Five Unique Ways I’ve Seen People Make Money In Real Estate

[Don Konipol]

Five Unique Ways I’ve Seen People Make Money In Real Estate

1. Water Utility - 44 years ago when I was a relatively new real estate broker, a gentleman contacted me to see if we could help sell a small water utility he created. About 15 years prior he had purchased an inexpensive tract of land near Lake Houston outside of Huffman, Texas. He proceeded to drill a well, and set up a water utility. He then sold the lots cheap to homebuyers, negotiated with a lender to provide mortgage financing, and teamed with a builder who would build simple, inexpensive homes. Meanwhile he received a mortgage origination fee on each mortgage; a small profit on the sale of each lot; and a broker commission on each house build. He now had a utility with over 380 “hookups”. We agreed to market his utility through our business brokerage division, and received multiple offers from larger water utilities netting the seller $millions.

2. Buying property for “materials” - back in the late 1970s I was a banker in Geneva, Switzerland. I came to know an Englishman whose business was the purchase of very old, very decrepit houses on rather large estates. He would subsequently dismantle the house, ship the materials salvaged By container load to the U.S, and sell the now empty estate to a developer. His financial state,ent showed that his proceeds from the sales were net three times the price he paid for the property.

3. This is one I was personally involved with. We lent secured by a 20 unit mid term rental property. The property was located on 3 lots. However, the septic and wells were located on an adjacent, but separate lot. At closing the taxes on the 3 lots were paid, but the utility lot was overlooked. The utility lot went to tax sale, where it was purchased by an investor for $15,000. When the owner of the 20 units went to sell the property, he found out that he no longer owned the lot housing the well and septic. Fortunately we had title insurance. The title company paid the investor $150,000 for the lot, or 10 times his purchase price 6 months earlier.

4. Substitution of collateral - This one I did myself. I bought a “junk” lot at a tax sale for $300. I purchased a house in good condition for $55,000, with the seller accepting the lot as worth $5,000 down payment and seller financing for $50,000 for 20 years at 5% interest. This was 1982 and interest rates were approaching 18%. Also, the deed of trust had a substitution of collateral clause I had negotiated. I went out and purchased purchased anold 30 year treasury bond(s) (actually five $10k bonds) with a 5.5% coupon for about $24,000. I then “substituted” the treasury bond for the $50k mortgage. So now I had $24,000 plus $300 invested in the property. I put a tenant in for $650 per month, and after 12 months sold the property for $52,500 cash.

5. The Bust Up - I HATE this technique - it’s unfair, unethical, and possibly fraudulent (however I witnessed it done very profitably so I’ll include it perhaps as a cautionary tale. We had a fabrication company for sale (when I was a broker) that contained lots of equipment and valuable real estate. The business itself was worth little, as it was only marginally profitable. A buyer put an offer in at a relatively good price after spending significant time with the seller and indicating how he planned to improve and personally run the business after purchase. The offer was for a modest amount down, with the seller carrying back a note. The seller then made the mistake of allowing the buyer to draw up the contract and closing docs, and further “saving” money by not hiring an attorney. The note which represented the major part of the purchase price was secured by the business In general but was more like a corporate bond. After closing the buyer borrowed against the equipment and inventory, and then sold the real estate. He declared the proceeds as a dividend to himself, and defaulted on the note to the seller leaving the seller with the recourse to repossess the business which now had no real estate and that’s equipment and inventory was fully mortgaged.

Let us know of unique ways you’ve experienced making money in real estate