Webster’s defines “creativity” as “the use of the imagination or original ideas”. And success in real estate today demands some use of creativity to get an advantage over the competition. So how do you make deals using “original ideas”? These can include a fresh approach on an old industry like AirBNB, or using an unusual structure like seller financing, or maybe paying a little extra based on the ability to immediately increase occupancy or rents by transitioning to internet marketing. If you want to get the edge on the competition, then this podcast will broaden your horizons.
Episode 2: The Necessity For Creative Thinking In Real Estate Transcript
Webster's Dictionary defines creativity as the use of the imagination or original ideas. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. We're going to talk about the necessity of using creative thinking today in real estate. In fact, there's never been a moment probably in American history where thinking outside the box has been more crucial. So why? Why do we need creativity today? What is there that's different now? Well, the first thing is times are changing, and you have to be very nimble today because there are so many megatrends occurring. It's kind of like looking at the weather radar. Sometimes you look at the weather radar and it's just a flat screen. There's no storm turbulence at all, and others you see all these storms passing rapidly, typically from west to east, and right now is one of those times. If you look at the landscape of America, you're going to see there's all these different storms and changes and things you have to be aware of, and you have to be very quick to maneuver around. Let's go over what some of those megatrends are first. The first one would be the Internet.
Now, I'm a baby boomer, so I did not start my career off using cell phones. I started off using pay phones. I was around in business when we did not have any type of voicemail, so we had to hire people to answer the phone, and when the business was shut for the day, the calls would just go unanswered. The Internet, however, has been a huge driver to shifts in the American real estate market. We've all seen what's happened, of course, with the office market. There's a whole lot of office space out there, which is basically empty, and that's because people today can work remotely. You can work from a coffee shop on a laptop on your cell phone. Heck, you don't even need a laptop. You have a computer inside your iPhone. As a result, people don't need offices anymore, and occupancy has slumped, and rates have gone down. And then, of course, retail has been one of the great victims of the Internet because now you can simply shop online. I myself always just buy things on Amazon because I can get them delivered cheaper than I can get in the car and drive out to buy it. I don't have to waste any time in shopping, and it's much more convenient.
And we've all seen the result, which is emptying malls across the nation, empty big box retail spaces everywhere. And, of course, the hotel industry also has seen a lot of crisis now because a lot of companies that used to hold big events and conventions, they just do it remotely now. Why spend a fortune to travel to some spa to look at some booths when you can just do it through Zoom or some other function? As a result, the Internet has drastically altered the geography of real estate and how things go and what niches are hot and which niches are not. And as a result, you've got to be creative to think, how do you work those niches? How can you invest in office or retail or lodging and make any sense of it? Or is it better left to be avoided? And then also, what will the Internet do going forward to other real estate sectors? And then you have the geography. It's a simple fact right now that most of the American population is gradually moving from the north to the south. Now, why is that? Well, some would say they're seeking warmer weather. Some would say they're seeking lower home prices.
I don't know exactly all the many machinations that make people move from one spot to the other. But if you look at where the population trends are based on the census, you'll see they're growing in places like Nashville and they're shrinking in places like New York. Also, you'll see a lot of movement from the coasts to the middle of America. People are pulling out of states like California and they're moving more to the center of America. They're moving again out of places like the East Coast and moving towards the center of America. And as a real estate investor, you've got to stay on top of that stuff. You have to be very nimble, very creative in thinking, okay, well, I can't do like people did in the past where they just say, this is the hot market forever. There is no forever hot market anymore. It's always changing. And then you have the weather. We've seen what happened just this past year with repetitive hurricanes destroying so many communities down in not only Florida, but in other states as well, such as Asheville, North Carolina. As a result, you've got to stay nimble regarding the weather, making sure you don't invest in areas that endanger your property through a flood or it could even be a fire.
We saw that in California. And then even if your property isn't destroyed in any way with those weather events, can you afford the insurance, which just keeps going up and up. And in some parts of Florida, you cannot even obtain it now. Then you had the politics. Everyone's aware, anyone who watches the news knows and goes through the news channels, our nation has never been as divided. And we fall into basically two camps, which people say are the blue and the red states. And regardless of your politics, there's one thing that's a fact, and that is red states are much better as far as landlord laws. They give you much greater protections of your property, much greater protections as far as your ability to do such things as evict people who don't pay, and the blue states don't. And as a result, based on the political arena, you're also going to have to stay nimble and creative because you don't want to get on the wrong side of that curve. You wouldn't want to buy a rental property in a state, for example, that suddenly enacts rent control, as Washington state just did. You have to stay very, very aware of the politics.
And then you have the fact right now we have very, very high interest rates. Highest interest rates in the past 40 years. And you have to stay creative. You have to learn how to work around those interest rates, because those interest rates right now could kill your deal, because mom and pop may say, well, I don't want to sell for the pricing right now. I'll just sit it out for a while. To meet the price they have, you've got to get creative. You've got to think, what are some of the alternatives I have to banking? Things like seller financing may be a big deal to get a lot of deals done today, because mom and pop will be more than happy to carry the interest on the note at a lower interest rate, because that's all they would get in a CD. But creativity is always at a premium when you have times of economic uncertainty with higher interest rates, because often you just can't use conventional banking. And going back to the earlier megatrends we talked about, if you're looking at properties in some of those vulnerable areas, coastal areas due to hurricanes, parts of real estate that are impacted by the internet, again, it's going to require some creativity to figure out how to make those work.
Now, we know that they can be done. We've seen, for example, big office buildings converted into apartments. You've seen a lot of that. You've also seen big retail centers converted into self-storage. But again, it was all born of the concept of thinking outside the box, not looking at things through the perspective of the past and how people used to do it, but instead saying, okay, what happened in the past doesn't work anymore, so what am I going to do? I've got a building. It's got a permit. It's in good condition. But what can I creatively think of as a use to fuel getting a regular rental check on this property? Also, you've got new real estate sectors that suddenly are stronger than some of the sectors of the past. Because when I got into real estate long ago, about now almost 50 years ago, in fact, real estate back then, the hierarchy was office was at the top, and then you had apartments and hotels, and then you have all these little alternative investment things towards the bottom. And people laughed at them and said, those are goofy. Those are stupid. Don't invest in that junk.
But lo and behold, suddenly the tide has changed. You've got single mobile home parks, for example, that sell over $200 million for a single park, such as in Sunnyvale, California. That's more than the office buildings sell for now in those markets. And that's simply because a lot of these alternative little niches have been quietly out there gaining rent, gaining value, gaining power, while the other guys went down the drain. For every giant empty office building in America, there's a newly fully occupied mobile home park because of the demand for affordable housing. Some of those hottest niches are such things as trailer parks, known as mobile home parks, RV parks, self-storage to some degree. And then even inside the housing arena, things like tiny homes, all the types of affordable housing, boxable units. These type of things are all brand new. They would never even be thought of 20 years ago. We never even heard of them. All those shows on there like Tiny Home Nation, there was no shows like that, not that long ago, it didn't exist. And that's why you have to, from a very creative aspect, start looking around yourself constantly, trying to see, okay, what are the gaining niche real estate?
What are the things I don't normally think about? What are some of the things out there right now which can be very powerful but yet are overlooked, such as things like mobile home parks, which no one cared anything about, even into the '90s. No one ever looked at the things. And only recently they realized, wait a minute, those things are rare. They don't make any more of them. The rents are going up a lot. The occupancy is skyrocketing. And it's recession resistant because in both good times and bad times, people need that kind of housing. The bottom line to it is that the smart real estate investor has to think outside the box. You have to get creative. You have to see the world through an entirely new lens because it's not the same world that it used to be, and that's what will give you the opportunity. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. Hope you enjoyed this. Talk to you again soon.