About once a month or so I get the opportunity, to go out and visit one of my investor students (subscribers to my one-an-one counseling service). Most students tell me they find my visits extremely helpful and beneficial to them! It’s probably because they have a chance to show me what they’re doing on their hometown turf! Others are looking for a little extra push from me, I’m sure — And some simply want my opinion on a particular property before they sign the deal.

I know people tired of my saying this, but I feel it’s worth repeating just as many times as it takes! THERE IS NO VALID REASON TO BE IN THE REAL ESTATE INVESTING BUSINESS IF YOU DON’T MAKE A PROFIT! Losing money is not fun, and it’s especially a bitter pill to swallow when you do it five or six years before realizing you are. By the way, this is quite common in case you’re wondering if it really happens! When you jockey tenants around for some time and then suddenly discover one day it’s actually costing you money every month, you’re not going to be a happy camper either.

Okay, okay I agree with you Jay — But- is there supposed to be some special message here? The answer my friends is yes – yes there is, so we’ll cut to the chase and get on with stuff that really counts.

BUYING WHOLESALE – SELLING RETAIL

Buying older rundown houses cheap, then fixing them up for a profit has been an excellent moneymaking, low risk investment plan for many years now and it remains the same way today. Obviously, we’re not blazing any new trails here! And thankfully, it doesn’t take a math major from Stanford to get it right — Believe it or not; it doesn’t even require a computer, not even a cheap one! What is required is plain old common horse sense. Horse sense says, you mustn’t spend more than a reasonable retail marketplace can pay you for your finished product or service! This means with rundown houses, you must not spend your fix-up budget for things that don’t pay you back in a reasonable period of time. See how easy this stuff is! Don’t agree with me – it’s really not, but it can be done by almost anyone who learns what to do. The key here is, do exactly what the marketplace requires and spend only what your customers (tenants or buyers) are willing to pay for.

All fix-up work should pass some financial scrutiny! Does it really need doing? I believe most improvements should be justified on the basis of paying for themselves I expect the payments to come from higher rents or bigger profits as my reward for doing the work. Fixing or changing things around purely, on the basis of personal likes and dislikes will seldom provide a justifiable “mark-up” (profits). Those kind should be avoided. This happens to investors who quickly charge forward without a plan. It also happens to folks who fall in love with investment property I advise you — Be very careful and avoid these two common pitfalls. Remember, fixing up dumpy-dirty houses is not glamorous work. But, if you do it right, you can double your money faster than anything else I know of.

FIX-UP SIZZLE OFFERS THE BIGGEST PROFITS

Let me take a moment to say that all rundown properties must be brought up to basic minimum building code standards before you can expect them to generate income. That’s a must rule for all investment properties.

 When I talk about fixing for dollars, I’m primarily referring to what I call, “SIZZLE ITEMS”. Things like white picket fences, fresh paint, window coverings, ceiling fans, wallpaper, new plastic countertops (Formica), attractive floor coverings, planters, shower curtains, decorative porches or entrance doors, trees & shrubs, green lawns, modern toilets and new plastic shower enclosures.

The reason I call these SIZZLE ITEMS is because they are attractive and eye appealing, as well as useful. SIZZLE ITEMS seldom have anything to do with code problems. For example, an old dingy carpet will pass a code inspection; same, as bright new carpet will! Trees and shrubs have nothing to do with codes or safety and neither does curtains or ceiling fans. What these items have is lots of customer appeal. This appeal translates into more dollars at the box office, aka (my rental office). The very same appeal makes selling properties much more profitable because they look much better.

RENOVATORS – REMODELERS – THERE’S LIGHT YEARS OF DIFFERENCE

I discovered years ago, there’s no inexpensive method to turn older houses into new homes. Many armature fixers try to accomplish this task only to find their bank account disappears faster than the house changes. Herein lies the most important difference between what I do and what remodelers and renovators to. Believe me, it’s a very expensive difference too!

Often remodelers will replace entire plumbing systems with all new piping; sometimes they have the entire house rewired. They tear out old flooring and replace floor joists and girders. They replace wood windows with new metal frame styles. Some will even jack a house up to level it. That means they must also fix all the cracks and often redo the stucco exterior. Don’t do fix-up this way. Unless money is not the object –You’ll lose your shirt if you do.

Since older houses are not the same as newer ones, don’t try to make them so. Instead, try to capitalize on the marketable features not found in the modern-day construction. Older houses quite often radiate charm — A homey feeling! High ceilings, woodwork, large porches, yard space, old windows (dressed up), evaporative cooling with separate heating, storage sheds and separate garages and more often than not, mature shrubs and trees. All these items can add to the charm of older buildings. Add a freshly painted white picket fence after everything else is cleaned and “spruced up” — You’ll have lots of customers — Renters or buyers, depending on your investment plan.

THE WOMEN’S INTUITION SHOWS UP

Fixing houses is also a very equal opportunity business! The job is not the least bit gender sensitive, with perhaps one small exception. I think women understand living space better than most guys I’m acquainted with, for example, cupboards and closets, cabinet space and electrical outlets in the bathroom my male fix-up crew often ignores or overlooks the importance of these items. Later they are called to my attention when a female renter calls to complain about only one cabinet or not enough electrical outlets for all her bathroom goodies! Women seem to have a natural instinct when house remodeling is involved and I suspect this comes from their homemaking abilities. I have caught my fix-up crew building a bedroom closet just large enough for 3 wire hangers. Women fixers seem to know better than that.

 Since almost every problem can be patched up, repaired or replaced by skilled mechanics, it becomes necessary to further qualify fix-up work in terms of the economics, “How much will it cost?” This information will help you decide how much work is too much — And
when it’s best to simply pass over the deal and move along to the next one. The fix-up investor must be concerned with fixing for profits. Not just fixing! This is a very important concept. One you must never forget! The two worst mistakes for beginning fix-up investors are OVER-FIXING and FIXING THE WRONG THINGS.

THE BIG MONEY COMES FROM UNDERSTANDING ECONOMICS

In order to determine what to fix, you must first answer two simple financial questions. First, what will it cost to complete the items you propose to fix or repair? Second, what will the fix-up value be after the work is completed? Cost and value knowledge is critical whether you intend to keep the property for rental income or sell it quick for turn -around profits.

For example, let’s say you purchase a fix-up property for $65,000. Assume the property will have a market value of $89,000 immediately after your fix-up. You can easily see’ that fix-up costs, vacancies, operating expenses and selling costs cannot exceed $24,000 or you’ll lose money on the deal. Again, let me repeat — The same economics apply whether you plan to sell or keep for rental income. $24,000 equals 27% under the market value and that might not be enough! Your job is to know before you sign the deal.

CHANGING LOOKS IS ALWAYS THE FIRST PLACE TO START

It’s not by accident that I always begin my fix-up projects in the front yard. I’ve seen professional appraisers value identical houses as much as $20,000 difference because of plain old filth and junk on one property. In other words, a clean house is worth $20,000 more simply because the owner hauls away the trash and keeps the house looking nice. Think about that for a minute! That’s an awful lot of money for ordinary clean-up skills. Suppose it takes a whole week (40 hours) to haul away garbage and clean up a property — That’s $500 an hour, or nearly as much as a brain surgeon makes on his coffee break!

I haven’t mentioned location here because that’s another entire discussion. However, let me just say this. Don’t buy property near the Beirut Airport or in locations where you’ll need a Bradley armored vehicle to drive through the neighborhood. It’s not that you can’t make money in a combat zone! Because you can! The reason is this — Houses like I’m recommending are not scarce in decent areas once you develop your “star search” network. Bad areas are simply not worth all the hassle. Save your energy for painting and my foo-foo techniques.

 Before you purchase your next fixer property, spend some time on the property by yourself with your, pen and legal pad in hand. I want you to list everything you think requires fix-up or repair. Don’t rush! If several units are involved, write up each one separately. Later, we’ll add cost $ numbers. This is time very well spent because now you are developing a job cost, as well as formulating a reasonable plan of attack. At least 95% of all so-called house fixer investors don’t do this simple act. When you follow my advice, you will only represent 05%, but you’ll be in the profitable group!