What Are the Risks that Pay Off in Real Estate Investment?

Investing in Potential Pays Off

A few years back, I decided to invest in a property that needed quite a bit of renovation. Many investors were hesitant due to the extensive work required, but I saw potential beyond the surface.

I took the risk, bought the property at a lower price, and invested in the renovations. It wasn't a smooth ride, and at times, it felt like a gamble. However, the renovations paid off big time. The property transformed into a beautiful, modern space, and its value soared.

What I learned from this experience is that sometimes the best opportunities come in the form of diamonds in the rough. It's not just about the immediate appearance but about recognizing the potential for growth and improvement. This venture taught me to be patient, persistent, and to see beyond the initial challenges.

Seller-Financed Flips Can Profit

One risk that I took as a real estate investor was agreeing to have a seller hold the mortgage for me while I flipped their property. In this case, the seller was a hoarder and did not need the money immediately from the property but wanted to sell very quickly. I was able to come up with a deal with the seller at a price that worked for them, and then I received terms that benefited me as a house flipper, which were 80% of the purchase price at 8% interest. I was able to purchase the property for $460,000, and while my contractors were fixing the property, the expected resale value started to go up as this was the end of 2021. I was expecting to put $50,000 into the property and sell it for $680,000, but instead, it sold for $787,500. The challenge with this deal came at closing when I could not locate the seller for a period of 30 days. Because of this, the seller was not signing off on the final closing documents, and I could not get the deal closed for a number of weeks; eventually, he was found and signed off on everything. What I learned from this experience was that it was very important to run my numbers at today's values rather than speculating on what they could be in the future. In this case, I got very lucky that the price point boomed and the profit went up even more; however, it could have very easily been the opposite experience with prices going down to $580,000. In which case, I still would have been okay as I ran my numbers very conservatively when I was purchasing it.

Co-Ownership and Modest Upgrades Yield ROI

Co-owning my first home with my family, we purchased a fixer-upper that was still able to collect rent while I lived in and managed the home. We were able to make small modifications to generate a strong ROI, and it was a great lesson learned in my early 20s about buying one of the not-as-fancy homes in the neighborhood. As the real estate broker as well, I was able to double-end the sale as a dual agent while setting the record for the highest sale price in the neighborhood.

Research and Community Insight Drive Success

One risk that stands out in my real estate investment journey involved purchasing a multi-unit property in an area not typically favored by investors. This neighborhood was undergoing a slow but steady transformation, which many had overlooked. The property itself required significant renovation, adding another layer of complexity and risk to the investment.

To mitigate these risks, I conducted thorough research, including demographic studies and future urban development plans. I also engaged with local businesses and community leaders to understand the area's potential. This hands-on approach allowed me to see beyond the current state of the neighborhood and envision its future potential.

The investment paid off handsomely. Not only did the property's value appreciate significantly, but it also attracted quality tenants, ensuring a stable income stream. From this experience, I learned the importance of looking beyond conventional wisdom and understanding the broader socio-economic factors that can influence real estate markets. It underscored the value of ground-level research and community engagement in identifying unique investment opportunities.