Ever seen a property listing that made you think, "Perfect! ...if it weren't for that one huge problem"?
In 2022 I turned one of those "problems" into a $740,000 payday on a $135,000 investment. And I gave away half the property to do it.
Properties with “one big problem” are often gold mines because of a psychological flaw.
Here’s how the investment played out.
1) The Setup: Two buildings, one property.
Building A: A tidy medical facility with a paying tenant. Prime real estate catnip.
Building B: A decrepit, boarded-up nursing home. Think "haunted house" vibes.
2) The Problem: Every potential buyer got spooked by Building B. It screamed "hassle," "expense," and "run away!"
3) The Secret Weapon: The "Broken Plates Theory." Studies show people would rather have a perfect 24-piece dinnerware set than a 40-piece set with a few broken plates and 31 perfect plates, despite the latter being worth more. This psychological quirk demonstrates how imperfections in the whole trigger disproportionate reactions.
4) The Move: I bought the property for $447,000 – and just $135,000 of my equity. Yes, haunted house included. Cap rate: 14.7%.
5) The Twist: Instead of sinking money into renovations, I donated Building B.
6) The Result:
Building B? Demolished, about to be a community park. (Hello, positive PR!)
Building A? Sold 15 months later for a cool $747,600.
The Math: over $300,000 profit after expenses. Plus, a $450,000 donation that dropped straight to the bottom line.
If you understand the Broken Plates theory, you will view separate buildings as separate problems, and don’t let the boarded windows cloud your judgement on the hall. That run-down nursing home was never a liability. It was a golden ticket disguised as a problem.
Remember this lesson the next time you see:
The beautiful colonial with a broken fountain. The warehouse with a rusted roof. The apartment building with an outdated lobby. Or, a medical building with a dilapidated nursing home.
And watch your bank account explode.