Every real estate investor runs into a lemon of a deal at some point in their career. This will cause some investors to go sour on real estate, but the smart ones turn that real estate lemon into lemonade. The lesson I am going to share, could be worth a fortune over the course of your real estate career. It will show you how to overcome the obstacles that a property with undesirable characteristics can present.
Despite your best due diligence, sometimes, when you go to sell or rent a house, something pops up that you didn't expect but can be a huge deterrent to most buyers or renters. Far too many novices simply drop the price drastically and beg for someone to take over their real estate disaster. However, as you will learn from this training, with enough creativity, you may actually be able to turn that problem into a selling point. Here's how to turn real estate lemons into lemonade...
Get Creative With Undesirable Real Estate
At some point, every real estate investor runs across a deal that has characteristics that are undesirable to the vast majority of potential buyers or renters. In this blog, I would like to share how to turn those real estate lemons into lemonade. Specifically, I want to share how to overcome difficult deals with creativity.
1. Celebrate Your Problem
Instead of hiding behind a problem, you must learn to celebrate the problem. This can be done just by the way you describe the property in your ads. Mention in the ad how some of the current problems could become benefits. You can even market directly to people that would not consider the characteristics of the property undesirable.
- A property located near train tracks would be considered an undesirable characteristic to most potential buyers. If you were to find a great deal on a property that is right next to the train tracks, you could turn the problem into a benefit by marketing the house to employees of the train company. You could also put out an ad that highlights how easily accessible the property is to the train system. Obviously, if you're in a major city being close to the subway system can actually be a huge benefit. You can celebrate it.
The Millionaire Mind
- Another example comes from the book “The Millionaire Mind”. In the book, a real estate agent was trying to sell a property that had an exterior siding of cedar. Woodpeckers would peck on the cedar, making tons of small holes in the wood. For the majority of buyers it was a complete deal breaker. But the agent got creative and sold the property to a lumber company executive that wouldn’t be caught dead living in a brick house. The real estate agent celebrated the home’s uniqueness.
Upside Down Loan
- A common example is when a seller buys a property from a builder and decides to sell it a few years later. Even if they paid for some upgrades and have a low interest rate on their 97% loan, they’re often stuck. They can't sell the property because after they pay closing costs and 6% in commissions they're upside down in their loan. This situation is perfect for a creative real estate investor who celebrates the fact that the home is practically brand new instead of focusing on it not having any equity. The property can be structured as a subject-to and sold as a rent-to own.
2. Overcome Your Issues
Another way to handle a property with undesirable characteristics is by finding creative ways to overcome the issues. If we go back to the train tracks example, you could offer a BOSE noise-cancelling headset or HUSH earplugs with purchase. Or on a more expensive note, you could put in special noise-canceling windows like the ones used at airports. You can overcome the problem by fixing the problem. The goal is to use creativity to get the maximum sales price, without spending a lot of money.
Examples of Real Estate Lemons
Recent statistics have shown poor cell service is one of the biggest deterrents for home buyers. If you are trying to sell a property with terrible cellphone reception, you should consider something called a cell booster. This device can be ordered off amazon for around $150 and will increase cell reception at your property. This is an easy and cost effective fix to a huge real estate investing lemon.
My Real Estate Lemon
Another example stems from my personal experience with a deal I am currently working on. I have a property that is made up of two structures, like a duplex. At the end of the backyard there is a huge, three story, concrete brick wall that actually touches one of the structures. The problem with this property isn’t the home itself, but what lies behind that wall. I would consider this property a lemon because it has a strip club located directly behind it. Three days ago, I received a full price offer on this house. The people loved the home but were curious what was behind the wall, so a few days after making the offer they drove around and discovered the strip club. Today, I received a cancellation notice I have to sign. Those buyers are running from that deal.
Solving the Problem
Now, I have decided to try to solve this problem in two ways. First, because there is a strip club touching the property, I am attempting to get a variance or special exception for zoning use purposes. I could definitely increase the property value if I can change the use of the property. If I have to go in front of a planning committee,I plan on asking for a show of hands from everyone who has a property that touches a strip club. When only my hand is raised, I will be able to set the stage in showing them that I have a very unique situation.
Overcoming the Lemon
I also plan on “overcoming” my real estate lemon by marketing with flyers and direct mail to get in touch with the people that own and work at the strip club. It is important to find creative ways to gain interest in your lemon properties.
The owner of a strip club could purchase the property to lease it out to some of his workers. In a way, I'm just trying to overcome by celebrating the fact that the property exists. Just because it is undesirable to the majority of potential home buyers, doesn't mean I can't sell it at full price. It just takes some creativity with the constraint of integrity.