Middleborough Part 1 | how to buy “ugly” properties
Ryan: Hey, everybody. We're here talking with Mike about a recent deal that will be closing in about 40 days. Mike, I know you did some renovations on this property. Walk us through the rehab process, in particular, apply it to somebody who's just getting into this as a new investor.
Mike: Sure, Ryan. This particular property that Ryan's talking about is a property in Middleborough, Massachusetts. We recently talked about how I acquired that property. One of the things about this property that was interesting about it was that when driving by it, it didn't have really good curb appeal, and the house was really kind of a strange to look at.
Like anything, as investors, I think one of our tag lines is 'we buy ugly properties'. Quite honestly, from the outside of this one, I thought it was somewhat ugly. It really intrigued me to make sure I go view the inside before I judge the house too much.
When I went inside I was mystified. It was . . . I don't even know what you call it. It was a split entry ranch but there was no second floor walking up. When you walk into it, you walk down into a lower level. Then you walk towards the back of the house and you step back up to an upper level. It was really a strange configuration.
The other thing about this property was that it was all wood. There were 10- inch to 12-inch wide pine boards on the walls and on the ceilings. The guy made his kitchen cabinets out of pine; closet shelving, bathroom walls - all pine. It was done tastefully, in the sense that the woodworking was done very well.
I remember walking through this property with one of my students, Mark. Mark was already for me to go through the scope of work with him, expecting that we would knock everything down. For about 20 minutes, literally, I'm walking around scratching my head, not knowing what to do with this property. He's like, "You look confused." I'm like, "I am confused." The look on his face was, "What am I paying you for if you're confused?"
With this particular property, I really had to put some thought into it. When I go into a lot of properties, often times I know we're gutting it; those are the simple ones. When we gut everything down to the studs, we rewire, install new plumbing, new windows, new roof, new siding. I could price out a $100,000 renovation sometimes in a 5 or 10-minute walk through.
With this one, I wasn't quite sure what I wanted to do. I had to take the approach on this one, that I wanted to do the renovations at minimal cost. The approach, or the conclusion I came to was, either you're going to love this house or you're going to hate this house. Meaning you're going to love it because you love woodwork and you love that country feel, or that Northern, New England feel; maybe a house that might be up in the mountains or something like that, and you appreciate the finer wood craftsmanship that was done.
The only other way around that would be to take all the wood off the ceilings, take it all off the walls, and I really felt that would have been a bad decision to spend all that money and not be able to recuperate it back. We ended up budgeting, I think it was around $25,000 to $30,000 total renovations, and $10,000 of that was for the septic system.
Quite honestly, it was a very light renovation. $5,000 or $6,000 of that went towards the garage. It really only left about $10,000 for the interior of the house, which was basically new floors. We painted some rooms, had to update the plumbing in some areas because of frozen pipes from it not being winterized correctly etc.
For this house, even though renovations were light, it took a lot of thought to make sure we didn't over spend. For this property my exit strategy was to sell it for around $200,000 - I thought we could get over $210,000 for it. The market had heated up a little bit since purchasing the house, and with a recent evaluation, we decided to list it for $224,000.
We'll talk a little bit more about the selling of that property in the next video. Hopefully, that answers your question.
Ryan: Thanks, Mike. We'll see you guys in the next segment.