Fixing For Dollars
In case you don’t know – most customers make up their minds to buy or rent properties driving by about 30 miles an hour. Street appeal is what sells first. All your marketing and rental ads are not worth a tinker’s damn if the property looks like a “dirt bag” when your potential customer drives by.
I harp on this subject quite often it seems – but everyday I still see people spending countless sums of money installing lovely new carpets, kitchen fans, new cabinets and attractive wallpaper. At the same time, an old dark blue station wagon is still stripped down – just sittin’ in the driveway. You can see the motor dangling on a rope, tied off to the fruitless mulberry tree. The corner post on the patio is still busted where the former tenant kept his well-mannered pitbull tied up. Take my advice, please fix up the outside first!
Investors who intend to make any serious money fixing up rundown houses must constantly police themselves against “over-fixing” – or fixing stuff that don’t count for much! For example: Don’t waste time changing the wallpaper or redesigning the hallway. It’s not cost effective! It’s easy as pie to fall into the over-fixing trap and it’s about the quickest path I know of going to· the investor’s poorhouse.
Successful house fixers must learn to concentrate their time and money on things that clearly have some proven pay-back value. Improvements made on the basis of personal taste are generally not worthwhile. You must never forget — It’s your customers (tenants or buyers) you’ll need to satisfy!
WHAT THEY SEE IS WHAT THEY PAY YOU FOR
Attractive properties always sell first – and for the biggest profits! They also rent up much quicker when they look neat and well kept. If you understand this, you’ll have a much better insight as to what needs fixing and what don’t! What I’m saying here is don’t mess around too much with stuff that don’t show. Obviously, I understand it’s necessary to fix things that don’t work – and correct safety hazards. But, don’t fall victim to the old “soft wood trap” and decide all the floors and joists need replacing. Once you start tearing things out – there’s no place to stop. You’ll never make a dime if you tear the house down and rebuild it. ,
-~~ Daniel Webster said: “The world is governed more by appearance than by reality.” And, that’s exactly how your customers will judge your house fix-up job. If you spend $5000 working under the house, you can consider that money as mostly a gift for the next owner.
Fixing rundown houses for profits is not the same thing as remodeling houses! If it were, lots of custom builders and remodeling contractors would end up rich — And, handyman-types, like me, would probably be working for them! Fixing houses the way I do it has a lot more to do with budgets and accounting than with hammers and wallpaper! There’s no question that fixing is my goal all right, but only if there’s a profit to be made. Don’t forget that last sentence unless you plan to do this for a hobby.
As the saying goes; “You can’t judge a book by its cover” — But, you can sell a ton of books with a good one! Attractive covers and a clever title will earn big money for a book! Likewise, clever improvements and attractive properties will do the same for real estate investors. As you begin to develop your skills as a house fixer, you’ll discover along the way, how to get maximum leverage with your fix-up dollars. It works exactly the same way as with down payment dollars. The results from using both kinds of leverage on the same properties can be financially impressive, to say the least.
AVOID WORKING FOR NO MONEY
You need to understand that “leverage fix-up” is the kind of fix-up that adds money to your pension plan! If it costs $20,000 to fix up a $90,000 rental house you bought for $70,000 you’re probably better off waiting for social security. There’s just not enough fun spending a ton of money not knowing if – or when you’ll ever get it back.
This is what many small-time remodeling contractors do! And of course, it’s the reason that a large number of them end up 25 years down the road with nothing to show for their skills but a used Chevy pickup, a box of worn-out tools and no health insurance! It’s not because they don’t know what they’re doing. It’s because what they’re doing doesn’t earn them enough profits to keep them more than two steps away from bankruptcy. What I’m trying to show you is a way that you can earn 10 times more money than journeyman remodelers with 10 times less remodeling skills. I call this – maximum leverage of your personal efforts, and it’s lots more fun and much more profitable, believe me!
WHAT YOU SHOW EARNS THE DOUGH
Underline this next sentence and don’t ever forget it because it’s the key to making big money in the house fixin’ business. WHAT YOU SEE FIRST IS WHAT YOU FIX FIRST. The QUICKEST and most IMPRESSIVE changes you will ever make to an ugly property is to clean up and fix up the outside. First impressions mean everything. Don’t even go inside until you clean up the yard and paint the house. Start watering the lawn (generally to revive it) and quickly change the ugly image of the property. Where appropriate, I like to add inexpensive plant frills – trees and shrubs. Get the kind with red berries and sticky thorns so the kids don’t pull them up. Plastic shutters that clip on the front (street view) windows and an attractive white picket fence across the front yard offers a very impressive touch. Best of all, the dollar returns are highest outside.
Fencing is one improvement that adds both VALUE and APPEAL. Tenants love fencing; therefore, as a landlord, I love fencing too! My good friend, William Nickerson says: “You should get two dollars worth of value for every dollar spent on renovation or upgrade.” Building attractive fences will often provide direct paybacks of $10 for each dollar spent. In other words, $1000 worth of fencing could bring an extra $10,000 more at re-sale time. Obviously, fencing is well worth the money spent to build them.
Fences come in two flavors. There’s the kind we build in backyards. Backyard fencing is the most usable kind. Tenants can keep small children inside backyards, insuring their safety. It’s much more convenient for young house-moms to give their undivided attention to the daily TV soaps knowing full-well the “baby gomers” are completely surrounded by a sturdy backyard fence – and they’re perfect for nude sunbathing!
From a landlord’s viewpoint, there’s a sound economic reason to construct fences. First, they will generally bring in $30-50 more per month in rents than comparable houses without fences. Secondly, they are fairly rapid payback improvements. As a rule, the entire cost of rear yard fencing will be returned from higher rents in a period of 24 to 30 months. These numbers are based on average size yards, requiring 120 lineal feet of standard board and post construction. When you consider the quick payback and the fact that fences are almost maintenance-free for ten years or so, it’s obvious they are well worth spending money on.
The second kind of fencing is what I call “foo-foo” or sizzle. This type of fencing, unlike the rear yard kind, is not meant to be so useful. It won’t keep creative children off the streets and it provides hardly any cover for nude sunbathing. In fact, bathing nude behind my sizzle fencing might well result in an overnight stay at the county jail. These fences you can see right thru because they’re built with pickets and rails.
White picket fences surrounding the front lawns of older houses will give them a very “homey look”. Quite often, when I show houses to prospective customers, the first words out of their mouth when they see the property. “Oh, it’s so lovely, I just adore your white picket fence around the front yard.” Remember, they haven’t even set foot on my property yet! They’re still sittin’ in the car looking! I’m hearing their first impression of the house and it’s very positive because of my fences.
EXTERIOR FIX-UP AND YARDS INCREASE VALUES
All of my rental houses and apartments have been painted and cleaned up many times over. Maintenance and repair expenses do very little to increase the value of any property. Painting and upkeep are merely costs of doing business. On the other hand, well-maintained plants, trees and lawns – along with my white picket fences and decorative front porches, will add permanent value to the properties. ADDING VALUE should be your primary goal as a house fixin’ tycoon!
Fixing houses costs money, even if you perform all the labor yourself. It’s your personal time and that equates to money. In order to be profitable, you must make a list of things that need fixing, along with a cost estimate, to accomplish the task. I do this on a room-by-room survey of each house or apartment as I plan the job. This gives me a budget for each job. Naturally, my goal is to perform the work in the same amount of time – and for the same amount of money as my estimate.
After doing this same procedure a few times and making cost adjustments when they’re necessary, you’ll soon discover, like I did, estimating will become quite easy for you. If you have very little money for fix-up, consider doing the job in several different stages. In terms of priority; however, always do the outside first!
ALWAYS PROVIDE YOUR CUSTOMERS WHAT THEY WILL PAY FOR
A difficult lesson for many investors to learn is — It’s unwise to provide too much house for the money! You’ll soon go broke if you keep trying! Okay, I hear the wheels turning already, so let me explain what I mean. Many tenants can afford to pay $700 rent, but that’s their limit! Your goal, as a profit-motivated investor servicing these tenants, should be to provide the very best $700 rental house you possibly can – and still earn a profit, of course! If you over-improve and spend too much money fixing the property, chances are the deal won’t be profitable! Plus, you might even end up spending money out of your pocket every month to payoff your Visa card. I can tell you from experience — That takes all the fun out of investing! It’s my policy to give my tenants everything they can pay for with as many frills as I can. When I rent out my $700 houses, I want them to be the very best $700 houses available. Obviously, they won’t be as good as my $1000 houses – and they shouldn’t!
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). That 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 common pitfalls. Remember, fixing up dumpy-dirty houses is not glamorous work. But, if you do it right, it will pay you better than anything else I know of.
CREATING THE VERY BEST IMPRESSION
You must never forget that fix-up specialists are not remodelers, so don’t try to be one! Like I told you earlier, you won’t be happy with the money they earn. Playing house and remodeling tends to go together. Things like splitting up big rooms to gain an additional bedroom or dining room — Also, making the kitchen bigger, expanding the bathroom or changing the hallway around seldom pays off. If you’ll stop to think about these schemes, they are generally a matter of preference or taste! More often than not, two people could never agree on rooms or configurations anyway. You’ll be money ahead if you keep things simple! Leave the house alone and simply clean it up and fix what needs fixing!
People buy or rent houses, mentally before they ever set foot inside. You can watch them drive through the neighborhood for a quick peek! These drive-bys or quick peeks are where you’ll make a sale or lose it. If your property doesn’t show well on the outside, most folks will simply assume it looks about the same way on the inside! This is why I always advise students to concentrate their efforts on fixing up the outside before they start on the inside. The only exception I’ll make is when it’s raining!
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