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Real Estate Profits from Under-Utilized Properties

(An excerpt from 69 Ways To Make Money In Real Estate)

By - 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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