Alternative Real Estate Investment Scenarios

There are as many investment scenarios as there are clever and ingenious real estate investors in the world, but here are a few that are worth mentioning, either because they're practical or they're so daring as to be brilliant.

One of the most interesting investing strategies I've heard in the last year is cash investing in "dying" blue-collar cities. In fact, the gentleman who told me about this particular investing strategy made his investments in no less than Flint, Michigan, poster child of Midwestern post-industrial decline.

His investing strategy went something like this: he'd buy houses in blue collar neighborhoods for $3-5,000 apiece, in cash, and put another $1-2,000 into each to put them into reasonable rental shape. He would then rent them out for $3-400/month, and cross his fingers that he could keep the property rented for at least two years. Assuming an annual cash flow of roughly $3,000, he breaks even around the two year mark, and every month after that he collects pure income. At the end of the third year, he's earned a 50% return on his investment; at the end of the fourth year, a 100% return.

If this strategy sounds risky to you, that's a good sign for your own investing acumen. The risk, of course, is that he can't find a tenant for these properties, due to the declining population. Worse, he could go through a series of tenants who go bad, and be forced to serve eviction notice after eviction notice, and spend half his time and money in rent court. His argument was that every property can be rented for the right price, and that his purchase investments were so minimal that he could afford to accept low rental income if he absolutely had to.

Another alternative real estate investing scenario that is popular in some areas of this country is trailer parks. While there's no glamour in it, the returns can be impressive, as the initial investment is minimal. Buying parceled land, with appropriate zoning (pay special attention to the zoning!) and setting up water, sewer, and electric grids in the park is essentially the only investment required, for an area with potentially dozens of tenants.

Risks include a financially unstable clientele, which means higher turnover and eviction rates. However, look into your state's laws regarding eviction from trailer parks, as the eviction notice and removal process may be easier for a trailer than evicting a tenant from a stationary home. Moving someone's home outside your grounds is not the same as dumping all their belonging on the sidewalk, and some state laws allow towing trailers outside your park instead of the traditional eviction process for erstwhile tenants.

Finally, it's worth noting that storage units can make for excellent investments, for similar reasons. Without having to comply with minimal living standards (as no one lives in storage units), the costs of construction and ownership can be extremely low, as are the costs of serving an eviction notice and tackling bad tenants. However, marketing to find new customers takes on a central role in the storage business, as each customer only pays minimal rent for their units, and high vacancy rates can bankrupt your storage business. Before investing in storage space, be sure to do a VERY careful market analysis of your area, to determine your competitors, their pricing, and the demand for storage space. You may consider talking to a commercial appraiser or two, to help you look into the market.

Resources:

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