For over thirty years, I’ve paid my bills as a commercial real estate appraiser. Over that time, I’ve gained an understanding about what separates the really successful real estate investors from the rest.
The common theme among them is this… they add value.
One of the best examples I can provide is this one…
The partners at a real estate office where I worked years ago purchased a vacant piece of land from a church for less than $300,000. The parcel sat just off of a corner where they need a road was going to be extended.
The property was zoned residential, but they convinced the local township commissioners to re-zone the property for commercial use.
This process took a good period of time, but they were patient, as they all made good money with their bread and butter… selling properties and residential development.
Once they got the site re-zoned, they put together a development plan and constructed a shopping center on the site with a grocery store anchor.
About 6 years later, they sold the property to a REIT for nearly $18 million and this netted each of the partners over $2 million.
Successful home flippers also know how to add value. They will identify a home that needs some work where there is significant upside.
Recently, in my own neighborhood here in Rockville, Maryland, a home flipper purchased a nearby small ranch dwelling back in January for $240,000.
They remodeled the home, but not spectacularly, and just sold the house for $455,000. I am guessing they netted at least $100,000 on the project.
The most extreme example I can personally give is a redevelopment project I’ve witnessed in North Bethesda, Maryland known as Pike and Rose.
This property was originally improved with a typical community shopping center with a couple hundred thousand square feet of space or so.
Federal Realty, a local REIT, purchased the property, razed the center, and built a new downtown area where there was none before. The site is now improved with high rise office, apartments, condominiums hotels, retail, and an auto dealership.
Pike and Rose development
Typically, what I see the not so successful real estate investors do is buy a cheap property in a less than desirable neighborhood, throw some paint on the walls, and try to raise the rents.
What they end up with is high vacancy and tenants that don’t pay the rent, and they end up selling the property at a loss.
I’ve seen very few people build wealth by buying cheap properties. Cheap properties are cheap for a reason… there is either something wrong with the property itself, or with the neighborhood.
With this in mind, if you want to become a successful real estate investor, figure out how you will be able to add value.
Do you have the ability to spot hidden gems?
Do you have the ability to spot future trends?
Can you do significant repairs yourself?
Can you identify value?
I’ve also watched many of these successful investors start out small, make smart investments, and gradually build wealth through building a portfolio of attractive properties.
I’ve witnessed very few build significant wealth by investing in nothing but ugly cheap properties.
These types of investors often find themselves with a huge pile of debt, poorly maintained properties, and not enough cash to pay for needed repairs.
As a result, many often file for bankruptcy.
Some people just have a knack for investing in real estate, whereas others just struggle.
It takes a lot of patience to be successful in that game, in addition to the ability to add value.
Thanks for reading!
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