Finding That Not So Obvious Deal On The MLS

Finding a deal on the MLS in a hot market isn't impossible, but it will take a little more creativity to make the numbers work. Sometimes all it takes is looking at a deal with different perspective.

Some properties allow for this creativity more than others. As a general guideline the most flexible properties for creativity are those that are not classified as typical residential (Typically called R1 zoning). The properties that you want to watch are those with zonings such as mixed use or those classified as R2 or higher. Each jurisdiction has it's own codes, but these are somewhat universal. Within these zoning codes the properties usually have less restrictions on types of use and you can make some simple creative changes to boost your income.

Things to look for:

My favorite way to increase income is by utilizing an accessory/auxiliary dwelling. These can be something as simple as a basement apartment or even a completely separate building on the property. Many of the more flexible zoning codes allow for these dwellings to exist and can even allow you to utilize existing property with just a little converting of space.

Let's run through some specific cases for examples.

Recently a client and I were searching for a mixed use property in the West Denver suburb of Lakewood. In Lakewood many of the mixed use lots are really just single family bungalows. Nothing fancy, but the zoning is why we were checking them out. My client came across what many others would pass over as a somewhat overpriced 2/1 800sqft home. The lot was around 7000 sqft and was surrounded by mediocre properties. It just didn't stand out. 

This is where the creativity comes in. The property has a detached 2 story garage. The second story was around 600sqft of finished space. Just a big room which was basically a blank slate. Most folks see it as storage space proven by the current owner's use. Someone thinking differently sees that space as an accessory dwelling. Either an office or studio apartment. The huge garage below that apartment just sweetens the deal. Now you've got a small shop/workspace to rent out as a combo.

Did this property need some work... Yes, but it is a reasonable amount if you get the property for the right price. There is no way we would offer asking and it's not likely anyone was jumping at that either. 

We did not purchase this property due to issues with the city, but it is a good example of how to look at a property differently. Most folks see a small 2/1 home for $230k that would rent for $1000-$1300 a month. What we saw was a 2 dwelling property that combined could pull in $2200-$2600 a month.

Another example is how to take a typical home and make a basement into a money maker.

In my hometown of Erie Colorado we have a fairly easy set of rules to follow to convert your basement into an apartment. The rules are:

1. The "Accessory Dwelling" AKA basement in this case cannot be:

a. More than 33% of the main dwelling (Upper Floors)

b. 800 sqft

2. The lot must be at least 6000 sqft

3. The city must approve it (They'll place signs in your yard so your neighbors can come to bitch about it)

4. HOA must allow it - Most don't have a specific rule

That's all that's required. Yes, there are some potential hiccups in there, but let's just ignore those for the sake of the example. Remember creativity isn't always simple.

You find a home for $310k with 3000sqft of which 750sqft is a walkout basement. A home of this sort would easily rent for $2000-$2500 in the area even without the basement. You apply with the town and go through the steps. Once approved you create a small kitchen area and 2 bedrooms and a path around the home from the front. Figure $20k total. Total invested in the property is now $330k. Renting the basement comes in at $900-1100 a month. Combined the whole house will now pull anywhere from $2900-3600 a month. The numbers may not be the best compared to some markets, but finding a deal like that in a super hot market can be a good catch.

The point I'm trying to prove is that just because a property doesn't look special there may be some hidden cash in it. Take the time to pick out areas where you don't have to be squeezed into a very specific box. Make that typical property into a money maker and have pride that you did something different.