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Finding Properties With Equity or Create Equity

Forget “Finding” a Great Deal!  “Make” a Great Deal!

There are many times where you just cannot find a “distressed” property or are unable to negotiate a low enough offer to buy a house with equity.  In these situations, you must be able to figure out how to create your own equity or “make your own deal”.  

Sometimes, you just have to create your own strategy.  Before implementing this new strategy, research your local construction costs, mainly in the realm of building additions, such as adding a new family room, bedroom, bathroom, etc.  

So, let’s explore the following scenario.  The proposal is that we intend to create equity in a property in order to make it a profitable investment.  

First, research a certain zip code or local area.  Let’s say the analysis calculates the cost of an apartment complex or office building (purchase price) in that area as $200 per square foot.  The best target area, is an area that may be an up and coming area.  For instance in the SFR market, target your direct marketing letters to residences that are 2 bedroom and 1 bath style.  The intention here is that you can make a nearly full price offer for their home BUT your plan is to “CREATE EQUITY” after purchase. Imagine what can be done if you scale up the concept to an apartment complex!

If the cost of construction can be managed at $100 per square foot, to add value by adding space that will retail at $200 per square foot is a great method to add equity to your deal.  For instance, adding another 1000 square feet to a 1350 square foot house may push the retail value of the home by over $200,000!  This strategy works really well in older neighborhoods with large lots but is certainly applicable in the commercial realm as well.

Midrange 2015 National Averages (SFR’s):

Upscale 2015 National Averages:

Upgrading a property may sound appealing, but is it an enhancement that provides a good return for the money or is it a negative investment providing a return somewhere else?  The chart below, 2015 Cost vs. Value Report, by Remodeling Magazine provides some insight to the age old question.  

Please remember, these are national averages and not everyone is a competent project manager.