Location, location, location.
Location is king in real estate. It is the single most import factor in determining the value of residential real estate. This is considered conventional knowledge, however, location is actually second to one factor that transcends all others- cash flow.
Real estate in the “best” locations will always command the most money. But who determines the “best” location?
Well, real estate is like any other market and value is determined by supply & demand. This phenomena happens on a micro and macro level. For example, most cities or towns will have one or more micro-locations (neighborhoods) where real estate consistently sells for more. The same holds true on the macro scale. In South Carolina, cities like Greenville, Lexington and Charleston are consistently in more demand than Batesburg, Bamberg or Orangeburg.
Now consider you have a house in a not-so-in-demand city or neighborhood. What can you do to maximize the amount of money you can get for it?
All else being equal, your house will be valued according to what other houses of similar size and style are selling for in your neighborhood. You can improve your houses value by renovating your kitchen or by adding additional bathrooms or bedrooms. These changes will increase value, but only to a point. The only way to ensure your house will be more valuable than others in your neighborhood is by turning your house into an income producing asset.
How can you do this without converting your house into a duplex or triplex?
Here are some ways your can turn your home into a cash flow machine.
Convert your garage into a separate unit.
- In Miami, where I grew up, it is common for people to convert their garage into an income producing living space. Affordable income is hard to come by in South Florida, so people where always looking for a place to stay with a reasonable monthly rent. Things are not that different in SC. Converting your garage to a separate unit gives your options and huge potential for cash flow. You can rent it long term (year long lease) or short term (airBnB/vacation rentals).
- Maybe you do don’t have a garage or the means to convert one. You can still rent individual rooms in your house. It may be more difficult to find a long-term tenant, but you could defiantly find guest willing to rent your room short-term.
- Selling your house with terms is a sure way to get a price substantially over market value. Land contracts are very similar to “rent-to-own”. Typically, you sell your house for a down payment (10-20%) and collect monthly payments that are applied to the principle balance. Many buyers are willing to pay more than market value, because they usually do not qualify for a traditional mortgage. The great thing about land contracts is that the deed of the home stays in your name. So if the buyer does not make their payments, you can much evict them much easier than you would otherwise.
So while it is true that location does play an enormous role in the overall value of real estate. Cash flow is much more important and can make your home the outlier in your neighborhood.