Ugly House Makes a Fine Cash Cow

[Diane Menke]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $35,000
Cash invested: $9,000
Sale price: $225,000

When we bought this house, it was a rooming house a church group used to reintegrate people into the neighborhood. So the house was OK but not renovated. The area was still rough but coffee shops and creative folks were moving in. We bought this house at a great price, and held it for a while until values came up. Doing that time we rented to mostly recent college grads who were doing group living.

We made very low cost upgrades like a new kitchen, and bathroom, and lots of paint. We replaced a few windows, the roof and not much else.

While we owned the house we collected rents, and refinanced a couple of times so we could buy more properties. This house didn't owe us anything.

We decided to sell when the ARV and rents didn't support the renovations it was going to require.

The house sold to the last tenants we had there and we made a few more bucks. The buyers were happy and so were we!

What made you interested in investing in this type of deal?

It was a no brainer cash cow at a very low price in an up and coming area.

How did you find this deal and how did you negotiate it?

An agent we worked with found it for us on the MLS.

How did you finance this deal?

Commercial lending + cash.

How did you add value to the deal?

We renovated the kitchen, the bathroom, replaced windows, roof, some wiring and lots of cleaning and paint.

What was the outcome?

We had years of good rental income, refinanced at least 2x to pull out cash, and we still make a few bucks when we sold.

Lessons learned? Challenges?

This house had a large addition on the back which made it great for group living tenants. But the addition was not to code structurally, and we knew we would have to take it down and rebuild it if we decided to continue to hold it. That didn't make financial sense so we sold it. We no longer buy houses with portions of the house outside the area of the basement foundation as buy hold properties.