Creative Real Estate Investing - Some Examples
By Steve Gillman - 2006
There was a late-night television infomercial selling some
course on creative real estate investing a few years ago, and
as I recall, the author of the course suggested - among other
things - using a car as a down payment on a house. Splitting
a home into a duplex was another idea he threw out there. Although
he had a lot of creative ideas for investing, it wasn't clear
if they worked for him or if they were just ideas. I want to
stick to true stories for this article. Here are some actual
examples and true stories.
I once knew a real estate agent who bought run-down houses,
fixed them up and sold them. Always looking for new ways to buy
for less or add more value to a home, he took creative investing
seriously. In a hot market with many investors looking at the
same properties he had to.
I helped him with a bi-level home with two bedrooms, one of
his many projects. The lower level was unfinished, really a basement
of sorts. But with larger windows than you normally find in a
basement, large enough to make it livable space legally. Many
investors had passed on the property because they didn't see
enough profit in cleaning it up and reselling it quickly. This
particular investor/real estate agent though saw the potential
of that lower level fortunately.
In a corner with a window he had two walls built to make it
a room. A ten-by-ten-foot piece of carpeting, a door and an electrical
outlet made the bedroom complete, for a total cost of $1,500
or so (this was in 1991). It had become a three bedroom house.
Repairs and landscaping were done too, but that bedroom alone
likely added $10,000 to the final value. Other investors weren't
thinking about adding bedrooms to homes at the time, assuming
that doing so would cost $10,000. But the corners of basements
already have two walls, a floor and ceiling. That's most of a
bedroom already.
Later that year this same investor bought a small house that
had no room for parking. He assumed the city would approve paving
what little front yard was there, but they refused to allow it.
There was about six feet of space between the house and the neighbors
fence, so he tried to buy five feet of the neighbor's property
to create enough space for a narrow driveway, but the neighbor
refused despite several offers. In a town where it was illegal
to park on the street at night it's tough to sell a home without
a place to park a car.
Essentially giving up, he managed to make a couple thousand
dollars anyhow after cleaning up the house and wholesaling it.
It was perhaps his smallest profit on a house.
A solution was found by the investor he sold it to. He removed
the living room wall and moved it in four feet or so. Eight feet
up it angled back out to the existing roof edge and wall. I drove
by a month later and sure enough, there was a car parked in the
space created. I don't know what the engineering challenges or
costs were for this, but I know that he sold the home for more
than twice what he paid the first investor. It's a great example
of creative real estate investing.
Getting Creative
Articles and books on creative real estate investing often
focus on financing more than anything else. This is the biggest
challenge for many investors, but don't limit your creativity
to how to borrow or find a down payment. You can also get creative
in adding value to the investments you make, as the examples
above show. Look for creative alternatives at every step in the
process.
Once, to save money selling a small piece of land, I skipped
using a real estate agent in favor of just offering good terms
to potential buyers. This also got me a higher price. I closed
the deal sitting with the buyers in a restaurant (not recommended
these days - get an attorney or closing company), which saved
me the cost of a traditional closing.
Years ago a friend bought a home and wanted the small forest
on it thinned. He sold half the trees on it to a lumber company
for several thousand dollars, and they did all the work removing
them and cleaning up. Afterwards it looked the same to me, which
made me wonder if there are opportunities around to buy land,
sell the resources (another local sold the gravel that made up
a hill on his land), and then sell the land for as much or more
as the original price paid.
To get creative in finding properties you might train your
kids to screen listings online and refer the good ones to you.
To finance deals you could buy a smaller home to free up equity
for investing. Creative offers can include services or things
other than money as part of the down payment. You can change
property uses to increase value. Making a duplex into a single-family
home sometimes makes it more valuable - or vice-versa, or splitting
off part of the property. When considering more creative real
estate investing don't limited yourself to finding new ways to
finance property.
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