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Creative Real Estate Investing

By - 2006 - 2013

How I bought and sold my first piece of real estate is a story I've told before, and probably somewhere on this website. But it is worth retelling briefly here, because it does demonstrate a couple key principles about creative real estate investing. First, it shows that doing things in a different way can make it easier to sell a property, and at a higher price. Second, it demonstrates the more important principle, that smart investing is about solving problems.

Almost thirty years ago I was working at a chain restaurant for $3.40 an hour. Because I chose to live with my parents I was able to save $5,000 or more. I used $3,500 of it to buy my first piece of real estate. It was a 2.5 acre parcel thirty minutes away from where I lived. I bought it for $3,500, paying cash. I put it up for sale within two weeks.

One thing that I did differently, which nobody seemed to be doing at that time, was to mark the boundaries. I knew that I liked to see what I was buying, and it seemed likely that other people felt the same way. I found the existing corner markers in the leaves and grass, and used sticks painted white on top to mark the lines between them, staying a couple feet in just to be safe (I am still convinced that you are better off understating the size of raw land than leaving the buyer with no visual reference).

Now came the problem-solving part. There are many people who would love to buy a piece of land but don't have even a few thousand dollars cash saved. To solve that problem I advertised on my hand-painted sign, "$4,750! Only $250 down! Payments of $100 per month." I charged 11% interest and sold at full price within days. The small numbers were not so small to me (and this was almost thirty years ago) and with the capital gain and interest collected my annual return was over 20%, which wasn't bad for a first time investment.

Buy low for cash and sell high with easy terms. I've used that formula more than once. It isn't even selling real estate as much as it is selling easy financing. That's why you get to sell above the market value. I had bought the land a little under market, because the seller needed fast cash. His problem was solved. I sold the land a little over the market value because the buyers needed easy terms. Problem two solved. I also did a couple things differently from what other sellers were doing (cleaning up the land, marking boundaries, and outlining a driveway to make visualizing a future home easier).

Get Creative

Here's some other stories. I'll preface the first by pointing out that radio stations, police departments and others need hills to put radio towers on, but they often can't tie up their capital to invest in such properties. That's a problem that one creative investor solved.

This smart investor bought options on hilltop real estate parcels for a few hundred dollars, then found those who needed them, and signed long term leases. With the leases in hand, it was easy to get financing to buy the properties. He invested a few hundred dollars to create years of income.

Lumber mills need trees. A friend of mine helped solve this problem by letting a company cut trees on his small property. They paid him $4,500, and you know what? I honestly couldn't see the difference when they were done. They only cut the prime lumber trees and didn't thin the woods much at all. The property is residential, and was almost certainly worth as much the day after the cut as the day before. He lived there, but a creative investor could buy property, sell half the trees, maybe sell the clay or gravel too (I saw this done on another owner-occupied property), and then re-sell the land.

Suppose a seller of an income property needs the satisfaction of selling for a high price (hey, we all have different problems, and this one is not necessarily as rare as you might think). And suppose you need better terms in order to be sure the property generates positive cash flow. Maybe you can pay more than full asking price if he'll give you low interest financing, and perhaps even interest-only payments for the first few years (during which time you can improve the property and increase the rents before the larger payments start). This is a classic win-win situation

Suppose a seller wants to pay less in capital gains taxes. You might suggest that you can buy the furnishings and appliances separately, so that even though he gets the same amount overall, he has a lower price for the property itself to report on his tax return.

What do people need? Easy terms? Cleared lots? Lumber? Better access to a piece of property? Smaller pieces of land? Condos instead of apartments? The list goes on. When you think creative real estate investing, think about how to solve problems and do a few things differently than other investors.

If you found this article on creative real estate investing useful, you may want to also read the article on creative financing.

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Houses Under Fifty Thousand | Creative Investing