Investment Specialist, Team Denver Homes - RE/MAX Professionals.
Highly successful real estate investors learn to get creative to maximize their investments over time. Most investors tend to follow the standard playbook: find a property in the MLS or an off-market property through a wholesaler; buy it with a goal of earning ongoing income or letting it appreciate in value until they’re ready to sell.
There’s nothing wrong with this approach. You can build a solid portfolio by sticking to the tried and true. But people who think outside the box are more likely to find unique and profitable real estate opportunities. Here are four creative long-term strategies that can help you get the most out of your investments.
Strategies For New Real Estate Investors
If you’re just getting started in real estate investment, these plans are lower risk and don’t require advanced knowledge:
1. Buy a single-family home on a lot with multi-unit zoning.
If you want to purchase a single-family home, pay attention to zoning. Buy a single-family property sitting on a lot that is zoned for multi-unit development — such as a duplex, triplex or apartment complex — and you will have several options for increasing your ROI:
• Rent out the single-family home for consistent income, and when you have the resources, scrape the house and build a multi-unit property on the lot. You can choose to sell the entire property for a profit or keep it and continue to rent out multiple units to different tenants.
• Hold and rent the single-family home, then sell it to another developer who wants to build a multi-unit property on the lot. Even if you do nothing to the house, you will find buyers willing to pay a higher price than for a standard single-family home on a residential lot.
Look for this type of zoning opportunity in up-and-coming urban neighborhoods or areas on the outskirts of town that are being redeveloped. Walk around city neighborhoods that used to have a lot of commercial or industrial activity, and are now being transformed into hip places to live and work. If you see a handful of single-family homes that look out of place among multi-unit properties, these stragglers are a prime target for future appreciation.
2. Buy a multi-unit property near an area marked for development.
Learning to plan ahead is the best skill you can cultivate as a real estate investor, and the next best thing to a crystal ball is the planning and development department of your city or county’s website. If a major new development is in the works — for example, a commercial district with restaurants and boutiques or a mixed-use area with retail, residential and office spaces — a planning permit will be listed long before construction begins.
Take advantage of this advance notice to search for multi-unit properties needing some renovation within walking distance of the new development. You can purchase them for a modest price before the development goes up, and in a few years’ time, your rental rates will increase significantly because of the high-demand neighborhood, even if you don’t update the units. If you do refresh them, you can do the work one unit at a time while renting the others out to spread out your expenses and maintain cash flow.
Strategies For Experienced Investors
If you have already purchased several properties, these more advanced long-term strategies can help you expand your portfolio:
3. Buy parking lots during the economic downturn.
Parking in high-traffic urban neighborhoods is normally sought-after and therefore expensive. But prices have dropped in the past year due to the pandemic. You could have easily paid $20 or more per day to park in downtown Denver or Atlanta when people were commuting and traveling in dense areas, but now the demand has disappeared, and you might pay less than half that price.
The same trend is affecting parking lot real estate. Prices are dropping, as owners — especially those who have multiple parking lots — are trying to sell their properties to mitigate financial losses. Now is an excellent time to buy a parking lot at a reduced price, with the realistic expectation that you will get a higher ROI in the near future, as more people are vaccinated and city traffic picks back up. Parking lots offer both short-term and long-term benefits: continuous income from parking fees and high resale value for potential developers.
Purchase as close to the high-density areas of a city as possible. Imagine the most desirable neighborhood is the bullseye of a dartboard. If you can, go for the bullseye, but if not, move one ring outside of it.
4. Buy a single-family home near a university with zoning to build an ADU.
A single-family home with an additional dwelling unit (ADU) on the property is a major selling point for buyers today, and it is especially appealing for homes in neighborhoods near colleges or universities. I have a listing now in the Regis University neighborhood of Denver, and though it’s just a regular single-family home, its zoning allows the possibility of building an ADU. Buyers are extremely interested in this potential and willing to pay more for the ability to build an ADU to rent out.
I’ve worked with many families that buy an investment property near their child’s university. In these situations, the parents often handle the down payment or act as guarantors, but the child is responsible for covering the mortgage. The student would love a property with an ADU to offset their expenses and provide additional income.
Be mindful that families probably don’t want to build the ADU themselves. But if you buy a single-family home in a college neighborhood that has proper zoning and build the ADU before you sell, you’ll offer two move-in-ready properties in one — a very appealing prospect and an ideal opportunity to boost your ROI.
As you develop your real estate portfolio, keep the long game in mind. Explore creative investment strategies that reward your patience and ingenuity.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?