Real Estate Profits from Under-Utilized Properties
(An excerpt from 69
Ways To Make Money In Real Estate)
By Steve Gillman - 2005
Why target under-utilized properties? This strategy may lead
to a "diamond in the rough," on which you can make
a lot of money. You could also spend a lot of time searching
for these profit opportunities.
My wife and I looked at an old house once. It was definitely
an under-utilized property. We were just thinking in terms of
living in it. It had two bedrooms and a full basement. It also
had an extra lot, with a mobile home on it. Since the mobile
home was beyond repair, hauling it away was just an added expense.
We passed on the property.
When it was finally sold, the first thing the new owners did
was put a livable mobile home in place of the old junker. Apparently
the zoning either allowed for this (I thought it hadn't), or
the new owner convinced the township that allowing a new mobile
home was better than leaving that eyesore that was undoubtedly
"grandfathered" in the zoning.
The power pole, water lines and septic system were already
there, so the new mobile was soon ready to rent. The home wouldn't
have cash flow if rented alone. However, this additional $25,000
investment probably added just $150 per month to the cost of
the financing, and rented for around $550. That extra $400 in
income might have turned this house that was ignored by other
investors into a great source of cash flow.
There are usually some properties around that are not being
fully utilized. You might find apartment buildings with extra
land for the second building that was never built. You might
find houses that can be easily added to for additional rent.
Some large apartment buildings may not have laundry facilities
and storage space for rent for their tenants.
Of course, you can get more creative in changing a property,
but there is an easier way to use this strategy. Just look at
properties with a couple simple questions in mind. First, "What
do other similar properties have that this one doesn't have?"
Second, "What part of this property is not being used, or
not being used as well as it could be?"
Real Estate Profits - An Example
Let's suppose you find a mobile home park for sale. Applying
the questions above, you notice two important things. First,
you see that unlike other parks you have looked at, this one
has 10 of the 40 spaces empty. You also see that there is an
ugly weedy space in the middle that has just a rusted swing set
for the children. You start to think about what you can do to
solve these two problems.
Value is based on the current income, so you know that you
should be able to buy it cheap, and then raise the value substantially
by getting the other spaces rented out. The current owner has
just been waiting for new renters to show up, but you know that
could years. You have a better plan.
You buy the property at a price that gives you a little cash
flow each month. You raise the rent for the spaces by $30 per
month, letting the tenants know that you will be improving the
park. You spend a few thousand dollars to clean the place up,
and to make the ugly area into a park-like setting with picnic
tables and flowers and grass. You add a couple new washing machines
to the laundry building, and paint the signs in the park.
Now for the important part of the plan. You buy 10 nice used
mobile homes for total cost with delivery of $80,000, or about
$8,000 each. You fill up the spaces in this way, and put an ad
in the paper "Nice mobile homes in a great park, for only
$500 down, $250 per month. You sell them for $10,000 each, with
interest of 12%. Having made it so easy for the buyers, within
six months you have sold them all and have income for the spaces
in the park now as well.
By filling the empty spaces and raising the rent, you have
increased the total income of the park by $50,000 per year. Once
a year has passed, the new income will show in the books, so
you can sell the property for $350,000 more than what you paid,
because the higher income supports a higher price. (In many areas,
$50,000 more income would result in a price that is $450,000
higher).
You net almost $300,000 for your efforts. You also are making
a good profit on the mobile homes you bought and resold. This
is how to take an under-utilized property and make a profit with
it.
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