BiggerPockets Real Estate Podcast - 911: The “Value-Add” Playbook: How to Boost Equity and Bring in MORE Cash Flow

Starting point is 00:00:00 This is the Bigger Pockets podcast show 9-1-1. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. For those of you who are new here, welcome. And for all investors today and tomorrow that have been with us for a long time, welcome back. I'm here today with my rad co-host, Rob Abasolo. Rob, how are you?

Starting point is 00:00:21 It feels good to be your partner in crime in today's episode. And listen, if you've been a listener of the Bigger Pockets podcast for a long time, then you've probably heard us talk about this idea of adding value to properties. Today we want to slow down and actually talk about what we mean. What does adding value actually look like? What are the different ways you can increase a property's value and how you're going to decide which strategy is going to work for your specific property? That is right. If you've ever heard people talk about value add and thought, well, thank you. But what does that actually mean? After today's show, you're going to walk away loving us. This is an emergency in real estate on

Starting point is 00:00:57 episode 9-1. We're going to be covering it. The listeners have thrown up the bat call, so you and I are going to come and squash this one head on today's episode. Let's get into it. I can't wait. Let's get into this today. What do we mean when we say add value to real estate? One of the ways we phrase this oftentimes on the show is forced appreciation, forced equity. The idea of adding value is how can you come into a property and make it more valuable? I know that that sounds very basic there, but the idea is you got this property that performs at a baseline metric, what can you do from a renovation standpoint? What can you add? What kind of square footage is able to be converted in this property to make it a more valuable asset where you two

Starting point is 00:01:41 list it on the market and resell? That's right. We typically look at real estate from two perspectives that it values us, cash flow and then the equity that's in the property. So if you can increase the value of the property, you can increase the equity. And if you could increase how much you charge for rent or how much income you bring in, then you could have charged the value from that perspective. What do you think are the two most common ways that people think about when they want to add value? Yeah, so it comes out to two very basic principles here. Can you make it bigger? Can you make it better? Right. Yeah. For a long time, real estate investors didn't really have to worry about this. Value ad was sort of like the icing on the cake. We typically just looked, analyzed for cash flow,

Starting point is 00:02:18 bought the highest cash on cash return we could. And hey, if you could add some value, a little razzle, dazzle in there. That was cool. But in today's competitive market, you really have to have goggles to look at a property and see how you can take it from zero to hero, or you might not be able to make the deal work at all. Now, Rob, you and I have conversations quite often about what we can do to increase the value of property, really bring it to its highest and best use. And sometimes that means increasing the ADR. Sometimes that means increasing the rent that you can get on the lease. And sometimes that means actually increasing the usefulness of the property. What are some ways that you make a property worth more even if you can't add to the square footage. Yeah, so this goes into the second

Starting point is 00:02:56 category, right? We talked about making it bigger. Category number two is make it better. How can you actually improve the property and make it better so that people are willing to pay you more to stay in that property as a long-term rental or as a short-term rental, right? Obviously, there's going to be differences in a long-term rental approach. In a long-term rental approach, we're talking about maybe a minor renovation. Maybe we're talking about a full-on gut renovation that modernizes the inside that allows you to increase the overall monthly rent on that property. And then when you're talking about short-term rentals, I mean, it's not too dissimilar than that because you still want a nice, modernized place. But oftentimes you get to this fork in the road, I guess, as a short-term

Starting point is 00:03:38 rental where you ask yourself, well, do I want to spend my money on the actual remodel of a property or do I want to spend my money on the amenities? And this is where we start getting into that better territory. And this is something that you and I have done recently with one of our properties, where we invested about $22,000 into our Scottsdale property to resurface our pickleball court. And that makes it better because now people see those photos and are willing to pay more money every single stay. And as a result, we have increased the average daily rate.

Starting point is 00:04:09 You mentioned that earlier, the ADR and our yearly income. And now, overall, we make way more money as a result of focusing on the better versus making it bigger because that property is already 6,000 square feet. We don't need to make it bigger. We need to make it better. So you're the bird guy. So obviously, you're a little bit more privy to how this works on a long-term rental. How do you go about making properties better from a long-term rental perspective?

Starting point is 00:04:32 Yeah, that's a framework that my mind is kind of put together at this point. So sometimes you can make it better by adding a unit to it. So you have an entire area that could be rented out that couldn't be rented out before. But then you've got to ask yourself the question of what does this need to be able to exist as a standalone unit? It's going to need a separate entrance. It's going to need its own windows. It's going to need kitchens. It's going to need bathrooms.

Starting point is 00:04:53 So sometimes just adding plumbing to certain areas and running electrical to it right away makes the property better. Because now I can add a kitchenette. I can add a bathroom. I have a whole separate unit that can be rented out. You're also adding bathrooms to the count on the house. And if it's a nicer house and it doesn't have a lot of bathrooms, that alone can make it appraise for more. I also will add bedrooms to a property. So sometimes I find a property that's like 3,000 square feet and it's got three bedrooms. Now, there's always bedrooms in that property that could

Starting point is 00:05:22 easily be converted. They just don't technically qualify. So sometimes I'll add closets. Sometimes I'll frame off like a den or an office or a living room with French doors and boom. I've got another bedroom there. But anything that's going to make it look on the MLS if I want to go sell that property is having more bedrooms, more bathrooms, more square footage, or just more useful space will definitely add value to a property. Yeah, you and I have had some really interesting conversations about what makes it worth it for us to invest into a property? Because for me, I see a lot more amenities and like, you know, arcades and theaters. But the problem when you start getting into that space on the short-term rental side of things is it's not dollar-for-dollar

Starting point is 00:06:01 going to add to your equity, whereas square footage and renovations might. And so this is always like the caveat that I tell people is if you're looking to do value ads, especially on amenities in the short-term rental side of things. Keep in mind that those amenities may not translate to a higher sale price, but it could certainly translate to a higher revenue for that particular property. Yeah, that's just understanding is this improvement? Are you adding value to the cash flow of the property or are you adding value to the equity of the property? And ideally, you do things to add both. So when I add a whole other unit to a property, I'm getting more cash flow and I made the property itself worth more. Now, sometimes you can't, and that's where you're in the situation like

Starting point is 00:06:38 you or me. We've got a two-car garage in our Scottsdale property. We also have tons of covered parking and it doesn't rain a whole lot in Arizona. And generally speaking, I don't think people need a garage when they stay at a short-term rental. They've usually got a rental car. It doesn't matter. So we're like, what are we going to do with this garage? Could we make it into a movie theater? Yes. We've talked about adding a golf simulator into there. We've talked about adding arcades. All of those things will probably make it rent for more. And we did add value to the property from that sense. But if you go to sell it, the arcades, the golf simulator, that's not necessarily adding value to the home. So you spend a lot of money that you're not going to get back on the equity side and you just

Starting point is 00:07:15 have to balance that. Like, all right, how much do I like to get back in cash flow? Right. And how many years will it take to get that money back? Versus if you just build an ADU on a property, you're getting cash flow and you're getting value back immediately on the equity side. Yeah, it's a fine line. And so I just, I challenge everyone when you're looking at the short term rental side of things to keep in mind, it is a bit of a tight rope walk in terms of adding actual equity versus revenue. But to me, I thought it was imperative to add more revenue to that specific property. And so, yeah, I think that investment really panned out. February income just from that value add was up

Starting point is 00:07:50 200% this year, over last year. So in that instance, I'll take that all day, whereas adding square footage may not have been the right choice. And, you know, to be honest, in this one, it might actually have added value to the property as well. Because the, The sport court when we bought it was in rough shape. It was almost useless. So if you were looking for a property like this, you were bonded by luxury real estate in Scottsdale, that would have been a blight. That's going to turn buyers away because it was so bad. Now it's actually usable space. All right. So we've defined what we mean when we say value, either increased equity or increased rent. And we've talked about why adding value is the way to build wealth of real estate right now.

Starting point is 00:08:28 But how can you use this information when you're looking at potential deals? And what are some ways to add value that people might not think about? We answer that right after the break, so stick around. If the new year means getting rentals back in order, listings are a good place to start. Avail, part of Realtor.com makes it simple to list a rental for free and get it in front of millions of renters. One listing, one click, posted across 24 top rental sites. Avail even helps generate listing titles and descriptions to save time. More visibility means fewer days sitting vacant and getting your property rented quickly. It's a fast, free way to find renters without the usual hassle.

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Starting point is 00:11:22 skip trace them instantly, for free, and reach out with calls or texts, all from one streamlined platform. The real magic, AI agents that answer inbound calls, follow up with prospects, and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at re-simple.com slash bigger pockets. That's R-E-S-I-M-P-L-I-com slash bigger pockets. Welcome back. David Green and I are here hashing out ways you can add value to a property to make a deal work. So let's jump back in. Now, we're talking about this from the perspective of property you already owned, but a lot of the time you're going to be looking at properties that you want to buy and factoring this into your analysis. So I will often buy properties that have a lot of square footage that is not included in the value of the property. Okay, so that's a very interesting topic. So let's talk about that for a second and then we'll dive into the nitty gritty here. But how can you actually make a property bigger in terms of value, even if you can't literally increase the square footage? You're saying it's that included in the county assessor, but give us an example of this. Yeah, what you don't. want to do is have to build entire structures on your lot. So every time I go to a conference,

Starting point is 00:12:30 someone will come up to me and they will inevitably give me the question of, hey, I got this property, it's got a big lot. I want to build an ADU on the property. I'm like, okay, that sounds great. What's it going to be? It's going to be about $150,000 and it's going to bring $1,000 of cash flow. It's like, man, for $150,000, that's a whole down payment on an entire property. You're going to spend that on an ADU and you're not going to be able to get your money back out of it a lot of the time. It's not always a great use of capital. But what if the house has a detached three-car garage that could then be converted into its own space, maybe a two-bedroom, two-bathroom, two-bathroom with a full kitchen? Now, instead of spending $150,000 to get something that you could rent out,

Starting point is 00:13:13 maybe you spend $60,000 to $70,000 to get something you could rent out. That's a way better use of your capital. And you want to target properties that have what I call low-hanging fruit. Another one would be, a basement that's unfinished. The property that I bought in California last year was a two-bedroom, one bathroom property in a really good area that I was able to buy for a little over 800,000 where there's nothing for sale of that area for less than a million. It was so cheap because it was so small. But it had a massive basement and a two-car garage attached to it. It was basically useless. It wasn't being used for anything. So I bought that house and I more than doubled the size of it for about $110,000. Wow. I got a massive increase in my equity there. And

Starting point is 00:13:54 now I have two units that can be rented out in the same property because I looked and I saw something that all the other buyers were passing up. Yeah. So let's change the conversation a bit because I think that's a brilliant strategy. Obviously, if there's space that's being unused, I've got properties where that's the case and I see the obvious value add component. But that may not always be the case. So I want to talk about what if you can actually add literal square footage? What does that look like? And there's a few different ways to do this, but one of the more obvious ways, which I haven't really ever gone this route because I'll talk about this in a second, but additions, which would include more bedrooms and baths. And I've always just found additions to be relatively costly in just

Starting point is 00:14:36 the properties that I've had, whereas another option would be to convert outdoor spaces to ADUs or building ADUs from the ground up. And for me, in my journey, I was trying to do like the supreme version of a house hack and build an ADU in my backyard, my tiny house in Los Angeles, California. So I built that from the ground up. And the reason I didn't do it attached was more so to build it attached or detached in that specific circumstance. There wasn't a huge gap in the pricing between all that. And I wanted a little bit more privacy as well. So I found the ADU tactic to be really, really useful for that. And that to me was such a great value. That's added a ton of value to that specific property.

Starting point is 00:15:18 And not only that, but it actually now cash flows anywhere from the $2,000 to $3,000 a month route, depending on how it rents on the different OTAs, online travel agencies out there. So I know you have a little bit more experience with additions. How do you gauge that if you're going to do that versus just trying to find a house that has underutilized square footage? When you're looking for something that has space like we just described, that isn't being useful for the property. Now, after a while of doing it, you just sort of see it on your own and you feel sad inside.

Starting point is 00:15:49 Like, man, they got all this space. Like when I walked through that basement, why? Why would they have all this here? It had framing work done. It had electrical work done. And it had plumbing right above it. And I'm just walking through dirt. It didn't make any sense to me.

Starting point is 00:16:02 You're in this grade A real estate and expensive part of California. This should have been converted. We have what are called California rooms out here. So this is like an outdoor seating area. Basically imagine an entire room, but you took away one wall. and that goes into the backyard. Like a sunroom kind of thing? Similar, but a sunroom is typically something you'll see like in Florida.

Starting point is 00:16:21 And the entire thing is covered, but it's not covered by drywall. It's covered by some kind of like windows or it's got like wood exterior. Or like screens or something. Yeah, screens exactly. But it doesn't have insulation and it doesn't always have electrical run to it. But that principle works exactly the same. Sunrooms, Florida rooms, California rooms. Can you go in there, add some insulation, reframe it, and then cut.

Starting point is 00:16:44 cover it with drywall and have its own unit. Now, here's what's cool. Oftentimes, those types of properties that I was buying in California when I was on my Burr streak, the kitchen was right next to the sunroom. So I could tap into plumbing and electrical very easily, add a bathroom in a kitchenette, and you could either have a standalone ADU like you just described, or you could add a master suite to the house. So I would go and I would buy two bedroom one bathroom or two bedroom two bedroom,

Starting point is 00:17:09 to bathroom and then I would add this master suite and I would get another bedroom and another $70,000 to $80,000 of value to spend maybe $30,000 to do it. And that isn't a huge win. But when you're racking this up over two, three, four, five properties, it starts to become consistent income. And what's more important is in today's market, you can make deals work that your competition can't because they're not looking at it from this lens. Yeah, totally. I will say, actually, I did do, man, it's kind of this weird. pseudo edition type of thing. We had a sunroom in a property that I just built. I just launched the Pink Pickle, which is like my bachelette party in Austin, Texas. And there's this sunroom

Starting point is 00:17:49 attached to the back of the property that we were going to convert into a room. And once we pulled to the drywall or the paneling, big mistake, we realized how horribly built it was. And basically my contractor was like, look, dude, it's actually going to be cheaper to rebuild all of it and to tear it all out. And that's basically what we ended up doing. And so we, we rebuild it. We rebuild. built that entire sunroom, which I would say was in the neighborhood of like 10 by 20 square feet. So about two, 300 square feet somewhere in there. And that, to me, was like a really big value ad because we didn't actually add a bedroom to it, but we did add square footage. And that square footage became, it's kind of this weird like mixture of both. That square

Starting point is 00:18:29 footage became a huge game room with like a ton of amenities in it that my short-term rental guest will love the extra space and the ability to hang out in that room and everything like that. So it's kind of like the best of both worlds in that scenario. So there's no right or wrong, just kind of what's right for the specific house that you're buying. Now, where this becomes a game changer is when you take this thing that we're talking about of taking unused square footage and converting it or maybe building a little bit onto a property, but not all the way, and combining that with short term rental and medium term rental strategies. So what you just described is a way to make a short term rental rent for more. You added a game room. You're getting more guest stays. You can charge more

Starting point is 00:19:07 per stay. Well, I do this a lot with medium-term rentals. So I'll take that basement and I'll convert it into its own unit and I will rent that out to a traveling professional that doesn't need a huge, big standalone space. They just want a place to go lay their head and sleep that's going to be quiet and clean. So the standard of performance that that little unit has to meet is much less than if I was trying to like, I don't have to build a house from the ground up to make a family happy to want to rent it. I'm going to be renting to someone that is not going to be super picky. They just need a clean place to stay. But if they have somebody living above them, it's not really any different than an apartment complex or if the ceilings are a little bit lower than what they might

Starting point is 00:19:44 have expected or the bathrooms in a different location. It's not as important. So what we talk about on this podcast are all these different strategies and what you and I are talking about on today's show is how we add these strategies together to make this cash flow casserole so that you can make a deal work that otherwise wouldn't have. Cash flow casserole casserole. I love it. So let's get into the nitty-gritty a little bit of the technical side of this because obviously if you're doing additions, if you're renovating, if you're doing all that type of stuff, how can investors determine if they're even allowed to make changes to like these types of properties? Like can you even add square footage? Because I'll say, for example, in Los Angeles, there was like a ratio

Starting point is 00:20:23 as to how much building square footage could be on the lot. And so my tiny house actually had to, it had to literally be a tiny house or else I couldn't have built anything. just due to the ordinances of that city. Yeah, some cities are going to be much more vigilant of this than others are. I know some investors doing this in places in the Midwest and the South. And I asked the question you just said and they go, huh? Then other areas like California where we live and they're like, what? What's that?

Starting point is 00:20:49 Did I just hear a hammer and a nail? Someone's at the city inspector right now and they come out with their binoculars and their spy game gear. And they're looking for every little thing, which is funny, ironically, because those are the areas that need housing the most where we have the biggest shortage. but you still have the most regulation. So one thing is talking to an experienced investor that does development in that area, that's one way you can tell.

Starting point is 00:21:11 And then it's not a bad idea to call the city and ask. Now, here's what we do on our side. We don't call and say, hey, this house that we own on 1, 2, 3 Main Street, or hey, this house we're thinking about buying on 1, 2, 3 Main Street. This is what we want to do. Because now you've triggered something

Starting point is 00:21:27 where the current owner can find themselves in hot water or you put yourself on their radar and you maybe didn't want to be there. Instead, what we'll say is, hey, we're looking at buying a house of this neighborhood. What we want to do is convert a basement or build out this back room and we want to turn it into extra living for the community. What's the process like to get that permitted? And if they go, oh, Mr. Green, it's not a problem at all.

Starting point is 00:21:49 Here's what's going to happen. You're going to meet Inspector Smith and they're going to come by. They're going to measure this and they're going to check for that. Well, maybe you do that during the inspection period when you have the house in contract. And if there's a problem, then you back out of the deal. But if they go, oh, well, there's a. wait list. You're going to have to fill out this application. It's going to be nine months. And then you're going to talk to so and so. They're kind of letting you know that this is going to be a much

Starting point is 00:22:10 bigger deal. When that happens, I bring in the big guns. I call a contractor, ideally one that's done it before. And they know the city. They know those people. That's when you're looking for at least. And they can tell you, hey, this is a bad idea. This is going to get in trouble. Or, you know what? I think this will be fine. We'll just go about it this way. Yeah, I'm just going to give you one tip on top of that that I think is so important. Just go to the city. I know this is an applicable. to, you know, out of state investors. But if you live in the city, you 100% should go to the zoning and planning office because they get a lot of phone calls from people that, you know, I want to build a tiny house and I want to do this. They're just not going to give you the time

Starting point is 00:22:46 of day as much as if you just go in person. They'll still hate you. They'll just hate you a little less. I don't typically find the city workers to be the most pleasant group. But in person, you can try to, you'll have a better chance of building a rapport with them. All right. So we've walked through a bunch of ways that you can have value to a property. But what does that look like in the real world? After this break, we're going to dive into an example of how to use multiple value-ad strategies at the same time to turn one property into a highly profitable machine, and it's going to be a deal for my own portfolio. What if your CRM actually did the hard work for you? I know, crazy.

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Starting point is 00:25:54 And listeners of the show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash rookie. Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. And welcome back. We're in the middle of a casserole of a conversation about how to add value to a property. Grab your forks. Let's dig back in. So David, I understand that you have this property, I believe in California where you're sort of using a mixture of these like, I think three different value ads. strategies on one single property. So walk us through that case study and I guess the super hybrid

Starting point is 00:26:38 of value add that you're doing on this property. Yeah, this is a good example of how we take all of the ingredients we talk about in the cassero and we put it together in one dish. Now, I wanted to buy this property because of the location. It's a really good location. And the property was sitting on the market for a long time, even though it's in a great location. And it was priced reasonably because it's like layout was this little funky. It's 5,000 square foot property. and it has a really big lot with two four-car garages on that lot. But the kind of person that would buy it would only be like a mechanic. It was sold to me by a person who was a general contractor and he wanted all this space for all his workshops.

Starting point is 00:27:14 Most people that are going to be buying a property that price, it was a little under $2 million. And at that square footage, they're going to be a wealthy family and they're going to be wanting amenities. They want a really big swimming pool. They want a floor plan with like a lot of cool stuff in it. And the neighbors were a little bit close to this house. So it sat on the market for quite some time, but it was one of those properties you want to own because in 10 years it's going to be worth way more. The problem is I just couldn't make it cash flow. I couldn't rent it out for as much as what the mortgage was going to be.

Starting point is 00:27:41 There wasn't really like any obvious way to add value through a burr because it was already in super good shape and a gorgeous property. So I had to get creative. What I'm doing with that is I'm using three different strategies on the same property. So I added two spaces in the main house and turn them into bedrooms and I added two bathrooms. So now I'm going to have nine separate rooms that I'm going to rent out by the room like pad split style is what we call it. Oh, okay. I was going to say like pad split. Yeah. Yep, exactly. And I just, all the rooms are really big big. So I added, uh, their own fridges to it, a little computer desk. I decorated them. I put really big beds and a lot of furniture. And those will be rented out to a combination of traveling nurses and people that just want to rent a bedroom in the Bay Area. It's almost like having your own apartment, especially if it has its own bathroom. And then there's a huge community kitchen that everybody's going to show. And then there's a huge community kitchen that everybody's going to show. And then. And then there's a huge community kitchen that everybody's going to show. And then. And then. And then. And then there's, Now, there's also an ADU in the property that's like a studio, and I rent that out specifically as a medium-term rental. That's on Furnish Finder right now, and it's been rented out the whole time that I've had

Starting point is 00:28:39 the property. Then one of those four-car garages, I've already got permits from the city to turn into a duplex. So now I'm going to have a four-car garage turned in to two different units, each that has a two-bedroom, one bathroom layout with the kitchen. So that's going to be like traditional rental. I've got two units that I can rent out. And because it has all that parking and it has a four-car garage. I've got enough space for those nine people that are living in the main house to be able to all have parking. And the duplex is in like the back of the property where there's a separate entrance that comes in from a different area. So they're going to be able to park and a part of the backyard where I'm just going to lay asphalt down over the grass. And in essence, I've taken all of the

Starting point is 00:29:17 strategies we talk about on the podcast, put them together in the same property and ended up in a grade a neighborhood where I'm going to get the best tenant pool available. Dude, that is the craziest casserole of a house that I've ever heard. So help me understand, do you know the numbers off of your top of your head of what this property will gross or, yeah, what the gross revenue will be at its peak if everything is booked versus a different use case for it? So we're anticipating somewhere for the bedrooms between 1,500 and 1,500 a bedroom at nine bedrooms in the main house. So if we just take even a thousand bucks a room, there's 9,000 there. The studio as a medium term rental is going to be rented out for about 2,000 a month. That's what I've been getting. So that puts

Starting point is 00:29:57 be at 11. And then each of those duplexes will probably be bringing in somewhere like around 2,500 each. So that's another 5,000 there. So that would be about 16,000. Dude. And then what would it make as a long-term rental? Probably like $5,200 a month. My goodness. Dude, that's nuts. Now I imagine probably some management fees and yeah, some property managers that need to oversee that. But the point is, you're going to do about $9,000 or $10,000 more because you got super creative with how you added value to this specific property with its use case. That's exactly right. Yeah. And having the vision to see, ooh, this is a way that this property could work with all of the different techniques we talk about on this podcast. I think like if you take martial arts for a long time, it was what is your

Starting point is 00:30:40 martial arts strategy? Do you do karate? Do you do jujitsu? Do you do wrestling? Do you do Muay Thai? Well, then mixed martial arts came out. And it's like, no, I got to do all of it. But I just have to figure out which tool to use in which situation. Real estate investing has sort of become that way. very competitive. If you say, I do the Burr Strategy, I do short-term rentals, I do medium-term rentals, I do house flipping, I do buy and hold. That's great, but it's very difficult to make that work when everyone else is trying to do the same thing. But what if you could mix all those together and find a way to execute a plan that the other investors that don't listen to this podcast as often can compete with? So this goes back to the beginning of my real estate story and we'll kind

Starting point is 00:31:20 to wrap up on this. But for me, when I was looking for a house in Los Angeles, California, when I was first moving there in 2017, keep in mind, my Kansas City house was $159,000. I sold it for $2.15. So buying a $624,000 house in Los Angeles at that time was embarrassed. Like, I didn't tell my family. They would ask me how much it cost. And I remember what I told them. They were like, what's wrong with you? And I'm like, I don't know. But the reason I bought this property was, initially I wanted to say I can't afford this property, but what I asked myself instead was, how can I afford this property? And I thought of what are the different use cases for this? And so I was like, if I house hack and I rent out a unit at the bottom, I'll cover half my mortgage. And then I

Starting point is 00:32:03 thought, what if I build an ADU in the backyard, then I'll cover all of my mortgage. And then I had this amazing house hack. And then when I moved out, I turned my main home into a, I think a short-term rental, my tiny home into a medium-term rental, and then the studio at the bottom into a long-term rental. So I actually had the trifecta of rentals on this property. And as a result, it cash flows thousands of dollars, whereas any other investor might look at that and say, oh, doesn't pencil out moving on. So you've got to really find an opportunity in every house that you're examining and really just try to hammer what the best possible use case.

Starting point is 00:32:39 Because I'll tell you, David, on that property you just described, 99.9% of people would not have gone down that. Yeah, that's why it sat there for several months. And I also was able to pay less than what it appraised for when I bought it for that exact reason. It sat there for a long time. And so the seller kind of had to sell it to me. But everybody else looked at it and said, oh, it would bleed money. It's not going to cash flow. And it's not really working for a wealthy family that wants to live in a great-A neighborhood either is sort of sitting in no man's land. So maybe that's the moral of the story. How to find deals in no man's land and turn them into winters. I love it. Well, awesome. Yeah, I love talking about this topic. And I don't think anybody else is. So if you like this show, do us a fever and leave us a five-star review wherever you listen to your podcast. Those help us out a ton. And let us know in the YouTube comments if this is the kind of stuff you like. We talked about how to add value to properties by making them bigger. We talked about how to add value to properties by making them better. And we talked about how to use the mixed martial arts or green bean casserole, if you will, the David Green Bean Casserol, if I will, into making deals work that other people might miss.

Starting point is 00:33:43 And also, Rob, thank you for staying in the table. trenches the way you do, looking at a bazillion deals a day, and using all of that brainpower that God gave you to try to come up with ways to make deals work so you can share it with our audience who's all on that same journey. Aye, I, Captain, I think that's an appropriate thing to say. Here, here. Ahoy. All of them. All right, that was our show for today. Thank you for joining us. This is David Green for Rob the Value King Abysolo. Signing off. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform, our new episodes come out Monday, Wednesday, and Friday.

Starting point is 00:34:39 I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results.

Starting point is 00:35:08 Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 911: The “Value-Add” Playbook: How to Boost Equity and Bring in MORE Cash Flow

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