Market Upswings Can Create Great Opportunity for the Creative Thinker
As the news of great real estate deals start to fade away, the opportunities become more prevalent for the serious real estate investor. When the market is hot you cannot jump on a property quick enough. As it starts to settle down, the rush of investors start to fade away. It is sort of like shopping during Black Friday just after Thanksgiving. People wait in line to get the great deals. After the rush is over the buying market is more relaxed. Yes, with the crowd gone and the shelves shopped over what is left appears to be slim pickens. Perhaps just the scratch and dent models. I love these scratch and dent models! There are huge value plays hidden within them if you only take the time to be a creative thinker and look for them. As a creative thinker you will make some great deals from them.
Create Manufactured Growth by Investing in the Value Play
Some of my best investments have been from investing in the value play, buying property that the other buyers missed, making some changes, repairs or upgrades. Sometimes simple repairs or upgrades can have a significant difference on a property's value and the amount of rent you can charge.
This is a time where you want to be a creative thinker. As the best deals stop landing in your lap you know the time is right for your creativity to make the deals.
Here are a few examples:
Search for large two bedroom homes
I have made some great deals when properties were not available by searching for 2 bedroom homes with large square footage. Everyone knows your best investment is a 3 bedroom home so here you have an opportunity to manufacture the growth. When a home has large square footprint you want to assess the floor plan and see if the layout is sufficient to easily add a third bedroom. I once bought a 2100 sq. ft. home that had 2 bedrooms and 3 bathrooms.
Interestingly enough it had both a large living room and large great room. I was able to make the great room into a nice sized third bedroom and a small den by simply adding a few interior walls and closets. The whole process cost less than $5,000 for permits, material, etc. We increased the value by over $50,000 and were able to raise the rent by $300 per month over what a two bedroom can demand.
Late model homes with basements
Buying investment property in the north where basements are prevalent can be a great value play. Here is another example of a home I bought that only had 2 bedrooms. The entire lower level was unfinished. It was a walkout basement. For those who have not heard of a walkout basement, it is simply a house built on a hill. The front looks like a one story house with only the upstairs level emerging from the ground. As you walk to the back of the property the lower level is also exposed to open air. These walkouts are great for adding rooms as they already have the mandated egress windows which are required to make legal bedrooms. Adding some interior walls and fixtures to make up some more bedrooms and another bathroom is very inexpensive in comparison to the value that is added to the property. A $20,000 investment can add 2 more bedrooms, a bathroom and a living room, etc. This investment can increase the property value by 2 or even 3 dollars for each dollar you invest.
This one requires a little more work and diligence. I once owned a 4-unit apartment building which for all practical purposes was 4 villas. Each unit had its own driveway and separate entrance and separate mailing address. All that was required to convert this apartment property was an architect’s opinion as to what needed (if anything) to be done to make this separate living quarters. Fortunately for me there were no changes required. Then a survey to show boundaries of the property. Then a common interest community documents drawn up by an attorney. The whole process took only 3 months and the property I just paid $455k for was now (3 months later) appraised as 4 separate villas valued at $175K apiece or a total of $700k. That is a $245K value play in only 3 months’ time.
I could go on all day with great examples but I believe you see my point. Whatever your flavor, when you think outside the box and look for a value play the manufactured growth can be a very lucrative investment. There are always incredible deals. When you do not see them out there on a daily basis, you simply go manufacture them. Manufactured opportunities and manufactured growth is what the seasoned investors pride themselves on every day.