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.
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.
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
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)?