3 Fixer Upper Factors in House Hunting

I was on the phone with my mom, walking her through pictures of a new rental property we were considering buying. In the background I heard my dad say, “Does she TRY to find the ugliest houses?!” Point taken. And it is a bit true.

Buying investment properties is a game of numbers, not emotion. There are 3 reasons people searching for a home don’t want these houses and it enables us to buy them at rock bottom prices.

Here are the ways to make this work for you if you are buying as an investment or a family home that gives more financial freedom than it takes away.

1. Time

Time is money when you are dealing with properties.

Even if you want to move into the house yourself, every month the home is empty is a month you pay for twice (the house you bought, and the house you are living in). There are two ways to deal with this.

Buy a house that needs a lot of light reno. I really need a house to be livable in a month. Empty houses cost money. So we take on projects that enable someone to move in within 4 weeks. This is also about our max for sustained energy. After 4 weeks of every weekend, every night after work, and a few vacation days, we are exhausted. That is about as far as our family can push. In other seasons of life, maybe 2-4 months. But everyone has a breaking point and it’s important to know yours.

There is only so much life you can miss out on before you start hating the house you bought.

Look for a house that has work that can be postponed. The home we live in now was only half finished for a year before we remodeled the basement. One of our rentals really needs a new roof on the garage (hopefully this year!). When we rented it out, I made it clear that the garage would leak water. “Don’t keep anything in there you don’t want wet!” Now, I have no idea if it has leaked water or not, but by being very clear and upfront about the issue I have bought myself 2 years to fix it.

The reality is a lot of homes have 30 little things that need to be fixed, and this scares off other home buyers. Everywhere they look they see work. But many things can be fixed in 2-4 hours. Even larger items like painting every room, new floors or a full kitchen remodel might only run you 5-14 days a peice.

2. Extra Money

The amount cash you need to make this home move in ready is a big concern for many buyers. They don’t really know how much it will cost, and that is rightfully scary.

Home remodel shows don’t really help this. You won’t spend $90k for a new kitchen and floors in your rental. Do some research first. Make a few calls if you need to. The last kitchen we installed was huge (12 ft x 22 ft). We put in all new cabinets, counters, lighting, flooring, paint, sink, and dishwasher: $3000. It was also a project that we had postponed for 2 years after purchasing it, because we didn’t have the time or money when we bought it to update that along with all the other issues. (Quick tip: we used stock kitchen cabinets, and waited for them to go on sale.)

Calculate the amount you have to spend upfront, and the total you will eventually spend to get the house to a place you are comfortable. This information helps you run the numbers fast and accurately. We have never waited more than a day to make an offer. One walk through and a few hours is really all that is needed.

3. Experience

There are some projects you can’t handle. This scares home buyers away. But I see it as a positive to the project. If all the projects were easy, tons of buyers would be interested in the property and drive up the price. I like to see a few tricky ones. Here are some of the projects that seemed scary but were actually really easy in our properties.

Flooded moldy basement

Missing garage door

28 breaks in the water pipes

Broken hot water heater

Broken furnace

The basement (shown in the post image) we handled ourselves with a dumpster container, and gas masks. Everything else we hired out. People were scared by the unknown cost and need of an experts help. The home with the moldy basement was actually under contract by another buyer when the mold problem exploded. They backed out of the deal, the price was dropped $30k and we fixed it in 3 days. Some one else’s fear of the unknown provided us with the most profitable 3 days of our life.

Just because a problem seems scary to you, doesn’t mean it is scary for a professional or even too expensive.

If you want to buy a property that gives you freedom instead of taking it away:

look for the ugly, scary houses.

I always say: If I am going to tear it out anyways, I would rather not pay a premium for mediocre. Make it as ugly as possible, and give me the discount!

Add to the conversation:

Have you done any renovation projects?

Anything that scares you to tackle? We passed on one house in the flood plain with major foundation issues.

How much more would you spend on your primary home payment than it’s rental value (if any)?

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33 thoughts on “3 Fixer Upper Factors in House Hunting

  1. Great principles here. I’d love to learn to more DIY around-the-house skills in the future, and I suppose buying a fixer-upper would be a good way to do it. If I’m not working full-time, I certainly won’t have any excuses! Have you ever had a bad experience or do you have concerns about finding deeper issues with one of these houses? Things like major termite damage, improperly installed electrical or plumbing, foundation issues, etc. that would be expensive and hard to DIY? That would probably be my biggest fear: something getting missed in the cursory pre-sale inspection and then being a nightmare to do right.

    • Yup, buying a fixer upper will be a great learning curve! So confession time: we have never hired an inspector. The first two times we walked through with a contractor who we would hire some of the items out to, but now we just do it ourselves. There are absolutely things outside of our skill set, especially in the first reno. But if we had to hired something out, we tried to pay attention. I figure if I’m paying the guy $130 an hour, I should get to glean a few tips and tricks. =) I’m not an expert at the big things, but I can tell when something is janky. Sinking foundation, rotting trusses, crazy electric wiring, plumbing that looks like a maze, crooked floors, rotting joists, water damage (new vs ongoing.) I try to leave a little cushion in the budget for the “oh, crap” factor. But honestly most problems can be fixed with $500-$4000. There is a trade off: amazing discount for some risk. One house we bought must have been passed over by 100 people. It had a few big problems that scared everyone away. We bought it almost $30,000 off their asking price and fixed the big stuff in 4 weeks with $10k. All those people who looked at the house, could have had that house they loved, with the issues fixed plus a $20k discount. Fear is expensive!

  2. I’m scared of the fixer upper, but I’m willing to work on it. Mrs. RB40 on the other hand, doesn’t want to deal with it at all. We’ll be busy for a few years when we move into our rental. There are a bunch of stuff that need work.
    With the moldy basement – did you figure out how to prevent future flooding?
    Our basement get wet when it rains heavily. I put in a dehumidifier and that dries it out. Happens 4-5 times/year. Basement wall is very old brick and mortar, porous. Seems like we have to put in a barrier to prevent water coming in and that’d be a 5 figure job…

    • The basement had only flooded due to a frozen pipe so that was easy to correct. We have another basement in a rental that tends to get water in it. Have you tried sealing the walls? There are products you can roll on like paint that help a lot! It’s an easy job and about $30-$50 bucks a gallon. I tend to start with the cheapest options and work up from there. You could look at busting open the concrete and digging out space for a sump pump, that might run about $1000. Or looking at the gutters and water drainage. Maybe build up the exterior to make sure water is flowing away from the house. There are usually a few ways to skin a cat. =)

  3. The triplex I’m buying is a converted historic house. I get $1485 a month in rent from it, and it costs me $350 in P&I. Sure it needs some paint on the exterior, the gutters replaced, and some rotten wood fixed, but I’ve got more than enough wriggle room to take care of it. There’s no such thing as a problem free house.

    • Holy cash flow, batman! You are right: great cash flow covers a multitude of problems. We also keep a “rental” checking account with 10k cash for unexpected issues. 10k is enough to cover almost any problem a house can have. Between those two things, we have never had a rental day that felt so stressful I wanted to sell.

  4. Good points. I’m not looking for a rental house but we have been in the market for a new home. I would much rather buy a home that hasn’t been updated in 40 years so we can make it our own without paying for someone else’s upgrades that we don’t like. And finding a home with good bones is key. You don’t want a house where the basement walls are falling in, even if it is selling at a discount. There are likely other hidden problems going on as well.

    • Yeah we passed on the house with the sinking foundation. =) Some issues are a quick fix, like a new furnace. Call a company, pay $4000, new furnace next week. Others eat all the value away from a home. The house with the sinking foundation was on the flood plain, all the joists were rotted, the roof had leaked so much the rafters were rotted, so all the walls/floors were crooked and cracked, everything inside had to be gutted. Having good bones makes things easier. Then you just have to swap out some ugly stuff for nice stuff. =)

  5. Wow, that sounds like a big project. I am also a real estate investor, but I don’t buy fixer uppers. I am a construction manager by career, so I know all the challenges. However, I do buy properties that need minor cleanups. I always get a home inspection and then I also get a contractor to give me an estimate on the repairs that I want done. That way I can negotiate before closing and then walk away if the deal doesn’t make sense.

    I once read sound advice for fixer uppers: Find properties with the right things wrong.

    • Find properties with the right things wrong. OH, my goodness! That is gold! Somethings are such a pain to fix, there better be a huge golden carrot in it for me. But that advice is perfect. Some “wrong” things are so darn easy to fix, I really hope they are so ugly or intimidating they scare every other buyer away.

  6. Love renos. We’ve done enough of our own DIY projects over the past 19 years, we aren’t really scared of much. In fact, since we’ve been looking for a rental property, we actually love the scary houses – they are the ones that will cash flow with a little hard work and cash. We have been doing calculations based on what we could do ourselves and what we would hire done. We would contract for electrical, some plumbing, and structural issues. We will tackle the cosmetic issues and small projects ourselves (flooring, paint, cabinets, appliances, etc). That said, we’ve looked at two houses with major foundation issues – this isn’t something we’re familiar enough with to tackle quite yet (maybe someday).

    • Yeah, I’m not a fan of foundation issues. Unless I really want/ am able to lift the whole house, bust out the old one and get a new one poured. But the house with the sinking foundation, um… why was it sinking to begin with? I loved the land, but the house seemed like a broken pit of despair. I didn’t want to pay for a house to level it. :/
      Now that Mr. Mt has taken electrical classes, we might do more of that. He will handle small plumbing jobs. But generally it makes good sense to hire out some of it. Those small projects can add huge amounts of value/ cash flow to a rental.

  7. Great points… and they are exactly the reason we have no rentals… We are not so a DIY family.

    yes, we do point and did put floors in our own house. That is where it stops for us.

    That being said, when I go for a few months or even a year off…why not!

    • I think having the time is a huge factor! The first time for any task takes WAY too long. But we figure if we do it once, we will use that skill again. Plus after 5 years of reno’s, I feel like we have learned so much and are more self reliant. If it’s not something we think we would do again, we will hire it out. Now that you have done the floors once, if you are looking at new homes and it has ugly floors, it’s easy to say, “Oh, I can handle that!” =) That is a cool feeling (even if you end up hiring someone else) 😉

  8. We’ve only ever owned one property and that is the house we currently live in. Between the two of us we have ten thumbs and zero skills. Watching folks like you fix up fixer uppers is akin to watching a magic show. From my perspective you are pulling rabbits out of a hat and I just watch open mouthed. My hat has no rabbits. In fact, I don’t even have a hat.

  9. Great tips for picking investment properties, but I’m really impressed by how much work you put in over a short amount of time . . . WITH KIDS!! We moved out of our starter home years ago and have been remodeling it so slowly. It would be a big deal to finally finish the work, so we could at least double our rental income. However, we’ve had so much trouble finding time to do the work. Cash flow has inhibited some of it, but there is plenty we can do without spending that much money. Thanks for the reminder to just get busy on it already!!!!

    • Good luck! The one factor is getting things done fast for us is planning and necessity. We had to bust it out to get places rented, or sometimes we do reno’s while our renters live there. (We give them free rent for the days we are in the house, which lights a fire under us!) So we just plan it, then hustle. In our own small projects, if they don’t matter that much (looking at you stupid master bath!) they can totally drag on. =) I painted all the cabinets in that last kitchen reno while I was 7 months pregnant. Take it from a former pregnant renovator, take a nap instead!

  10. Nice job on taking care of the mold issue and getting that home for $30K less! Electrical issues scare me, as when an entire home needed to be re-wired and brought up to code. I agree with you on the flood plain. We lived in one and paid dearly for insurance (which we would have needed, had we lived there during Hurricane Sandy).

    • I think with items like rewiring a home, it’s just a matter of the numbers. How much will it cost to open up all the walls, have someone redo it all, then patch things back up? Those are the tricky things that other shy away from and can give you an unreasonable large discount. But, honestly, I am not doing the rewire. I’m going to pay an electrician $4000 and be done with it. Maybe I will patch the walls and paint. =) So if you got a $20,000 discount for something that took $4000 to fix and an extra week, maybe it’s worth it? The real steals usually come with one tricky thing that scares the other home buyers away. =)

    • That is awesome! I am trying to do one a month. =) I am hoping to empower people with better info, and if I’m lucky shift the thinking a bit. Homes are just as good at giving financial freedom as taking it away. =)

  11. Great advice Ms. M! I love your point about making a house livable in a month. It really eliminates the risk of a home sitting there, costing you money. I have a family friend who is trying to rebuild an investment property almost from the ground up. The problem is that he’s bitten off way more than he can chew. It’s now been sitting vacant for a couple of years, and he’s nowhere close to finished, unfortunately.

    • Oh goodness, that is crazy. I think everyone needs to know how much they can take on, what they can afford to hire out, and how long they can push to get things done. For us it’s about 4 weeks, in other stages of life maybe 6-8 weeks. Years? No. Some of the work we are able to postpone, like kitchen and bath remodels. That helps spread the cost/time out so it’s more manageable.

  12. I honestly don’t know why anyone would choose direct property ownership unless you were in the trades & have the patience of a saint.
    If you think real estate is where to be then why not invest in real estate income trusts (REITs)? You get monthly distributions and you don’t have to deal with bad tenants, broken faucets, maintenance or any of that. Not to mention diversification. What happens if you get THAT bad tenant? One person has the power to derail your dreams. That’s a lot of concentrated risk.

    I honestly don’t get it but if you can make it work for you then kudos, but it is very risky especially when you don’t have a large cash cushion.

    One Dad

    • Money. Outside of other factors like enjoying to do renovations, it’s mostly about money. I would say cash flow is what separates good rentals from bad rentals. One property we have put about $25,000 and it’s value has shot up another $50,000 in 3 years. Plus that $25,000 investment provides over $5000 in income year after year. If I can get the same return in REITs I would do that all day long!

      But we also opted for a fixer upper for our personal home. That allowed us to pay cash for our very first home and never have a mortgage. Which allowed us to become “work optional” by 32. So it’s worked out fine. But we do all our own work, AND keep a large cash cushion. Plus we find great renters and build solid relationships with them. =)

      • If you enjoy it, it makes a big difference. I find my life so busy I just wouldn’t have time myself.

        It sounds like you have a good handle on the concentration risks but consider that you could channel your sweat equity in a Reno and Flip manner and be exposed to much less risk by investing those proceeds appropriately in income producing securities.

        Good luck to you, I enjoy reading your work.
        One Dad

        • Thanks! If we get to the point where the numbers work, it’s something that we might shift. But with each rental we are leveraging a bit a debt. Plus the cost of selling, financing, and the tax bite at time of sale makes it more complicated. Plus the selling market changes much faster than the rental pricing market.