Wealth Creation Starts With Site Selection
By Pat Cardoni
In today’s ongoing quest to educate consumers on how to Build Value Through Construction I will talk about the importance of site selection for your real estate wealth creation.
Where and when do you think that you have wealth creation in real estate? Do you think it is the type of tile that you select in your master bathroom, or the decision to turn the basement into a man cave? Sorry Charlie, the reality is the wealth creation that you acquire is done when you decide to pull the trigger on your job site. Whether or not you make the right decision is possible if you have an understanding of your market and your construction costs. A mistake in either of these aspects can result in a loss or possible set you up to be “house rich, cash poor.” No one wants to be that guy.
Most of us know where we want to live based on our market knowledge and personal affordability. The question is, how do you go about finding a single family home in the area that you are looking for, with the price that you desire? For most the answer is to find a Realtor, then find a lender and then go make an offer. What you have to understand is that Realtors and lenders are great at identifying the transaction that works for you in the moment, but they are not often focused on wealth creation for you. You have to be responsible for yourself to do the grunt work ahead of time to identify areas that have the opportunity to turn into emerging markets, where exponential growth is possible. Those who had the foresight to invest in the 606 trail area are now seeing the fruits of their investment coming out in full force. (Side note, the word on the street is that Pilsen, an already booming market, is potentially being set up to have a trail as well).
What other specifics could you focus on to help you identify a wealth creation project? One of my keys to acquisition that I always try to have my clients focus on is the school districts. Having your home be even a block out of a desired school district can cause your value to change dramatically. In Chicago one of your best resources is the CPS itself. If you want to look up what school you are in plus its rating you can use the CPS school locator type in the address and you will see all three ratings for the elementary, middle, and high school where your home is located. All schools have assistant administrators that can connect you to the PTA or other involved parent organizations. These are the organizations that work with the schools to improve ratings. Tours of the facilities and sit downs with administrators are offered and in fact welcomed. The Educators want nothing more than for their school to be a 1+ rating. The schools are not naive, they parents looking for wealth creation want their kids to have the best education possible.
How about the house itself? One of the best ways to wealth creation through site selection is to look for frame houses, not brick. Cape Cods can be torn down to the foundation and rebuilt new on the existing foundation to save you considerable money versus a full tear down and start from scratch. You will of course want to pour a new basement floor and waterproof so that with an old 1,000 sq.ft. house you can create a 3,000 sq ft two story for less than you could by new on the MLS. These type of deals are hard to find, but the wealth creation received from identifying a project like this can be in the six figure level.
If you are a lover of brick homes, then you may want to look into converting a 2 Flat into a single family home. Those turn of the century two flats usually have 3 layers of brick! Back in the day they didn’t use insulation they just made the walls thicker as well as the foundations. That is why in up and coming neighborhoods you will always see de-conversion activity, or as we call it #2Flat2SingleFamily. Basements are dug out and lowered to add an additional 1,000-1,500 sq ft leaving you with a 3,000-4,500 sq ft home for less than the cost of a new construction.
Let’s go over some rule of thumb site rules for wealth creation.
- Alleys on the side of a house can cost you 5% of value.
- EL tracks in your backyard can cost you 10-15%.
- Being across from industrial/warehouse can cost you 10% out your front door and 5% on your side or back.
- Busy street can cost you 10%.
- Being on the lakefront is like being the latest lotto winner
- In other words use common sense when selecting. And use professionals when selecting for construction.
If you have additional questions about your potential project, do not hesitate to call us ahead of time so we can help with the site selection.