4. Potential for expansion and additions.
A major consideration in real estate investment is seeing a diamond in the dirt. That means seeing an unappreciated gem which seems neglected so that once you make cosmetic changes the value improves. Can you reorient through renovation? – My real estate advisor tells me that this often represent great potential and excellent returns. The example I gave earlier of a friend who purchased a dull property sited on a large piece of land – that he then converted into cluster homes illustrates this principle perfectly.
Most Zimbabweans will remember that in the 1990s a building society was selling some lousy one roomed houses which many despised. Others who were keen investors saw the potential of getting these as core houses which they then expended into significant value. Others discovered this when it was too late and the properties were now being sold for their potential.
A year ago we bought an incomplete house which was structurally sound and needed just some reorganization. The pool was just dug out but not completed, the painting was lousy, most of the bathrooms where abused and the landscaping was not complete. We bought the place for about a quarter of a million and invested about USD100,000 to reorganize and complete. Recently the property was revalued at over half a million dollars worth.
Many people think of buying expensive and completely beautiful properties and they do not realize that this way they pay premium for the property. In investments you pay for convenience and laziness. My real estate advisor tells me that the landscaped garden contributes 30-40% of gross value of a property. And yet if you acquire a property which is not landscaped you may be able to have it landscaped at only 10% of the cost and so save at least 30% of the purchase value.
Investors are prepared to buy cheap and then value add. Avoid expensive and beautiful real estate. They seek to unlock value and ride on inflation.
For people who buy and sell real estate its always wise to buy a diamond in the dirt, renovate, reorient, add security and timely and strategically get out. This way one makes money out of thin air quickly.
Here are simple ways to add a value to a property cheaply:
1. Renovate bathrooms and kitchen
2. re-paint it
3. Place new carpet and /or floorboards
4. Landscape gardens,
5. Clean up & tidy
6. Improve security