I had just acquired my second rehab project and I couldn’t wait to get started. Like the first, this was going to be my personal residence. It was a three bedroom ranch in a great area that I had acquired from HUD. Like many foreclosures it had been badly neglected and needed a fair amount of work but it had enormous potential. My wife was extremely excited about it as well and was looking forward to moving in. However before she would stay in the house she was insisting that it have running water, electric, heat and that it had to be a lot less “icky”, she can be so unreasonable sometimes.
The water, electric and heat were not, I admit, unreasonable requests but surely a little ickiness had to be expected. The previous owner had animals that seemed to prefer staying indoors and the place smelled like an abandoned kennel. Getting rid of the carpets and trash took care of most of it and my wife did move in after the house passed the sniff test. We proceeded to rehab the house room by room and it ended up being an excellent home. It also turned into one of my most profitable deals and paved the way for my future as a rehabber.
If it’s “icky” I’m not picky!
I clearly recall looking for my first investment rehab with my wife tagging along. We were looking at properties with an agent and I had a friend of mine along with me. He owned a few investment properties and some experience with rehab and I was looking for his input on any possible deals. The first house that we looked at had a very large lot that was overgrown and loaded with debris. As we went in my friend and I were looking around and getting a little bit excited about the potential that we saw but in the background I heard “eeeeew, this place is disgusting!” It had failed my wife’s sniff test. My friend and I looked at each other, neither one of us had noticed since we were too busy looking at the future possibilities of the house. We didn’t buy that particular property because we located another that worked out much better in terms of expected profit but it would have been a good deal.
It was at this point that I realized the power of the ick factor. The average retail buyer is turned off by things that I am immune to. I am more concerned with a property’s future potential than by its present state. This actually works in my favor. Since most buyers are turned off by “ickiness”, the seller is at a disadvantage and I have less competition. Less competition means that I can usually get a much better deal.
A short time after I realized the power of this factor my theory was confirmed. I had been out looking at properties with another friend of mine. He saw what I was doing with my real estate investments and he wanted to buy investment properties as well. In his case he was looking for rental properties that didn’t need much, if any, work. We looked at about a dozen houses for him but I had one that I wanted to see for myself. It was a duplex in a blue collar neighborhood that required extensive rehab. From a numbers perspective it was a hot deal and I couldn’t wait to get a better look at it. From the outside it looked like a real dump and the inside it was even worse. The place was built in 1930 and I suspect that the most recent cleaning also took place about that time. I was going through the house and figuring out what the scope of work would be and figuring out my potential profit. As I was doing this I noticed my friend practically running out of the house.
I went outside and my friend was waiting to get in the car. He was saying, “are we done here? Can we go? You aren’t thinking about buying this place, are you?” He couldn’t fathom how anyone would be interested in this house. After we left he was commenting on how he couldn’t believe that people actually lived like that, welcome to my world! I decided not to buy that place, not because of its condition but because of some serious foundation issues that I discovered.
The Theory in Practice
After several years of rehabbing properties my wife has come to realize that icky is a good thing if we aren’t going to live there. When we are out searching for property and my wife says “oh, this is nice!” I cross it off of my list. But if I hear “eeew, gross!” I think, cha-ching!
A pessimist is one who makes difficulties of his opportunities and an optimist is one who makes opportunities of his difficulties. – Harry S. Truman