The NON Cookie Cutter Approach to Real Estate Investing
No, real estate opportunities are not gone; the cookie cutter is just worn out. When real estate prices are low and inventory runs high, the quintessential great investments are plentiful. As investors you run around to find a great property, crunch the numbers and make a purchase. Everyone does pretty much the same thing. New investors crawl out of the woodwork. In fact it is estimated that 50% of investors are new to real estate. With such a simple and duplicable investment model of finding cheap property, crunching numbers to insure you can get decent returns why wouldn’t everyone want to invest in “the cookie cutter” real state model?
Headlines suggest investing in real estate
Every time you open a newspaper or nowadays the internet you see articles about the advantages of real estate investing. It is a tangible investment, versus the volatile intangible investment that is today’s stock market.
The population is growing at a rate of 1 person every 13 seconds. That is over 6,646 people added to the population every day and translates into a need for a lot of additional housing units each year.
Real estate is the only investment that generates all 5 wealth building principles. It produces Income, Deduction for tax purposes, Equity build up, Appreciation and you can buy the investments with Leverage (OPM).
So indeed there are compelling reasons to invest in real estate
How to invest when the good deals are gone
Fast forward a couple of years and the good deals are gone and the simplistic method of finding a great investment makes it appear as real estate investing opportunities have all disappeared.
Time to be creative, time to think outside the box. Look at the big picture and ask what do you want from an investment, Cash Flow, Appreciation, etc. Whatever your objective is, ask yourself “If I cannot just go out and buy it how can I create it?" My favorite line of all times was from a movie starring Danny Devito. The movie is called Other People’s Money (a highly recommended movie for investors). The line is, “The Game never changes, only the Rules Change.” The seasoned investors who succeed big time in real estate investing never stop investing, they simply change the method of how they find, buy and structure the purchases.
The Value Play
Perhaps my most lucrative investments as well as the investors I work with was the result of a value play. Simply stated, you buy a property and make some changes.
My favorite is finding large 2 bedroom homes that have the ability to easily convert a second and often a third living space into a bedroom. Converting a room to a bedroom can typically be done very inexpensively by adding a wall, a doorway and a closet, Simple interior construction. Often $1000 worth of construction can add a third bedroom and create a huge increase to rental rates and or resale prices.
Finishing Off Lower Level Basements
Later model homes especially in the North are built with a nice concrete foundation. The basic structure is in place and simply needs to be finished off. Simple construction of walls and finishing material will often double the living space and again can add significantly to cash flow and or resale prices.
My number one best money maker was converting a 4 plex into 4 condos. I was able to purchase a property and by implementing $7,000 worth of legal paperwork convert the property which increased its value by $245,000 in just a few short months. I then was able to lower my monthly mortgage payment by refinancing to 4 single family home loans and took an additional $24k per unit ($96k) total in cash out which allowed me to reinvest into more properties. This was all done with a $26,000 investment. Here is how it played out.
Indeed there are many examples I can give but I think these illustrations suggest that if you think of what you ultimately want from your investment you can go out and make the investment happen. All you need to do is think outside the box and believe in your instincts.