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Creative Real Estate Investing - Some Examples

By - 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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