Real Estate Investing Basics

The Beginning Investor’s Guide to Creating Lasting Value in Real Estate

17 Articles Written

Everyone wants a “deal.” Why wouldn’t you? The problem is that great “deals” are few and far between. Particularly in this age of information, with sites like Redfin and Zillow, any seller can look up their property and see about how much it’s worth. These sites also inflate values of properties, which gives sellers an unrealistic idea about the value of their homes.

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A fantastic thing about real estate, however, is that you can create value yourself. At a fundamental level, most pieces of real estate are, in and of themselves, created value because they were built where there was once just dirt. Someone saw that by adding wood, metal, and other materials, they could make that plot of dirt into a more valuable asset.

The idea that you as a real estate investor can create value to make a deal is an important mindset to have. You don’t want to go out there and buy poor deals that don’t have a value-add opportunity, but you also can’t be paralyzed into inaction because you can’t find a smoking “deal.”

The key is to develop experience and expertise in areas that will allow you to add value to properties. It takes time to develop strategies, skills, and networks, but it is ultimately how you will become a successful investor. These are the top four ways to set yourself up to create value.

 The Top 4 Ways to Add Value in Real Estate

4. Be the Expert in a Small Area

I was told something this by a wicked rich dude at a networking conference, and I have never forgotten it. His advice was to be the utmost expert in a small area. A small area could be in reference to a geographical location, an industry, or even a part of the real estate process.

Related: The 10 Best Real Estate Investments for Smart Real Estate Investors

Your expertise can also change. I started out having zero expertise, then I worked for a company that bought foreclosures as flips, and I became the renovation expert; then I found investors and became the single-family rental home expert, and now I’m trying to be the expert in small apartment buildings in Utah. There is always going to be someone who is “more expert” than you are, but the point is that you get to know something very well because then people will come to you and ask your advice.

I can't swing a hammer without tearing an ACL, but I knew that renovations were an integral part of flipping homes. Through trial and error (mostly error to start), I slowly figured out how to renovate homes efficiently. I found out that even a little bit of expertise puts you ahead of at least 95% of people in the world.

Family friends started coming to me with renovation questions, and I started to farm out my contractors and subs to do work on multi-million dollar homes that my friends owned. The homes that my workers usually renovated were less than $200,000 in value, but I figured out that contractors in high end areas ripped people off on basic things like paint.

The real benefit of expertise is that you quickly become a high demand talent. In 2011, when I met with the people who would eventually hire me to run acquisitions in California for Silver Bay Realty Trust, there simply weren’t that many people who were experts in renovation and single-family home rentals. Hell, I may have been the only one — and I wasn't really an expert at either. However, since I had picked such a specific area of expertise, I suddenly had a lot more value and was compensated more than an inexperienced twenty four year old should have been.

3. Actively (and Unselfishly) Build Your Network

A wise man once told me that "your network is your net worth." The thing about building a network is that you have to do so unselfishly. Everyone has been to the alumni cocktail party with the guy who shakes your hand and immediately gives you his business card. This guy has read every book on networking and is very eager to see what you can do for him.

Wrong approach, pal!

You want to see what you can do for other people. The reason is that you are more genuine, and also, you are able to show your value quite clearly. No one should be below you helping them, either. I’m a big believer in good will, and the more you help people, the more people will help you.

Having a great network allows you to create value by giving you resources to do deals that other people won't be able to. The timid young real estate agent who wanted to get coffee could give you a heads up about a super sweet listing that he has, and maybe he talks the seller into letting you lock it up with a preemptive offer. Connecting a down-on-his-luck contractor with a friend to give him some work could be the key to allowing you to do the beat up deal that the timid young agent brings you.

But even if a good deed never comes back to pay dividends, it is still time well spent because you helped someone else. Studies have shown that helping someone else is rewarding and makes people happy. If you are happy, then you are going to think more clearly. If you think more clearly, then you are going to be able to find deals where you can create value.

Anyone ever read If You Give a Mouse a Cookie?

 2. Be Persistent

Creating value is hard. You simply must be unflappably persistent. Never give up. Never stop grinding. These are all somewhat cliché, but it helps to hear these things over and over. I have found that just when I’m about to give up on an idea, I have had many of my breakthrough moments. Part of it is that I’m just not smart enough to succeed before I fail a lot, but the other part is that most people give up pretty easily.

I used to drive around ghetto neighborhoods in my free time after work and on the weekends looking for deals. It was a really stupid way of trying to find a house — I simply didn’t know there were such things as Redfin or realtors who would show you listings on the market. I was just starting out and was anxious to get going. After the second weekend of driving around for six hours, I was pretty convinced I was on a fool’s errand.

How stupid can I be to think that I will just find some great deal by randomly driving around?

Alas, I had no social life, so I told myself I was going to do this process for ten weekends. On the last day of the tenth weekend, I found the house that would ultimately be my first purchase. It was a beaten down ramshackle piece of crap, but I had driven the neighborhood so much that I realized there was value because all of the other homes on the market had been snapped up quickly. It may sound like a miracle or fluky situation, but I chalk it up to persistence.

If you try hard enough, for long enough, you will inevitably be successful at creating value for yourself.

1. Go for Deals Other People Don’t Like

I’m an admitted contrarian. Some people would just say that I’m a jerk, but that is beside the point. There is inherent value in thinking differently than other people. If you are a BiggerPockets member, then you are likely one of these people. Most people aren’t mindful enough to want to invest in real estate to build long term growth – they’d much rather just have their iPod, flat screen TV, expensive leased car, and annual trip to Hawaii.

I think you need to take your “think differently” approach one step further to find and create value in real estate properties. I live in the San Francisco Bay Area, and everyone and their brothers love, and I mean love, the idea of owning real estate in San Francisco. Prices have gone up by millions of dollars since the recession.

Related: 12 Simple Tips For Beginner Real Estate Investors

I started to look into it and thought about things a bit differently. San Francisco is one of the most tenant friendly cities in the US, there is rent control, the buildings are old and require maintenance, there are crazy earthquakes that make EQ insurance prohibitively expensive, and the cap rates are less than the debt service. "But prices have gone up soooooo much,” I’m told constantly.

I decided to invest in single-family homes about an hour away from San Francisco that produced double digit cap rates, had no rent control, that I purchased for half of replacement cost, where EQ insurance was shockingly cheap, and where there wasn’t a ton of competition (at least initially), so I could get scale.

When I tell people how much my properties went up in value, they laugh at me with scorn and say, “A couple hundred thousand is great, but imagine if you had bought something in San Francisco!” The problem with that thinking is they aren’t looking at the numbers. San Francisco prices went up about 50%, which is amazing. However, my properties doubled in value, and I was able to buy a greater dollar amount because there was less competition because no one liked the less swanky homes in the ghetto.

This is only one example, and I’m not advocating for you to go buy crummy properties. I’m suggesting that you look hard at the areas that people quickly dismiss because often times those are the ones where you can create the best value.

How have you created value in your real estate niche? What would you add to my list?

Leave me a message in the comments section below!

Conor has experienced every aspect of the foreclosure and rental business for single-family homes. He was VP of Acquisitions at Silver Bay Realty Trust, and has flipped over 100 homes. Conor starte...
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    Larry Russell
    Replied almost 6 years ago
    Nice article with a great perspective. As a new investor, building a specific area of expertise is somewhat challenging. It feels like I know a little about a lot.
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Thanks for the comment, Larry! It definitely is challenging, particularly when you are drinking in information from a fire hose. Focus and prioritization takes time because you have to figure out what you enjoy and want to spend time on.
    Frankie Woods Investor from Albuquerque, NM
    Replied almost 6 years ago
    Great article! Not following the crowd is sooo hard! But, it’s the key to success! Thank you for the words of wisdom!
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Thanks for the comment, Frankie! I’m just passing the words on – I stole them from other people 😉
    Trevor Ewen Rental Property Investor from Weehawken, NJ
    Replied almost 6 years ago
    Point #1 is my favorite. Gotta go with the un-sexy asset, give it 10 years, everyone will want a piece.
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Exactly, Trevor! Year 1 can be tough, but year 10 is pretty sweet!
    Silvia Durango from Bronx, Philadelphia , New York, PA
    Replied almost 6 years ago
    You got me thinking about a Realestate property deal I walked away from because the place smelled and was full of garbage … A shell but might be able to fix and rent… It was under 5k
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Wow, that is very cheap! Where was the property? If the property is in too bad of condition it may not be worth it, but I think it is always worth the time to do the due diligence!
    Eric Giovannucci
    Replied almost 6 years ago
    Great article! Being in east bay, I love hearing about our market. While it is tough to get going, and I have yet to do so. I feel my eagerness and determination will ensure inreap the benefits of this amazing market. Thanks for your inspiration!
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Eric – Thanks for the comment! It really is an amazing market! What cities are you looking at?
    Eric Giovannucci
    Replied almost 6 years ago
    Conor, I actually just purchased a SFR in Antioch for my family and into use as a primary, and still have one in Texas. Looking to work in Antioch, Brentwood, Oakley, and possibly Pittsburgh area. Do you operate in any of these cities?
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Yes. I actually bought about 300 homes in those cities. Message me on my profile and let’s chat about the market out there.
    Andrew Oladipo Investor from Carol Stream, Illinois
    Replied almost 6 years ago
    Great article!!! Still very new in the real estate world. I acquired my first property (a triplex in Lombard IL) in Sep. My question might sound dumb but how do really create a niche of expertise? I drive for a dollar like you mentioned, I read everything about the neighbourhood I have my property, I am on BP constantly listening to podcast and reading. I am working on finding a mentor. Would you say this is being on track to becoming an expert someday? My goal is to specialize in multi (3-4 units) with a buy and hold mentality. I eager but patiently looking for my next property.
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Thanks for the nice comment, Andrew! It’s a really good question, and probably depends on how you define niche. I think the important thing is that you understand something that most people don’t get. For example, Lombard, IL has about 43,000 people in it. I would guess that there are quite a few smaller properties that represent a good opportunity for you to purchase. I would focus on that location – get to know the brokers who do deals, develop a great lender relationship, volunteer in the community, etc. This way you will be “the guy” in Lombard and so when someone wants to buy 20 units there, you will be the one they talk to, or even partner with. Does that make sense? In other words, I would focus on this location more so than the 3-4 unit thing, unless there is some type of opportunity where 3-4 unit buildings were overbuilt and are distressed, or something like that. I think you’re on the right track for sure. Would love to hear more about your progress!
    Alex Diesel from Grand Rapids, Michigan
    Replied almost 6 years ago
    Great article and very inspiring. I’m just in the early learning and information gathering stages and you’ve demonstrated some very good habits to get into.
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Thanks for the nice comment, Alex!
    Jordan Sizelove Realtor from Oakley, CA
    Replied almost 6 years ago
    Amazing article Conor! Recently got my RE license and looking to start investing (I know I don’t need it to invest). My strategy is to flip a minimum of 4 SFR’s my first year. Focusing on the Brentwood area for now. Would love to connect with you so I can begin my journey of real estate investing. There’s so much information and it can be overwhelming. I want to complete my first flip asap! How can I help “you” Conor?
    Conor Flaherty Real Estate Investor from Tiburon, California
    Replied almost 6 years ago
    Well played, Jordan! Shoot me a message to my profile and we can connect for a coffee. Brentwood in Northern CA?
    Uyenchi Ho Investor from San Jose, California
    Replied almost 6 years ago
    Great article, Conor! You hit all 4 points perfectly. I’m just starting out, and reading all the books and articles and blogs out there on real estate investing would not only be overwhelming, it may make me quit before I even start. So I decided to start in the niche of wholesaling properties in probate, which really helps me to focus my education and starting point. I can envision the process – not so intimidating! I just hope this niche is not starting to be too “sexy” and everyone is trying to be an expert in this area as well. I see that you are in the Bay Area. Hope we can do some deals in the near future. Best of luck to you!
    Mike G Taylor Marketing Manager for Tech Company from American Fork, Utah
    Replied about 5 years ago
    Are you really trying to become the “expert in small apartment buildings in Utah”? Or was that just an example?