Flipping Houses

Why You Should Stop Letting Fixer-Uppers Intimidate You

Expertise: Flipping Houses, Landlording & Rental Properties, Personal Development, Real Estate Investing Basics
41 Articles Written
Unmowed lawn in front of a foreclosed Cape Cod style house in Suburban Maryland

On a recent episode of the BiggerPockets Podcast, Brandon and I interviewed Kevin Paffrath of Meet Kevin—a Realtor, investor, and YouTube personality.

In the video below, Kevin walks us through a property he purchased recently and is in the middle of rehabbing. He talks about why investors shouldn’t be scared off by ugly houses. Instead, dig deep and see the gold that lies beneath the peeling paint!

Why Investors Should Stop Letting Fix & Flips Intimidate Them

Kevin described the property while leading us through a video tour.

OK, there's no flooring. So the way the agent sold this property is it has to be cash only, because they ripped the carpet off. I mean, the old asbestos tiles are here. You've got this acoustic ceiling; you've got the older fireplace. You know, everything's kind of disheveled here.

This is the kitchen. You know, everything about it—most people are going to look at this and go, “Oh, gross. It’s old. We’ve got to demo everything. We’ve got to tear everything out.”

You literally have blue bathroom tiling, which matches the blue toilet over here. I mean, just everything about it is nasty.

This is money to me! And the reason is because this place we bought for $465,000. We’re going to put about $45,000 into it.

Related: BiggerPockets Podcast 357: $6M Portfolio Before Age 30 by Finding “Problem” Properties with Kevin Paffrath

That’s scraping the ceilings, flooring, removing the wallpaper, painting it. New light fixtures, outlets, door handles, a couple of new vanities. We’re going to glaze the tiles in the bathroom and repaint.

We’ll actually keep the kitchen cabinets. We’ll repaint these. Initially, people look at this and they go, “Ew, gross! Look, they’re terrible.”

I look at this, and I go, “This is hardwood. This is nice quality stuff.”

It’s ready to go as long as it’s not water damaged or broken or whatever. I can make this work over here.

For example, we can cut in a range. We can put a little 18-inch cabinet here and cut in a range right here. So, now I’ve got my oven and my cooktop, and I’m ready to go.

So, that’s the kind of stuff I look for. When I see that, I go, “I could play that game all day long.”

And I’ll keep doing that. Maybe it’s just because a lot of people go in there and they think, “I’m going to have to spend $150,000 on it.”

I look at it, and I go, “I only need to spend $40K on it. What are you talking about?”

What Kevin is essentially describing is buying a problem. And the problem is it’s ugly. But that problem looks worse than it is.

And he’s got some experience. So when he looks at it, what he’s seeing is: OK, this needs a facelift. I just need to put makeup on this thing. That’s not a very big deal.

Related: The Best Way for Millennials to Start Investing in Real Estate in 2020

I loved the fact that Kevin showed us a deal that makes a ton of sense. There’s a ton of equity in there, but it scared everybody else away because it wasn’t pretty. Well, you can make it pretty! That’s the best problem to solve.

Kevin chimed in.

My favorite thing to buy—this is my definition of sort of your wedge deal—it’s very much like this deal. I go in, I look like everybody else. They’re looking at all the nasty stuff and the smell and the black carpet and stuff like that.

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I look at it. I go, and I open the furnace closet. Brand spanking new furnace. I like this!

I look at the roof. That roof is pretty good! We’re gonna put on new ridge caps for $1,800. That roof is going to kick it for another 10, 15 years.

You look at the foundation. All the expensive things are good. Grounded electrical… the expensive stuff is good!

The cosmetic stuff is I think what people dramatically overvalue, and that creates an opportunity to even get on-the-market deals for a traumatic discount.

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Questions about this deal? Questions about rehabbing ugly properties? 

Let’s talk in the comment section below!

David Greene is a former police officer with over nine years of experience investing in real estate that includes single family, multifamily, and house flipping. David has bought, rehabbed, and man...
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    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    in my town, they would list that house as a fixer for $700K, and someone will pay that. Then it will cost about $150K to fix it. When you say you would pay $40K, what are YOU talking about. Perhaps you mean you don't have to pay retail for repairs, Or you have a reliable contractor. Those are extremely difficult to find. Fixer-uppers did not intimidate me until I bought a house that was supposedly a relatively recent remodel only to eventually discover it required $43,000 to repair. [email protected] nightmare could an actual fixer-upper be concealing?
    Maher Dakkak
    Replied about 2 months ago
    Hi Katie, newbie here. For the fixer-upper you're referring to, could the remodels have been discovered prior to purchase with an inspection? What kind of hidden problems were they?
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    I do not understand your first question. As to your second, the sellers cleverly concealed major subterranean termite damage in the garage and severe drainage problems throughout the grounds. We found the termites after closing. The exterminators required the garage to be torn down to studs before they would remediate. That's when we discovered many rotten studs that needed to be replaced. The garage demolition also revealed other issues such as lack of weep screed and plumbing which should have been underground but was actually near the surface and which had been concealed by piling a foot and a half of soil over the pipes and up against the stucco. They had carefully graded the soil to make the ground level seem to be in a different place than where it really was. We had to install weep screed around the perimeter of the house. That is when we discovered rotten studs all around the house. I am surprised the house had not fallen down. We also had to put in anew lateral sewer line and replace all the plumbing in the shared wall between the house and the garage. But the inside had nice newer kitchen and bathrooms, and the windows had all been replaced with double-pane windows..
    Della Heywood
    Replied about 2 months ago
    It seems to me that fixers that won't finance, and require cash, put these kinds of brilliant results out out of reach for most people. But I guess this article is for investors and those who can lay their hands on $500k cash. My question is, how could someone start to become become able to do this?
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    That is another good point. But to be fair, one major way investors lay their hands on $500K in cash is by using a different house as the collateral through a HELOC or cash-out refi.
    John Murray from Portland, Oregon
    Replied about 2 months ago
    I'm an experienced BRRRR guy and flipper. I just completed a 3000 hour project and about $30K of my money. I will profit about $110K. Now the reality of this house. Built about 1960 or so, the 9x9 asbestos tiles tell a great deal about vintage. The drain plumbing cast iron and supply galvanized, not good. The baths need to torn out and replaced 60 years old, not good. The kitchen cabinets need to be replaced, new sink, new appliances, flooring, very expensive . The interior painting with trim is time consuming and expensive, not good. The electrical system 60 years old maybe even Fed Pacific blow up in your face Panelboard, no good. It just goes on and on. Now the money we say that there was $20K in materials and parts invested because he is smart and got some really good deals. The other $25K is in labor at about $75 per hour. $20K/75= 333 hours and that's the $45K estimation. 266 hours if he does the $40K estimation.
    Katie Rogers from Santa Barbara, California
    Replied about 2 months ago
    Labor and materials is pretty consistent across the country. In my experience, the materials for that work will be less than what you say, and the labor significantly more. Also your math may have a typo. $25Klabor/$75per hour = 333 hours. It looks like you are likely to face substantial cost overruns because it will take more hours than anticipated. I just dealt with a similar house built in 1959. Upgraded to 200 amp and rewired the whole house, replaced the cast iron and galvanized plumbing, removed asbestos tiles, new kitchen sink, new furnace, new water heater, redid bathroom, painting. All that cost $40,000 total and took about 500 hours, and your house still has a second bathroom and a kitchen to do.
    John Murray from Portland, Oregon
    Replied about 2 months ago
    Here is the biggest problem with this fairy tale. The Nobody in their right mind would purchase a 1960's home with painted tiles and bathtubs. Re-glazing tiles come on, no experienced flipper would ever use that term. Because it does not exist. In some of my rentals I have coated the vanity tops with a Rustoleum products but not a flip. The electrical system if you change the panelboard the entire house must be brought up to a condition that the newbie would not even think of. TR outlets, GFI equipment, disconnects, additional grounding and some jurisdictions arc fault breakers. The hot water heater, the insulation, windows, I think you get the picture. Leading newbies to believe that this stuff is easy and you can do this stuff by minimum skill is such a disservice. This stuff is hard work and the charlatans selling their snake oil, I would have to ask what is there to gain by promoting fairy tales.
    Gail W. from Leaving California
    Replied 26 days ago
    Hold the phone on that "painted tiles" comment... We just sold a huge home in an upscale neighborhood in Laguna Hills and we had the 1966 tiled shower resurfaced by Miracle Method ceramic tile refinishing. Got the idea from an open house we toured where they did the same thing in a neighborhood up the road that's even MORE upscale, which sold for way over asking, very fast. (Mine went VERY fast for over, as well). They used all white, so we did the same. So I think it depends on the market and the method used to resurface, as well as the tile being resurfaced. I mean, we had broken, missing tiles, but they cut generic ones to fit and once they are refinished, you'd never know. Resurfacing is NOT painting tiles... check out Miracle Method- ceramic tile refinishing. They come in and do some hard core cleaning and application with serious ventilation set up, because it's stinky. But once done, it's awesome! We wound up having it done in our own home and it's held up extremely well for over a year now.
    Cornelius Charles Investor from Oxnard, California
    Replied 14 days ago
    I have several questions about this video/post. The author states, “I loved the fact that Kevin showed us a deal that makes a ton of sense. There’s a ton of equity in there, but it scared everybody else away because it wasn’t pretty.” 1. How did this deal make a ton of sense? I see the purchase price and estimated rehab, but what’s the exit strategy? If it’s a flip, what’s the ARV? If it’s a rental, what are the projected rents? 2. I’m in the same market as Kevin, and I can’t see a scenario where a MLS property is picked up with a ton of equity. We still have a strong seller’s market here. There’s no way a property like that would scare everyone else away. Not only would all the would-be investors be interested in that house, but also would regular homeowners who are looking for a home they could buy and fix up for themselves. My wife is a realtor, and yes there are non-investors that buy homes for cash here. I listened to this podcast when it came out because I was very interested to see how he was finding deals that make sense in our county. However, with the lack of numbers presented in the podcast, I have more questions than before I listened.