I really like real estate. I like the way it is such an integral part of wealth creation. I like it so much, I can’t help but play with it. For me, that means buying properties and doing something productive with them. But, I don’t like real estate so much that I want to lose money for the privilege of playing with it.
I am also in a tiny market. In 2009, there were only 125 sales of homes in the whole Lake Chelan area. There were just 2 sales of commercial properties all year! There are about 100 agents and even with just the top few making most of the sales. I would have to do virtually every transaction in the area to make the income I desire. So, generally I make far more from the profits on what I develop than I do from selling other people’s properties.
That is one of the reasons that I run my own real estate agency. I am virtually unemployable at other brokerages because my cost to pay a point or two to a broker on all the sales of inventory I created on my own would be more than I would make in commission selling other folks properties.
But, last year I didn’t create a single new parcel, home or business. The footing just felt too unsure. That means I have a few properties I’ve just been sitting on. There’s not much profit in that. So, I’ve been rethinking how to make money with those bits of real estate and found some opportunities are out there. For me, it is time to get some projects moving.
The opportunity is as easy as taking something that isn’t doing anything and making it turn some profit. For example, I have a bit under 10 acres along a highway and across from a large boat launching facility I had originally purchased to do some commercial development on. Today, it just doesn’t make sense and I don’t expect it to for several, or many, more years.
But, rather than being insane and spending millions on commercial improvements that nobody would want right now, the planned development for this property also allows me to make it into other things including a mobile home park. There’s demand for a mobile home park and this one even has beautiful lake views. To create it takes far less investment and it can generate a very respectable rental income. Wacky government agencies and non-profits will even pay to help people live there. Who knows, somebody might even want to buy it. Or, I can sell off the individual living spaces. Any of those things make me money. All of them can make for a handsome overall profit on a property that I bought even when the market was above where it is today.
Since I can’t count on luck, flexibility and creativity have always been requirements for making money. Skinning cats in development is simply being able to sell what people want to buy. What people are buying today is a huge shift from a few years ago. But, they’re still buying or renting something. I finally understand the current market well enough to create product for it that will have appeal whether the market improves, declines or hangs on as it is. In this market, I also have to have plans to be able to succeed that are interest rate proof.
Even so, I have some options that look promising on my other properties as well. I should have them well in hand by the middle of the year. At that point, I will probably create a bit different type of inventory by starting another business I can sell when the economy ticks up.
So, I’m off down the road doing something I do well. I’ve been really busy and a little quiet on BHB lately. But, I’ll chime in a bit more about how all this proceeds. Some of the projects involve aspects of selling that I don’t usually associate with real estate marketing. But that will make the discussion on them all the more interesting. How about the other hounds, are there opportunities to create product in your markets?
Teri Lussier says:
Hi Al-
In my city, we have the issue of demolition of homes, and the resulting vacant city lots, and I spend some time discussing best uses for these lots. It’s a serious problem. Obviously rebuilding would not be wise right now, but I can think of a multitude of other ways to put an empty lot to work making money. Zoning, neighborhood associations, a lot of usual hoop-jumping involved, but there has to be some way for entrepreneurs to use these lots.
January 16, 2010 — 11:38 am