LEAVERAGING FIX-UP SKILLS
Fixing run-down 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 be working for them. Fixing houses the way I do has a lot more to do with budgets and accounting than with hammers and wallpaper. Fixing is my goal, but only if there’s a profit to be made.
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 $70,000 rental house you bought for $50,000, you’re better off waiting for social security. There’s just not enough fun spending a ton of money not knowing if you’ll ever get it back, even without a profit.
This is what many small-time re-modelers 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. I’m trying to show you a way that you can earn 10 times more money than journeyman re-modelers, with 10 times less remodeling skills. I call this maximum leverage of your personal efforts and its much more fun and lots more profitable.
The most frequent questions I’m asked about fix-up are: What is your dollar limit and where do you draw the line and simply walk away? Dollar limits are a matter of writing out my fix-up cost estimate and then adding that to the amount I’m willing to pay for the property. If those two numbers are higher than 80 percent of the fixed-up market value, I generally back away, especially on lowered properties.
For example, let’s take a house that I figure will have a $65,000 market value after my fix-up work is done. I’m willing to spend $52,000 total to acquire the property and do the fixing: $43,000 purchase price and $9,000 for fix-up work. If my fixing estimate is on target, I’ll end up with $13,000 equity when I’m done.
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