Usually, in the ideal home, “form follows function”. The floorplan is laid out to create the most practical and enjoyable living environment within the limitations of budget and building code requirements. Designs are a compromise between the most desirable plan and living and lot space limitations. But, architects can make mistakes when they design floorplans at random for magazines.
Here's what I mean: I live in a house with a view, but, others on my street live in houses that fail to exploit it. Why? Because the plans were drawn up by an architect who didn't know the site and the potential view. I've been watching a small manufacturing firm try to bring a new concept manufactured home to market. Somewhere along the lines, the engineers took control of design. As a result, they've designed a sturdy little house that can be built at a competitive price, but they left out the human factor. Homeowners buy houses, not engineers or accountants, thus, when a house doesn't appeal to a potential homeowner, it doesn't sell. In other words, function hasn't followed form.
When they use standard plans, for all of the above reasons, builders sometimes build houses that people just don't like for one reason or another. It's very tempting for the unsuspecting opportunist to swoop in and buy these “left over” houses at a price below builder's cost, but this often backfires. If a builder, with the advantages of financing and marketing can't sell a house, there's every possibility that the entrepreneur won't have any more luck. Time again becomes a factor in how much profit will actually be gained waiting for these houses to sell.
Adapting form to function offers fixer-upper opportunities. One fellow I know bides his time rather than rushing in to bail out builders. He let's the opportunist try his luck, then, if he fails, buys from him in turn at even lower discounts. He only buys houses that he can reconfigure to make them more livable. A small house with three tiny bedroom and one bath built for a young family might be converted to two larger bedrooms and two baths and marketed to empty nesters and the retiree generation. A small kitchen and family room might be converted into a “country kitchen” and sold to large families. Or the reverse could be done to appeal to those with fewer children, and the need for a family room. Garages can be turned into extra bedrooms, rec-rooms, or separate living facilities for elderly relatives; even rental space to generate extra income.
Improving form and function by adding space can also increase value and income. I once owned a 4 bedroom, 3 bath vacation home situated on a steep hill. It had a partially completed cellar with an additional bath and outside door. At a cost of less than $10,000, I cut windows into the “down-hill” wall, replaced a large window with sliding glass doors and a small balcony, and cut back into the hillside to add 600 square feet for a bedroom, kitchen, and work space. This increased the value of the property by $60,000. I added $8000 per year to my own income by renting the space I'd created, and at the same time acquired a paying caretaker and watchman for when I wasn't there.
A capable manager might buy a bargain that could be overpriced to a neophyte manager. A true bargain occurs when a property can be bought at a price, or on terms, that will enable the buyer to recognize more profit than the market usually provides. In order to achieve this, the buyer has to be aware that he may be getting less than bargained for once all the various property “utilities” have been summed up. The total return from a house would include both the net income stream and profit on sale. Much of this will depend upon sale terms as well as management skills. Many variables must be factored in to arrive at the total: Location, price and terms, general appeal and suitability of what has been bought, timing of the transfer of purchase money, production and receipt of net rent, principal and interest on sale, and any lost opportunities that might have been a better investment.
