Major and minor developers and investors fill markets like Los Angeles, New York City and Chicago looking to capitalize on the growth associated with these markets.  Novice investors typically take the “me too” approach by trying to enter these markets on a smaller scale or drifting to the outskirts or city limits.  Conversely, smart investors know that by establishing a superior value proposition in an area with little competition yields the biggest return on investment.

Consider my own interesting start in the real estate business.  Living in Detroit, Michigan, I decided to start my real estate practice in the worst real estate city in the United States.  Luckily, I had two things going for me: 1) A tremendous passion for people and real estate and 2) An excellent eye for out of the box investment strategies.  After speaking with real estate agents and mortgage brokers, I discovered that most tenants would pay about $700-$800 to rent a two-bedroom home.  I also discovered that a two-bedroom house sold for $25,000 - $60,000.  The lowest end of the range represented fixer uppers without tenants, while the upper end represented nice structures usually owned by a family or rented to a family.  There would be no natural appreciation because jobs were leaving and the city continued to experience terrible urban decay.

Next, I got on the ground and spoke with the market.  After interviewing tenants, landlords and more agents, I found that most landlords treated tenants poorly and most tenants were only tenants because of their glaring credit score issues.  It turns out that it is very hard to live in Detroit without being laid off at least one time. 

By now I had established a need, an opportunity and a plan.  Everyone in the city needed a decent place to live where they could be treated with respect.  At $25,000 - $40,000, I had the opportunity to provide this at a cost to me of approximately $250-$300/month, while charging a rent of $700 - $800.  Finally, I put together a plan to buy two houses to start the business and test my theory.

My plan ended up being wildly successful.  Not only were both properties providing ~$300/month in cash flow after expenses and debt service, but the properties were appreciating.  They were not appreciating because of the neighborhood, but rather, they were appreciating because I was able to provide any future buyer with tenants, who did not miss a payment in 12 months, and who were locked into a lease at $750/month.  Properties purchased for $30,000 - $40,000 were now worth $50,000 - $60,000. 

This is one example of a unique plan tailored to a local real estate market.  With few investors interested in this market, I had all the investment opportunities I could buy.  Once I established my reputation as one of the best landlords in Detroit, I also had all the tenants I could house.  While this turned out not to be scalable because of its intensive management requirements, I could not have asked for a better first time investment experience.