Real Estate Investing: How to Make Your Profit
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Real Estate Investing: How to Make Your Profit

Changing the use of property is one of the oldest and smartest ways of making money in real estate. A savvy investor will always be looking at properties with an eye toward being able to create a split. A typical split starts with buying a large lot.
                     money in real estate investment

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Can the property be put to a higher, better, and more profitable use?

Changing the use of property is one of the oldest and smartest ways of making money in real estate. John Jacob Astor was one of the first to try in US in the early 1800s when he converted cow pastures in Manhattan to residential and commercial buildings, making a fortune along the way. For instance, a man bought an old non-producing orange grove of 10 acres at $50,000 an acre, spending a total of half a million dollars. Then he cleared the dying trees and subdivided into lots of homes - five lots to an acre. He sold each home site for approximately $50,000. Since he now had 50 sites, that came to $2,500,000. He made a profit of $2,000,000 before expenses (which were not insubstantial). All of this came about because he changed the usage of the property from agricultural to residential. Other changes can include small splits of a lot or home into two units instead of one, or creating a big commercial usage when there was previously a multifamily residential usage. Of course, changing usage often requires approval from the local planning department, which can be anything from easy to impossible to get. However, if you do get approval for a usage change (or the property was previously zoned for a higher use), there is usually a big profit to be made. Remember, your goal as a real estate investor is to make money, and one of the fastest ways to make it is to buy a property and upgrade its use. This is an important concept that too few investors remember or fully understand. To this day, opportunities for usage change remain in most communities.

                       real estate splitting

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Can the property be split?

This is a case of buying one and making it into two (or more). If done right, splitting can result in substantial profit for the investor. A typical split starts with buying a large lot. Once you have ownership, you split the lot into two. Now you have two lots, which, depending on the circumstances, may each be worth nearly as much as the original lot. You sell one and have the other virtually free. Or you sell both to make your profit. (Of course, each of the lots must conform to minimum zoning size.) Variations on this theme include buying a large lot with a house on it, then selling off a portion of the lot and keeping the house as a rental. In San Francisco, where many areas are zoned for duplexes or multifamily dwellings, a split can occur when a single large home is split down the center to make a duplex (or two units). Sometimes a large home of several floors is converted to a condominium with each floor being a separate unit. Each time you split the property, you multiply your profit. A savvy investor will always be looking at properties with an eye toward being able to create a split. No, this doesn't always happen in suburbia. But it is common both in rural and in urban areas. Just be careful that you comply with all building and zoning regulations.

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Comments (2)

good points

Andrew Patterson REALTOR

Splitting is a great way to make a quick profit in Real Estate. It is very important to do your research prior to purchasing any property as an investment. Zoneing By-Laws and the Municipalities Plans make this research very necessary. As well, make sure you work with a Realtor who knows the area and is familiar with the local by-laws and knows which channels to go through to clairify that the property will indeed meet your needs. If you would like more information or to contact me visit www.patterson4sale.com

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