what the Donald Trumps of the world are doing, here’s hoping you will see the same in most of these investments.