Perhaps the best investments that I have ever personally done or helped investors with are the manufactured investments. As the world renowned personal developmental instructor Jim Rohn would always say, “Imagine the possibilities; turn nothing into something.”
As the markets tighten, seasoned investors are less affected than others. They excel at manufacturing deals that do not currently exist. Over the past several years, you could find great investments with good returns almost anywhere. Now, with higher prices and tighter supply, those who have the ability to think outside the box can create a great deal.
Creating an investment
The two-bedroom home conversion
Most buy-and-hold investors of single-family homes want a three-bedroom, two-bath (or larger) home. Their exit strategy is to sell to the end user for retail pricing, and a 3/2/2 will best accomplish that. Of course, with higher prices and low inventory, these deals are hard to find.
I currently reside in the Sarasota, Fla., area, and I can assure you that here, investors are going crazy trying to find investments of this nature. Meanwhile, two-bedroom homes are of low interest and tend to sit on the market for a longer time.
Converting interior space on a two-bedroom house to make it a three-bedroom.
The solution is becoming apparent here, I know: convert a two-bedroom to a three-bedroom. You can buy the house cheaper, it has less buying competition, you can rent it out for more money as a three-bedroom, and your exit strategy is still intact. Best of all, you have created the infamous ”value play.” I am not talking about adding a room, but simply converting interior space to accommodate a third bedroom. Obviously not all houses will be a good fit for this, but I have done this value play many times.
Recently I searched for two-bedroom properties (I always search for 1,500-square-foot or larger ones, as these are more apt to have the larger space to accommodate a conversion). I found a house with just over 2,000 square feet. It had three bathrooms, and yet it only had two bedrooms. With 2,000+ square feet, the likelihood of it accommodating a third bedroom was high, so my investor and I looked at it.
The home was in a great area, and all the rooms were large. We were impressed to see the home had not just one but two Florida rooms that had been converted into heated and cooled interior space. The solution was very simple. Close one of the rooms off and add an entrance door and a closet and voila! The property is a three-bedroom home with three baths and a garage.
So my investor picked up the home for $159,500 and spent less than $5,500 to convert the property and take care of a few minor fixes. He is all in it for $165,000 which is easily $35,000 to $50,000 below the value of neighboring three-bedroom homes. He leased the place for $1650 per month.
Now, this is not a braggadocio’s cash flow machine. It clears the “1 percent rule,” but my investor’s “win” is in the exit strategy. While he could have sold this for a quick $35,000 profit, he understands that in an increasing market he can afford to hold it and watch values climb until the market suggests it is the optimum time to sell. Watching market changes is the key component in capitalizing on this type of investment strategy. Either fix and flip or make sure you watch the market and sell at the optimum time. Hint: while there are many things to watch for in market shifts, when an average “days on market” statistic hits 28-30 days, you may want to be ready and positioned to sell.
Converting something to its highest and best use
Larry converted this four-unit property into a four condo units.
The under-performing property is always a great place to look.
A property that is not being used for its highest and best use is always a good place to make great cash flow and or great equity growth. The transitioning areas are often missed by regular investors, so savvy investors have no competition here.
Finding houses or small apartments buildings that are located within the path of progress that can easily be “given a coat of lipstick” can create quick cash flow and equity build-up. A simple coat of paint and perhaps some granite countertops and new appliances, along with inexpensive cosmetic upgrades, can transform a low-cash-flow property from a lower-income tenant into a higher-priced, higher-cash-flowing upscale tenant (watch for path of progress).
You may have read my example of buying a four-unit property that was better served as individual condos.
Here is a side view of the fourplex that Larry turned into four condo units.
The short version is that I purchased the four-unit, had an architect’s opinion drafted, had a survey taken and had an attorney create condo docs and draw up the paperwork.
That cost about $7,000 in administrative expenses. I converted a $26,000 down payment on a property I bought for $455,000 into four condo units appraised at $175,000 (4 x $175,000 + $700,000).
This condo conversion, like all great investments, may require a little outside-the-box thinking. Serious investors are always finding these deals. They have little to no one competing with them.
For the active investor who wants to be engaged in the process, there are many ways to be creative and create great investments.
Visit Larry’s website here.
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