In the real estate world, there are two basic ways to get more deals. The first is obvious: to go out and find properties through marketing, networking, and hitting the pavement. The second is unconventional, but lucrative with the right approach: make better deals out of the properties you’re already looking at. There’s no such thing as a bad property, only a bad deal.
Take an Unconventional Approach to Property Buying
Most of our investor clients built their business the traditional way: finding a motivated seller, buying properties below market value, adding value, and then renting or selling at market value. This works well in the beginning. But, our best investors are also very creative, and are always hunting for new ways to make money from otherwise unworkable deals.
This approach is not about spending a ton of time trying to make a deal where none will ever exist. This is about having a process for analyzing otherwise dead deals, and putting them through the creative lens before tossing them into the scrapheap.
Our two-step process focuses on creatively viewing the deal structure, and finding hidden value in each property.
Creative Deal Structuring
Each real estate transaction is unique. For creative deal structuring, we take a critical look at what the other side really wants and needs. Then, we examine what is possible legally and financially. Some questions we look at in creatively structuring a deal could include the following:
- Does the seller need cash now, or can they wait to be paid over time? Does their mortgage need to be paid off, or can it be left in place for now?
- What about your lenders? Is the loan-to-value ratio too high to get the money you need? Maybe your lender would consider a joint venture partnership?
- You’ve heard of an owner’s title policy, but have you ever heard about a contract vendee title policy? This is a policy that insures the deal at the contract stage rather than at the closing. If a seller needs the contract deposit before closing, something like this could make it work.
Finding Hidden Value in the Property
You should never squander the potential value of a real estate property by ignoring the option to be creative and find the property’s optimal use. But, we take this principle a step further.
We take a critical look at the property to discover ways it can generate cash beyond the traditional sale or lease. Sometimes, there are things other than the real estate that can generate money in a sale for an investor. There is also potential for additional streams of income from a rental, such as laundry services or percentage rent structures. These are some of the factors that we look at in uncovering the hidden value of a property:
- What types of uses does the zoning on the property allow? Are there any easy ways to change or expand upon that?
- What type of user (commercial or residential) would find the location of this property most appealing? Are there any parts of the property that are currently un-used or under-utilized that can be put to work?
- Is there any personal property in or a part of the property that could be sold separately to generate more income?
- Does the property offer any opportunity to offer services to the tenants that you can provide to increase the cash flow potential of the property?
Creativity Doesn’t Necessarily Mean Building Improvements
I’ll never forget the time when a client of mine was able to raise the asking rents on an office property she purchased just by naming the building. The property was a historic structure, and she did a little research in the local library. Upon doing so, she discovered that the building was once owned by one of the town’s founding fathers. With that bit of history, she had gold leaf signage made for the building with the historical name. Now, she owned a local landmark.
This newfound prestige paid off in droves. She had higher-end tenants battling for office space, and generated far more cash flow than she would have without reviving this historical connection. This improvement cost her an afternoon in the library, and continues to pay her a premium to this day.
Taking the Creative Real Estate Initiative
The fun part about real estate (other than making money) is the ability to be creative. As you get more experience, you’ll see more and more ways these deals can get done. Then, at some point, you’ll find a deal where you can do it differently.
If you can’t wait and want to get creative right now, you either need to educate yourself, or get someone with experience on your team. There are plenty of resources out there on creative real estate, and we analyze these variables for clients daily. I’d encourage you to take a look at some of the resources on our website to get your creative juices flowing. Also, creative real estate investing is always a hot topic at my regular Q&A sessions (which are often recorded and posted to our YouTube channel), so I would encourage you to sit in on one or more of those if you’re interested.
Find New Opportunities With Real Estate
Before you pass on the next otherwise “dead” deal, put it through your own creative process to see if you can make more deals from what you’re already looking at. If you need some help getting started, or would like to test your ideas against our experience, then feel free to give us a call. We live for creative real estate, and would be happy to help you figure out if there’s a way to make lemonade out of your lemon deals!