Pssst - Wanna Be a Real Estate Millionaire? (Part10)

Chapter 10: Other forms of real estate investment

In order not to overlook some of the other forms of real estate ownership, this chapter will briefly discuss many of the areas listed in Chapter 1. Remember these are listed in no particular order of importance. What is important is that you be aware that all of these areas exist and that you can profit in any one or more of them. I will probably not explain each of the following to your complete satisfaction, but at least you will know that they exist and you can then research additional information in those areas of most interest to you.

  1. Condos as personal residences. Most families prefer single-family houses. When real estate markets are hot and prices are high, less affluent families will have to settle for next best – condos. The advantage to condo living is that the association provides all exterior maintenance and the owner is only responsible for the interior of his specific unit. Singles and frequent travelers like this freedom. It’s a step-up from apartment living where the tenant only has a canceled rent check to show for his expense. The condo owner can accumulate equity in the unit and later sell to another buyer at a profit. The disadvantage is that the owner must pay rather high monthly association fees to cover both the maintenance and build a sinking fund for future replacement of roofs, painting, and other periodic requirements. The additional disadvantage is that a condo is the last resort during high real estate prices and the last to be purchased if single- family homes are available at a reasonable price. The ownership cost is higher due to association fees and the resale market is never as strong as for single-family units. You may choose this lifestyle for yourself, but it is a lesser quality real estate investment.
  2. Vacation or resort condos. I owned an oceanfront, fee simple condo on the South Kona Coast of the big island of Hawaii for 20 years. I visited the island for a week or two each year and the condo was then in a vacation rental pool for the balance of the year. The complex was huge, backed-up to a Robert Trent Jones championship golf course, and was managed by well-known, world-renowned management firms. My unit was typically rented 26-28 days every month and yet I never broke even. Between the fees for everything imaginable plus the utilities used by the guests, I always had to feed this alligator. Admittedly, it wasn’t much on a monthly basis, but I’ve always insisted on a positive monthly cash flow. This was perpetually a negative cash flow. I got to the point where I wasn’t enjoying the property enough to warrant the “free” one or two weeks a year vacation accommodation so I sold the property. The purpose of this book is to acquaint you with profitable real estate investments. I’d suggest this approach isn’t one of them. You be the judge.
  3. Time-shares. Time-shares have become a big business. I’ve never owned one but I know many people who do. Those that continue to own them obviously enjoy them. Those that find they don’t enjoy then find it difficult to re-sell. The biggest drawback is the horrendous price charged in the first place. Packaging a time-share project is almost a license-to-steal for the developer. If you like to go to a particular place at the same time every year or you have the option to trade your time-share for other time-shares in areas you select, then perhaps this would be a good investment for you. It is not a best-use-of-your-money concept. You may as well accept that this will not make you much, if anything, at resale.
  4. Vacation homes or second homes. This concept sounds similar to time-shares but in reality, it is quite different. We have two homes and consider both to be primary residences even though we spread our living time between the two. Some investors will purchase a vacation home in a resort area, be it a ski area or summer recreation area. If you purchase the house at a fair- or below market price with the plan to hold it for a period of years, you will probably make a profit. Far too often, promoters hype vacation developments as investments when the fact is the properties are way overpriced to begin with. If your second home or vacation home can be used as a rental, then you at least have a positive cash flow to offset holding costs. One effective strategy is to purchase your retirement home well before you’re ready to retire and then let a tenant pay-off the house for you by the time you’re ready to retire and move in.
  5. Storage rentals. Many investors use storage facilities as a means of land banking well in advance of formal development. The objective is to put the land to use to generate a cash flow while waiting for the surrounding area to develop. Then, the storage units can be demolished and a new shopping center or office complex can be constructed. One enterprising company that specializes in storage units designs their units in such a manner that they can be easily transformed into office space when the timing is right. As Americans become more affluent, they tend to just collect stuff and then have no place to keep it. Storage units have become an end unto themselves as a result. They can also be a more passive than active investment and they do generate a large cash flow from a modest investment. There are local and national investor associations specifically organized to support storage rental owners.
  6. Hotels and motels. Perhaps you’d be surprised to learn that many of the large hotels and motels are not owned by the businesses. The real estate is owned by private investors in many cases and then leased to the hotel corporation. One such example is the building at the entrance to LAX, the Los Angeles International Airport. It was built in 1964 as the Intercontinental Hotel and was part of a chain of three hotels; the others being located at the Miami, FL airport and at the Birmingham, AL airport. I watched the Los Angeles hotel being built. Then I learned that Herb Alpert of the Tijuana Brass owned the property and simply leased it to the hotel corporation. The hotel name and operating company has now changed three times but Alpert still owns the property. Because of the location, I would guess that it would always be in demand by some major hotel corporation. The risk hotel investors face is the single occupant, single application usage. It certainly qualifies for a minimal investor involvement with the tenant once a reputable hotel corporation has been located.
  7. Gas Stations, Car Washes, Restaurants. The hotel and motel comments apply equally to these types of properties. If you’re in a specific business and want to own your own building, it probably makes sense. If you’re an investor, the single-use aspect makes the leasing risk a very speculative gamble. Having said that, I know of at least one Limited Partnership that specializes in owning restaurants and then leasing them to the food chains. Since they only deal with recognized national food chains, their risk is somewhat less than an individual buying just one location.
  8. Prefabricated modular structures. Originally known as trailers, then mobile homes and now prefabs, the manufactured home is still a problem investment. Imagine buying a home and then watching it depreciate as quickly as your automobile. Not quite what you expected from a real estate investment. As with all categories, some folks are making money doing just that. Mobile home parks, and more recently RV parks, have become big business. Note the term “business.” There is a lot of money to be made operating a mobile home park or RV park or Campground park. One high school chum owned and operated a KOA Campground for over 20 years. He is also the same friend who was elated at being able to sell out and get away from the constant hassle and maintenance. To this day, he will not consider any investment for which he can’t just pick up a phone and order it sold. Enough said? To be fair, I also know a fireman who has made a fortune in his spare time developing and operating mobile home parks. What’s your tolerance level?
  9. Shopping Centers and strip malls. As our population continues to move to the suburbs, convenient shopping becomes a demand that is met by local malls and shopping centers. Developer/Operators of these facilities do very well. It takes some time to lease-up a new facility but once leased, it is usually relatively easy to maintain a high occupancy. These are real estate investments that really need to be managed by a professional management team. That may- or may not include you. You can be the property owner without being involved in the day-to-day management. You can also invest in Limited Partnerships that specialize by investing in shopping centers. Some of the most exclusive shopping malls are actually owned by LPs.
  10. Islands, Castles Historic Landmarks. I was surprised to learn that there are over 3000 islands available for individual ownership and that many qualify as sovereign entities. The late Marlon Brando owned just such an island. What’s your pleasure? European castles are also available to the well healed. Castles have been passed down from generation to generation until the overhead gets out-of-hand. Then the property is put up for sale and is usually purchased by someone who will turn it into a Bed and Breakfast lodging. Can you say 24/7? That’s a never-a-moment’s-rest business despite the B&B name. Ask me how I know? There is a B&B lodge next to one of our houses located on a huge lake. The owners have only once both left for a few days at the same time, and they did so only because we took care of their place while they were gone. Especially in Europe but becoming more and more prominent in the USA are National Landmark buildings. I twice visited Isaac Newton’s home in Wolsthorpe, England that is occupied by a private family but is also open to public viewing in accordance with a published time schedule. Historic landmarks in the USA have been converted to office buildings which then offer a different and unique environment. Probably not a lot of investment potential in this category, but it doesn’t hurt to be aware of the possibilities.
  11. Refrigerator house. Years ago, I first became aware of the late actor, Dennis Weaver, who played Matt Dillon’s sidekick, Chester, on the TV series Gunsmoke and then later was the lead role in the TV series, McCloud. He had been an environmentally conscious person for much of his life and built a home in New Mexico out of used tires. He made a cut into a hillside and then lined the cut with the used tires. The tires were then filled with dirt. Published reports indicate that the home is maintained within 2 degrees Fahrenheit all year around with no external heating or cooling devices. Back in the mid-1960s, we lived in a rural area that had no trash pick-up, so I made trips to the local dump about every two or three weeks. I was amazed at how quickly I observed the huge canyon to be filled-up in such a short time. Realizing that we have become a disposable society, I reasoned that I could mimic Dennis Weaver only with used refrigerators instead of tires. My plan was to build a pole house in the same manner as an adobe house is constructed (adobe is not capable of load-carrying capacity so a rigid structure is first erected and then the adobe bricks are inserted in between the poles to fill-in the walls). I planned to draw a 50-mile radius around my construction site and then contact every appliance store within that radius. I would offer to come pick-up their used refrigerators, washing machines, dryers and chest freezer shells after they had been gutted. That would save the store’s disposal fees and provide me with free-for-the-hauling building materials. It would also reduce the materials filling up our landfills. I would then place the shells on their sides, punch holes through the shell walls and bolt them together to keep them from shifting. I would have three-foot-thick walls providing fantastic insulation. The outside surface would be stuccoed or covered with a native rock while the inside would simply be covered with drywall. I’ve also learned that the Styrofoam peanuts used in packaging has been in landfills for some 20 years and is beginning to poison the ground water. If there is a reasonable supply source, I could fill the refrigerators with the waste Styrofoam, too.
  12. Billboards. We see them daily but very few investors give them a second thought. Pity. Square-foot for square-foot, billboards enjoy the highest return in real estate. If you own property on a busy street or highway, consider adding a billboard to your property. The rental range is $900 to $1500 per month as an average and can be much higher depending upon location. A billboard takes-up very little space and represents a modest initial investment to construct, under $30,000 complete. It can be an ideal additional stream of income for the owner because once erected, there is very little maintenance required. The rental checks just keep arriving in the mail. Before constructing a billboard, be sure to check with your state laws as well as Federal laws regarding a billboard on your property. The laws can be quite a problem. However, you only have to do this once per billboard. Then it will provide a continuous income. Billboards can be purchased and sold as well as constructed, so almost anyone can participate. Finding one for sale is the real trick since most owners don’t want to part with their cash cows and the ownership gets passed along from generation to generation.

I’ve probably overlooked your favorite category, but I will have more to say about these options when you get to Chapter 20. This chapter has been more of an acknowledgment that the categories exist rather than a comprehensive discussion of how to profitably invest in them.

NOTE: Stay tuned for Part 11 Getting The Deed