Lipstick on a Pig

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misspiggyin2 Who hasn’t had the [tag]rehabber[/tag]’s fantasy? Let’s buy that run-down house, fix it up and make a fortune! The problem is that most new investors venture into this arena unarmed. There is the usual problem of paying too much or grossly underestimating the time or money that is needed, but there is another problem as well. Not every broken down shack is a good [tag]rehab [/tag]candidate.

Finding [tag]distressed property[/tag] is easy. That doesn’t mean that you are going to make any money. So many novices wind up buying a property that no amount of rehab can help. It starts off as a dog (no offense to pooch lovers). They do all sorts of renovations and run into many costly problems. Somehow they get to the end of the project and put it up for sale. Then the house sits, and sits, and sits some more.

So What Went Wrong?

Why won’t it sell? They updated the kitchen and bath, painted everything that didn’t move, refinished the floors, put in new carpet and did anything else that was needed. The problem may be the house itself. Perhaps it is functionally obsolete and nothing short of a bulldozer will help. Small bedrooms, poor layout and an overall lack of utility could be scaring the buyers away. Perhaps the location is poor, or the area is in such a state of decline that there are very few buyers.

Another common problem is that the renovations far exceeded the neighborhood standard and now the price is way too high. The house may be priced so far above the competition that it will not attract lookers, let alone buyers. A house that started off as a dog is now a dog with expensive renovations. The house lacks the “wow” factor and will not sell at any price, and certainly not a profitable one.

How to Make a Profit

A house that is a dog can still be profitable. You need to adjust your expectations of what the house could be. If you purchased it cheap enough, you could use the “lipstick on a pig” approach. You don’t deny the fact that it’s a pig, you just try to make the pig a little prettier. Instead of ripping out the kitchen, just paint the cabinets and add new hardware. Perhaps the bathroom gets a new sink and paint and the carpets are shampooed instead of being replaced. A quick coat of paint seals the deal.

The idea is to spend as little as possible in order to do a quick turn around. You are not looking to make a six-figure profit, just a reasonable one. There are many deals that can be done profitably without out all of the TV style renovations. Cheap houses in a poor neighborhood will never command a high price. However, you can still make money if you buy right and keep your costs down.

Beauty is in the eye of the beholder and it may be necessary from time to time to give a stupid or misinformed beholder a black eye. – Miss Piggy

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.