Middle Class Millionaires

Just as short-term and long-term real estate profit goals tend to lend themselves to specific types of opportunities, so do mid-term investments. Fort most real estate entrepreneurs, “mid-term” investments generally last between 2 to 5 years. This period provides adequate time to for appropriate property investments to fully mature. The ability to take the requisite time is necessary to fully reap the profit potential of certain properties and investment types. The most common investments for this time range include:

1. Subdividing land. This is the process of purchasing raw land and facilitating the process to legally create a number of smaller parcels from one larger tract. In addition, this process includes the appropriate change of zoning to allow for a higher demand for the parcels and consequently the profit generated from the sales of the land.

2. Developing land. Development requires the engineering, infrastructure placement and construction of certain elements. By stubbing utilities to individual lots and building in sewer, runoff and typically roads, curbs and gutters, etc. a developer is able to add value to the subdivided land once again increasing its demand, functionality and marketability. Typically, but not always, subdivision and development are done simultaneously.

3. Re-developing existing properties. Redevelopment is the process of purchasing property currently used for one purpose and then facilitating its use for another purpose, thus achieving highest and best use. For example the purchase of a single family home on a lot large enough to hold multiple units. In a case like this the existing property would be razed and higher density units built. This is often done when adjoining properties are purchased, combined and used for the build out. It is necessary to have proper zoning available to the land in question.

4. Conversion. Conversion is the process of changing the ownership makeup of a property from one type of ownership to another and then selling the parts/units of the property. You will recognize this as condominium conversion. Don’t forget that this type of conversion can be done with residential, commercial, retail, light industrial, warehouse property etc. Don’t limit your search for appropriate properties just to apartments.

5. Build outs. The opportunity to purchase a large foot print property, then partition it, or build it out, for multi-tenant use provides an outlet for large properties that have outlived their usefulness in the original form, but have utility for individuals or businesses who need smaller space. This is often done with warehouses, big box structures, large commercial and retail spaces.

6. Purchase, revenue development and sale. As you know, if you can buy a property that is under rented, increase the ordinary operating income without increasing the traditional operating expenses, you will increase your NOI. With an increased NOI, the value of the property will be increased. It is important that you assess this potential carefully and include the costs of lending and holding time.

That’s a boat load of information and opportunity in one blog entry. Still, I hope it generates some thought and research on your part that will in turn produce opportunities to meet your goals with real estate. While there other investments that might also fit into this time frame, those mentioned are the most common and traditionally the most profitable. Good luck in your career. We’d love to be of help if we can.