Real Estate Investing Basics

The Question Every Investor Should Ask to Get the Most Out of Each Property [With On-Site Video!]

Expertise: Real Estate Investing Basics, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Landlording & Rental Properties, Business Management, Personal Development, Flipping Houses, Commercial Real Estate
154 Articles Written
highest-and-best-use

“Successful people ask better questions, and as a result, they get better answers.” — Tony Robbins

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When a real estate investor purchases a property — whether for buy/hold or buy/sell — they often ask the WRONG questions. They want immediate answers, but they are not willing to ask empowering and thought provoking questions to actually lead them to the right solutions and answers. In today’s video, I discuss the most important question you should be asking yourself with every property you get involved with:

“What is the highest and best use of this property?”

In the video, I discuss one of our mixed use rehabs that is under construction. I asked this question before we created our plan for the building, and it has helped guide me towards the best plan for this building.

Asking and then answering (I mean honestly answering) this question is the key to success for any real estate investor.

The building before and during demo:

DSCN1904

362 s broad demo 2 362 s broad demo 3 362 S Broad Demo

What other critical questions have you asked yourself before taking action in one of your buildings?

I would love to hear from you in the comments section below.

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 4 years ago
    “What is the highest and best use of this property?” That’s a great question to ask when a property is presented to us. I subconsciously ask myself this whenever I look at new property. Thanks for sharing!
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 4 years ago
    “What is the highest and best use of this property?” That’s a great question to ask when a property is presented to us. I subconsciously ask myself this whenever I look at new property. Thanks for sharing!
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hi Ayodeji, Good to hear from you. I’m glad you enjoyed it, and hope you continue to ask yourself this question! Take care, Matt
    Anthony Uva Investor from Brielle, New Jersey
    Replied over 3 years ago
    Matt, I not sure how you plan to use the new parking lot. Will you monetize it by using the lot as paid parking or do you intend to use it to increase the desirability and therefore value of your adjacent mixed use and nearby commercial properties ?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hey Anthony, Great question. The lot will add value to our two buildings that are adjacent to it as we will offer up paid parking as an add on to the tenant’s leases. Although there is a fee, parking right outside your office / store / apartment is of value in this area. We will charge $50 per spot and have 15 spots slated for the lot. To break those numbers down, we paid $18,000 to remove the back section and are budgeting an additional $5000 to pave the lot, so $23,000 invested to create the parking. With all spots leased we will have revenue of $750 per month or $9000 per year, which is a 39% return on our capital per year. All expenses like tax and insurance would be paid by the rents from the part of the building we didn’t tear down. Now let’s compare that yield to the other option, which would be leasing 800 SF of space in the back of our building. Renovation of the space would cost $40,000 including structural repairs, roof, rock, paint, and electrical repairs. Rents are hard to predict as the building has a front section with 2000 SF remaining, so I would have had to offer this renovated space as an add on to that tenant. I didn’t see how I would arrive at the same yield, and actually think that I would have had to “throw the space in” with a prospective tenant because they just would need it. And they would be asking me where they are supposed to park, LOL. Thanks again for the comment, I’m glad it gave me a chance to break the numbers down. Matt
    Aleksandar P. Investor from Chicago, Illinois
    Replied over 3 years ago
    Matt, another great video and a valuable lesson learned. I have a question though: How hard it is to change the zoning of that single story building to the parking lot? I didn’t know you could change the purpose of the Real Estate just like that. Thanks.
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hey Aleksandar, Good to hear from you. The zoning for the building allowed for several uses, one of which was a parking lot. It’s a mixed-use building so commercial and residential uses are also allowed. If we had converted it to, say, a gas station then we would have had to apply for a zoning variance which would have taken another 4 months. No thanks! Matt
    Kenneth Jackson Investor from Plantation, FL
    Replied over 3 years ago
    Matt, Thank you for the post. Very interesting and thought provoking. I am not currently a real estate investor but I hope to take that plung soon. Do you have any advise on best practices to make myself smarter on rehab costs and cost/benefits analysis so that I may approach my investment opportunities with a better understanding and confidence about whats possible?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hi Kenneth, Good to hear from you. I would suggest that you consider one of the rehab analyzer softwares out there. They typically have estimates for costs included in the spreadsheets. If your goal is to get exposure to general construction methods and knowledge, consider spending some time on a construction jobsite either as a volunteer or apprentice to learn hands on. For the anaysis softwares, I use Flip Analyzer, you can find it at http://www.RentalSoftware.com. I actually negotiated a coupon code with them, use “derosa” to get 10% off. I hope that helps!
    Ashley W. from San Francisco, California
    Replied over 3 years ago
    Hi Matt, Very thought provoking, I appreciate you sharing this as I’m new to REI. I’ve read a lot about creative financing, this post is a great way to provoke creativity with the properties themselves! Many thanks!
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hey Ashley, Thanks for the comment!! Creativity benefits you EVERYWHERE in this business – financing, marketing, sales, and of course highest and best use of the property. Glad you enjoyed! Matt
    Luxurydigs
    Replied over 3 years ago
    Matt, I must say that i am really impressed with fascinating question “What is the highest and best use of this property?” The other thing investor should know that What quality of material used for construction?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied over 3 years ago
    Hi, I’m glad you enjoyed it! Matt
    Luxurydigs
    Replied over 3 years ago
    Matt, I must say that i am really impressed with fascinating question “What is the highest and best use of this property?” The other thing investor should know that What quality of material used for construction?