How To Make Money In The Real Estate Business

The current real estate market situation presents a lot of opportunities to make money in the real estate business.

It doesn't matter whether the real estate industry in your area is robust or weak or the housing market has tanked because the population is always increasing and people will always need shelter and that directly implies that there is always room to make money in the real estate business especially in the housing sector, in any market situation.

Any market situation is always an opportunity, regardless of however depressed the market is. And this can be true in any country. To cite an example, in July 1997 during the heat of the Asian Financial Crisis the prices of all real estate properties all over Asia went down by 40% - 70% off their regular price and yet there were no takers because it was an issue of over-supply and overly priced market situation.

Currently in the US the housing market is also down with housing foreclosures all around, in some instances whole rows and blocks of houses were foreclosed by creditors, making the community look like a ghost town. With this kind of situation, most financial advisers won't recommend that you dip your fingers into the housing business at this point. But I disagree, strongly disagree. And I don't say nonsense here because I have proven the facts that I write here. And besides, most financial advisers are not into the housing business, by the way. They make advice but they don't invest, they are afraid.  Just read on to know how.

Before I will share to you how I make money in real estate these days regardless if the market is down or up, let me first go back to how I learned the tricks and secrets of the trade. It was in July 1997 when I got my 'baptism of fire' in the real estate business, it was when the real estate bubble in Asia popped and I was doing business in the Philippines that time.

Foreclosed properties by banks and other financial institutions were all over the place, the banks' borrowing rates have almost tripled (as their normal reaction to cover their losses), and the foreign exchange rate have spiked up, and the local currency (Philippine Peso) was devalued that I thought it was already the end of the world.

The upper middle class and the rich have lost their big and classy and very beautiful homes and nice mansions and condominium units and some high-paying jobs were gone too, while some were offered 50% cut on salary or the option to be terminated for cost-cutting reasons otherwise their company will fold.

But I remembered what my former chinese boss used to tell me that "one man's problem is another man's opportunity". These words became alive in me and I saw the light and realized that those who used to live in elegant homes have lost their dwellings to the bank, but not their money and for sure they need to have something decent for shelter.

So we asked ourselves how we can make money from them, what service can we give them that they will surely take and pay. That time all construction activities were either put on hold, or have slowed down or have totally stopped and were abandoned. This resulted to a downward spiral of the prices of all construction materials because the suppliers and manufacturers have produced so much and maintained huge inventories but there were no takers anymore.

That situation gave us an idea to put up elegant looking, well planned houses with downscaled floor areas to make it attractive and affordable to the rich and the upper middle class who just lost their homes. The good thing is the cost to construct was lower by 40% than the usual because of excess inventory of construction materials, everything was discounted. They just wanted to liquidate whatever they have in their stores and warehouses - a situation that we really took advantage to the hilt!

In short, our small, pocket subdivision with houses that had really attractive facades sold out fast. These houses looked nice and feels much similar to the houses that our clients used to live but smaller in size and yet complete with the house features that they used to enjoy. We threw in some landscaping to make it more homey and attractive to them. Because no bank was willing to loan out money unless one was willing to take it out at 42% per annum, we were forced to provide them in-house financing at 24% per annum provided that they pay 30% downpayment upfront, or 40% downpayment over 12 months. Of course we did not tell them that the cost of the house is only 40% of the selling price!

This scheme became very popular to them because their other option was to rent. We were able to help them have their new homes that cost almost half than what they used to have but with almost the same house features except that the floor area was reduced to almost what is required by the local building code.

We made money fast because the units only cost us around 40% of the selling price, so when they pay us 30% upfront we almost got the whole investment and we were able to construct more houses, and the remaining cashflow already represent our profits! Because of the strong demand for that kind of quality yet affordable housing, we recycled the idea over and over until we made 5 pocket subdivisions using the same concept.

It also helped that there was not a single competitor because those who were in the housing business before, especially the big players, had large loan exposures and they were having a hard time servicing them so they stopped selling to avoid incurring added liabilities. So it gave us their large market.

But at the present time, how can you make money from real estate? If you are in the US where the housing sector is so down, there is a lot of ways to make money with the current conditions. Just imagine, how many families have lost their nice homes to their creditors. The prices of these houses that were foreclosed by the banks have gone down by 30%, 40% or even 70% in some cases.

Go to these banks and inquire about how you can acquire these foreclosed units and you will be surprised that they will be rushing in to help you acquire one because banks always want to unload foreclosed assets, especially those that are depreciating fast like these houses. You can negotiate to get the units at 10% downpayment payable in 6 months, and the remaining 90% balance payable in the longest term that they can afford, say 10 years or more, that depends on the bank. Just haggle and don't give up easily. You can adjust your term a bit but everything must be to your favor, not to these bankers.

Then if you were able to get the best possible term, don't sign any paper yet, ask them to allow you to see and inspect the units and do your own valuation, then assure them that you will be coming back, you just need time to compare with the other banks' foreclosed assets which you should do, but at the same time that will give the bank an impression that you are a serious buyer who knows what you want.

Then visit the local building authorities if they will allow you to reconfigure the interiors and exteriors of the house or even subdivide the lot. The idea here is if they will allow you to subdivide the lot then you can convert the house into a duplex with minimal cost and sell 2 units now out of the original single unit - making the price more attractive and affordable to a wider market.

But if the local building official only allows interior reconfiguration and not the lot subdivision, you can convert that single house into a duplex, triplex or even quadruplex by reconfiguring the interior partitions, putting in additional firewalls and adding some windows here and another door there - enough to house 2,3 or even 4 families comfortably but make sure that you don't go below the required minimum room floor areas by the local building code. Then you can offer the revised or reduced units to 2,3 or 4 families for rent. Your only roadblock here is if the homeowners association does not allow you this scheme, if that's the case you can negotiate and ask their permission and authorization in black and white to protect you from future legal harassment.

The money that you make from rental revenue should be more than enough to duplicate this process one more time, maybe do it on the next house so it will be easier for you to manage. To avoid collection hassles, the better for you if you can require your clients to give you post-dated checks for the next 12 months to be replenished every 3 months.

If these scheme becomes too attractive that you need more units to convert, you can sell your receivables by showing your rental agreements and the post-dated checks to the banks where you got your properties, surely they will be glad to do business with you, especially if they give them some favor by opening a deposit account with them for your house rental business.

That's one excellent way to make money in real estate especially in the housing sector - getting one big house at 30% to 70% off the regular price, convert them into duplex, triplex or quadruplex units and either sell them or rent them out. That should bring you a lot of money. I am doing it here locally.

There are still many other creative ways to make money in real estate because this is one of my forte and I am deeply into it for many years but I will share them in my next posts. You may send your reactions to this business idea by posting a comment below or by sending me an email by clicking here and I will be glad to serve you.