Real Estate is Still a Great Investment

September 10th, 2010 · 4 Comments · Buying or Selling Your Property, Commercial Property, Property Management, Rental Property

Profits are still out there!

It’s starting to happen, everywhere on the web and in the newspapers there’s doom and gloom about the real estate market. Today on Thicken My Wallet there’s a post asking Is Real Estate Is A Good Investment?. It’s time to go shopping that’s what I say!

I already did a post about this in March at MillionDollarJourney called Making Money In Real Estate.

Real Estate is Still A Great Way to Make Money

There are lots of ways to make money in real estate and appreciation is definitely NOT the only way. It is the lazy stupid way to make money in real estate because it doesn’t require any skill except for having a down payment and qualifying for a mortgage. You just buy a nice property and wait.

Smart Investors Have Made Much More Money

None of the people who have ever hired me to bring back their distressed properties and make them tons of money in the process have ever used just the appreciation strategy. Most of them got their places in that condition because they were unwilling to maintain their property until I convinced them that they could make more money by spending on their asset to increase the rents and value.

You can for wait for a good long while for your property to appreciate or you can raise the rent 100$ per month and make $20,000 in equity improvement in one fell swoop. Nice Eh!

Value Add Properties are Much More Profitable

Under rented, stinky, crappy, properties so horrible that your feet stick to the floor with every step can be had for bargain basement prices. So who cares if that shitty property sucks… you don’t live there! As long as you can make money off it. The owner’s losing money on that building every month and you’re buying the shell, you can put whatever you like in there and fix up what’s still good. You can even make a transitional plan and fix things in stages.

Aggressive Property Management is The Key

These properties require extremely active property management. What does that mean?

  1. Knocking on Doors
  2. Getting Cheap Contractors and Supervising Them
  3. Evicting people who don’t pay rent
  4. Selecting the best tenants that show up
  5. Eliminating Vacancy

What Kind of Profits ?

The last property I managed like this increased $500,000 in value in one and a half years. It sold for $2,200,000. The owner had it listed for $1,900,000 but would have sold it for $1,700,000 initially. It didn’t sell because it was too gross, too empty and in a bad area. It was listed about 6 times before I started managing it. The new owner had it back on the real estate market for $2,800,000 about 3 months after he bought it.

It is possible to make money in real estate!

Appreciation is just one of the tools you can use to profit. There are many other tricks and techniques to succeed!

If you like this article feel free to sign up for my email subscription (top right) and RSS feed. Today’s message is hope and a wise quote from the ultimate value investor Warren Buffet. “Be fearful when others are greedy and greedy when others are fearful”

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4 Comments so far ↓

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  • CanuckLandlord

    I agree totally. If you’re not willing to get your hands dirty, or willing to pay someone else to do the work for you, then actively owning real estate isn’t for you. Try buying REITs instead.

  • Thomas Beyer

    This is EXCELLENT advice !

    A property sells as a multiple of rent. Rent is higher means value is higher .. A LOT HIGHER !

    As a rule of thumb I use factor 100: if rent goes up $1 per month value goes up $100 [ based on an 8% CAP rate i.e. 12 months times 1 / 0.08 ]

    Thus, on an average 20 suiter, if you can raise rents modestly by $100 per suite per month through some modest improvements [such as a new sign, paint, carpets, mailboxes and site manager training], better management and marketing the value of th2 asset goes up 20 * $100 * 100 = $200,000 !!

    HUGE !!!

    very doable .. and the basis for our success over the last decade in W-Canada !!

    • Rachelle

      Yep, people who think there is money to be made in appreciation have no understanding of this concept. Not that there isn’t money to be made in appreciation, but it takes an long time. This is why I love disgusting beat down buildings so much 🙂