Highest and Best Use, Part 3

One of the easiest ways to find properties that are not at their Highest and Best Use is to do an MLS search. Most Multiple Listing Services will allow a "key word" search. What you are looking for are non-conforming properties.

Some of the obvious possibilities are:

1 bedroom

2 lots

multiple APNs (Assessors Parcel Number).

vacant lot

large lot

granny flat

needs TLC

"as is"

"below market"

small

"unpermitted" addition

Just running these searches every day will undoubtedly yield more properties than you could possibly handle. If you want to "do" them all, you need a team of investors. See my article on PowerTeams. I would have put in a link, but I haven't figured that out yet.

Another way to use the MLS is to find properties that are priced below the average for an area. They probably have some "USE" issues. Thet could be too small, have only one bathroom, have other functional obsolescense, or in some other way do not conform to the neighborhood.

Bringing a property up to its highest and best use is doing something good for society. Highest and Best Use is a function of society's desires for their neighborhood or area. The non-conforming house is generally an "eye-sore."

One of my "hot buttons" is a property that can handle more density. That means you can build extra units on the same property. I find these by running my MLS search on Multi-family listings looking for "large lot" or "open space" or "garden setting." You get the picture.

Sometimes highest and best use is less units. As an example: an apartment building of all "efficiencies" or "studios." They might be having high turn-over, low rents, undesireable tenants, or other "management" problems. Improving the use might entail consolidating the apartments to yield less units, but nicer and bigger apartments which rent for more money, have less turn-over, and less vacancies and other forms of uncollected rent. This means a higher net operating income (NOI) which means a higher value.

My general "rule of thumb" is that under-utilized land is an opportunity to add square-footage which yields enhanced equity at a greater rate than the cost of the improvement.