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Making Money With Unique Properties

By - 2005-2013

Real estate in general is a classic "inefficient market," which means information is not uniformly available to everyone at all times, as it is (for the most part) with stocks and other efficient markets. In part this is because for all of the similarities that pieces of land or homes or commercial buildings might have on paper, there are no two that are really the same. One block over might be worth an extra few dollars per square foot. In other words, putting a price on a house or a farm or a strip mall is always a bit of art as much as science.

This is especially true with unique properties that cannot easily be compared even in the most basic ways. For example, I once lived near a house that was shaped like a flying saucer. Do you think a buyer will just count the bedrooms and bathrooms to compare this possible home with others in the same neighborhood? Some homes have insanely steep driveways. Others are built underground. If the unique features they have are in demand, these homes can sell for a premium. If not, they will sell for less. In almost every case, however, they take more time to sell because of their uniqueness.

This inefficient market means that it is especially difficult to put a price on these properties. I suspect that with some of them even trained appraisers would be 50% apart on their estimate of value. That's a problem on the one hand, both for appraisers and for owners who cannot have any real faith in the guesses the professionals will make. But where there is a problem there is almost always an opportunity as well.

High potential risk can also mean high potential reward. And for an investor who gains experience dealing with these oddball investments, the risk goes down, making potential profits even higher. In other words the investor who can most accurately predict what these properties will sell for (or most accurately guess), has the least risk and the most potential to make a profit. Not many sellers or buyers will have experience in pricing flying-saucer-shaped homes or underground hideouts. This means that you, as an investor who studies the possibilities and is willing to make low offers, have a good chance to buy at a good price and sell for much more.

A True Story About a Unique Property

The billionaire Richard Branson, founder of Virgin Records, Virgin Airways and dozens of other businesses, was in the Virgin Islands with his wife, looking at small islands for sale. As he told the story, they had no intention of buying one, but their trip was paid for by the real estate company as long as they were looking. It was a way to get a vacation at a time when they were short on cash.

One particular island caught their imaginations, however. It was lush and green, with a lake, and a nice beach. Branson decided that he did want an island after all. He asked about the price, and was told it was three million pounds. He offered 150,000 pounds. The agent repeated the asking price, and Branson said he would pay 200,000 pounds, and no more.

According to Branson, the vacation was over at that point, and their things were put outside of the hotel room. Offering 93% less than the asking price apparently offended the agent. However, the story didn't end here.

Later, back in England, Branson looked up the owner of the property who, interestingly, had never been to the island he owned. He was anxious to sell, so Branson offered 175,000 pounds -- halfway between his previous two offers. The offer was rejected. But several months later, after no better offers came through, the owner agreed to accept 180,000 pounds, and Branson found a way to borrow the money. He bought the island for just 6% of the asking price.

This is the kind of reward you can get for shopping in inefficient markets. I imagine that even at 300,000 pounds the island would have been a great deal, and anyone who offered that during those three months of back-and-forth between Branson and the owner would have gotten it for that. You might look like a fool for asking for a 90% discount. But maybe looking like a fool is a risk worth taking for deal like that. You never know until you ask.

With unique properties, nobody is really certain what the value is. This is why if you're are willing to take the risks, and lower the risks by knowing more than the other players, you can make a lot of money with them.

Of course the other side of the process here, if making money is your goal, is the selling of the property you have bought. You have to have a plan for that. You also need the ability to be patient, since these types of real estate might take as much as several years to sell.

One way to make this work with unique homes is to live in the home while you are preparing it for sale and waiting for the right buyer. If you live in a house for two years you also get to pocket all of the profit tax-free when you sell. meanwhile you save the cost of holding onto an empty house while paying bills on another residence.

We had a house once that had a little house-like structure in the back yard, with two small rooms that would make a perfect artist's studio. It also had 220-volt power and a mechanics pit in the garage, and a cement-block root cellar. We sold it for a small profit when we moved, but perhaps we could have done better marketing the home to artists, mechanics, or survivalists. Think about who might value the unique features of a property before you buy it, and try to have a plan for marketing to that group of potential buyers.


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Houses Under Fifty Thousand | Unique Properties