Don’t Overlook “Expandability” When Evaluating Real Estate Deals
December of 2012 marked my graduation from city slicker to weekend farmer, from urban real estate investor to rural real estate investor, and to be honest, I’ve never looked back! While we moved to rural Tennessee in 2008, it wasn’t until 2012 that I finally mustered the courage to take on a project of this size. At the time my rental properties were all in St. Louis, but it had become exponentially more difficult to manage a duplex and 4 family while being 4 hours away.
This farm was in rough shape, to say the least. The house on the left side from the street view was the only one there when I bought it. It was flea-ridden, water damaged, and needed new windows and a new roof in the worst way!
But, the numbers made sense, which is why you buy real estate, right?
The house rents for $650 per month, my mortgage payment at the time was $930, so from the looks of that, a seasoned investor would say “Bad deal”, I’ll pass.
But, for that $930, I also got 14 acres of land with a 30X50 pole barn, a pond, and most interestingly, Lumber. Mature red and white oak trees, which were acting as a shade canopy to the younger oaks growing underneath. Problem is, the young oaks weren’t growing very well. Apparently, lack of sunlight effects the trees chlorophyll production, which explains the constant brown leaves on the younger oaks.
The mature oaks needed to be harvested, said the Division Of Forestry. Problem was: my tree cutting experience was about as limited as a six year old George Washington. If I had taken this matter in my own hands, I could have bet on one of two outcomes:
- A tree, or a bevy of trees, would likely have fallen on me.
- An abnormally high probability of self-mutilation with a chainsaw.
Neither of which was worth the risk, for a couple measly bucks.
So, I did what anyone with a similar situation would have done. I went to the local saw mill, and started asking questions of who they thought may be interested in harvesting the trees, but more importantly, who would spare the fleecing of an unsuspecting timber neophyte.
Mr. Miller, they replied. He was a local Mennonite who did logging as one of his many occupations. He preferred to work alone and at his own pace, but was as honest a man as they could think of. They gave me his phone number, so I did what anyone would do, I called.
He answered! So, we discussed the project, he came by to take inventory of the species of trees I had, and estimated their value. Wow, value! Before this, I didn’t even realize my trees had value! Needless-to-say I was excited, it was like buying a property and stumbling across Gold on it.
About $25,000 said Mr. Miller, but I get half, and I’ll do all the work myself. I’ll do all the cutting and hauling to the sawmill, and best of all, the property will look better when I’m done.
Uh, okay, when can you start? I can be ready to go in two weeks, once I finish up the job I’m currently working on.
Well, Lett’r rip, Tater Chip! I signed the makeshift agreement he had, and said, I’ll see you in a couple weeks.
Mr. Miller showed up when he said he would, did what he said he would do, just not in the time-frame he initially gave. The job took 4 agonizing months, mainly because he worked alone. I had to understand; cutting down solid oak trees which are 3 feet in diameter takes time. And, I have to give Mr. Miller credit, his estimate of $25,000 was pretty, spot on.
After Mr. Miller took his half, I walked away with $11,280. Enough to cover a new roof and windows in my rental property, a partial concrete floor in my barn, and two new garage doors, also on the barn. Score!
I needed the concrete floor, and the garage doors because I was going to rent the small side of my barn out. So, I did what anyone who wanted to rent their barn out, I put an ad in the paper. Score! A young man who was looking for the perfect place to store his boat, agreed to pay me $300 per month. The Farm, is now closer to being cash-flow positive.
While I am not trying to boast here, the point of the matter is, Real Estate can be multidimensional. In fact, Coach Carson points out in his Timeless Lessons post where Real Estate Entrepreneur Greg Pinneo says; one of the three pillars of Real Estate investing is: deals must have expandability. Sometimes you have to analyze a property for its underlying potential, and folks, its not always obvious. Next week, I’ll discuss the building of the second house and the acqusition of the train-wreck of a property next door. But remember, when searching for deals, ask yourself ‘how can I expand this property into other sources of income’?
Slick Photo compliments of: