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.
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.
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.
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.
Questions about this deal? Questions about rehabbing ugly properties?
Let’s talk in the comment section below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.