Yes, you read that correctly.
When looking for a rental property, I actually proactively look for problems. Sure, it’s entirely possible to buy a rental property that is 100% finished and great, and perhaps for you and your business model, that is what you should do. But for me, I want to find problems that I can fix that will help me get a better deal.
How do problems get me a better deal?
It’s simple: when most people encounter the following eight problems, they turn around and walk out the door, repulsed and saying, “No way!” I walk into that same property, take a look around, and start to get excited. In fact, it’s hard for me to be excited about a property that doesn’t have problems! It’s the fear of dealing with problems that drives most people away, and with less competition, I know I can find better deals.
Before I get to the list, I will caution you: with problems comes risk. It’s imperative that you understand the full nature of the problem at hand and that you include an accurate budget to fix that problem when doing your numbers.
8 Problems I Look for When Shopping for Rental Properties
1. The Bigfoot Smell
When you walk into a house, and it smells like bigfoot died in the kitchen, is your first thought, “I gotta get outta here?” The truth is, most people respond with disgust, but seasoned investors see opportunity. Bad smells are one of the easiest problems to fix in a property but one of the things that drives away 99% of the competition. Bad smells are generally caused by one or more of a few things, none of which are difficult to solve:
- Rotten food in the cupboards or rubbed into the carpet
- Cat or dog urine soaked into the floor
- Smoke residue on the walls, ceiling, and floor
- Mildew on the windows, walls, or other surfaces
- Bigfoot dead in the kitchen
As long as you are not dealing with some kind of environmental issue or a major sewer leak under the house, you’ll likely find smells are fairly easy to eliminate with some cleaning. To get rid of the smell, go through the following list in order and stop when the smell is gone:
- Carpet: In my experience, getting rid of the carpet and the pad underneath will get rid of 90% of the problem immediately, so plan on hiring a couple people for a few hours to remove the smelly carpet. For less than $100, most of your problem will be solved. Open all the windows and let the property air out for a few hours.
- Mop: Mop the floor with a mixture of bleach and water. Let it dry, and open the windows to air the place out. (It can take a day or two for the smell of bleach to disappear and let you know if the smell is truly gone.)
- Clean: Make sure every crumb in the kitchen is picked up and all windows have been washed. Obviously, you will need to do this anyway, so find a professional cleaner who can come in and clean every square inch.
- Prime the Floors: If the smell persists, buy some cans of Kilz Oil-Based Primer and a long-handled paint roller from the local hardware store. Pour the primer out onto the floor (this is a lot of fun, actually!) and spread it over every square inch. I will warn you: oil-based primer is strong smelling, so be sure to use a respirator (they run about $30) so you don’t pass out. I’m not kidding—you will pass out otherwise. I’ve been there, done that. The chemicals are just too potent.
- Wash the Walls: This approach is most commonly used when dealing with stale smoke smell. Get a good sponge and a bucket of soapy water, and scrub the walls. Often, you will be able to physically watch the smoke residue wipe away from the walls, which is an oddly satisfying experience.
- Prime/Paint the Walls/Ceiling: Lastly, and for situations where the other approaches have not solved the problem, hire someone to spray the entire inside of the house with that Kilz Oil-Based Primer (about $200 in primer will do a whole house, plus two days of labor).
Following these steps, I’ve never had a problem smell I could not eliminate. Whether you do the task yourself or hire a local handyman to do it for you, the entire process is unlikely to cost more than $1,000 (not including the cost of the new carpet, which you are likely planning to replace anyway), and you’ll have a fresh, clean, and newly painted property, ready for a new tenant. The great news is that a bad smell can drive the cost of a home down considerably, maybe even tens of thousands of dollars. Now you understand why investors often say, “Mmmmm, it smells like money!”
One final caveat on the smell issue: make sure the smell is not coming from a busted sewer line under the property or in the basement or something tragic like that. That fix could be much more expensive. If you are unsure what is causing the bad smell in a property, bring along someone with more experience and/or be sure to get a professional inspection on the property.
2. The Hidden Third Bedroom
I mentioned earlier that I don’t like two-bedroom homes for a rental property. However, there is one case where I get very excited about buying a 2-bedroom home: when there is a hidden third bedroom. No, I’m not talking about some mysterious bedroom hidden behind a wall (though admittedly, that would be pretty cool!). I’m talking about taking a room that is not considered a bedroom and turning it into one.
For example, the other day, I checked out a house that had 2 bedrooms, 1 bathroom, a laundry room, and then a large “storage room” next to the laundry. This storage room was 10 feet by 12 feet—the perfect size for a bedroom. The walls were finished, the floor just needed carpet, and a door needed to be added. In other words, to turn this 2-bedroom home into a 3-bedroom home, I was looking at maybe $3,000 of labor and materials.
As a 2-bedroom, the property was worth about $90,000. However, as a 3-bedroom home, that same house was worth closer to $115,000. Why the agent didn’t list it as a 3-bedroom, I’ll never know. But I see this kind of thing all the time. In many cases, the difference in house value between a 2-bedroom and a 3-bedroom can be significantly higher than the cost of converting a “hidden bedroom” into a functional, legal bedroom. This helps build some immediate equity in the property, since you’re paying for a 2-bedroom but will own a 3-bedroom. In case you are wondering, the jump from 3 bedrooms to 4 bedrooms is likely not the same as from 2 to 3, so I usually stick to the latter.
Of course, not all 2-bedroom homes have this hidden bedroom; most don’t. But I’ve found that around 20% of 2-bedroom properties do have some potential for a third bedroom. Keep an eye out for this kind of property, and look for keywords like “bonus room,” “attic,” and “huge bedroom” (which can often be split in two).
3. Ugly Countertops and Cabinets
You’ve likely heard the phrase “kitchens and baths sell houses,” and it’s not an exaggeration! People spend a large amount of time in the kitchen, and nothing says “1979” like bright orange countertops or ugly cabinets. Most people simply avoid houses with these problems. Those people don’t realize how easy it can be to transform an ugly kitchen into a modern, beautiful one with just some new counters and a fresh coat of paint on the cabinets.
Yes, that’s right, many times you can paint old cabinets to make them look brand new! Rust-Oleum sells a really nice cabinet refinishing kit for less than $100 at Home Depot that will turn nasty cabinets into modern works of art.
Furthermore, replacing countertops is a fairly straightforward process. You can pick up prefabricated laminate countertops from Home Depot or Lowe’s for a few hundred bucks and have it installed in a couple of hours, or you can spring for nicer granite or quartz if the neighborhood style demands it. All in all, don’t be scared off by 1979! It’s entirely possible to turn a dated, ugly kitchen into a gorgeous one for less than $1,000, so look for easy wins like that to snag a great deal!
4. The Bad Roof
This one might come as a bit of a shock to people, because a leaking roof seems like it would be a pretty major problem. However, I like finding properties that are in desperate need of a new roof, because it scares off a lot of the competition, and getting a new roof is not a difficult process. Yes, it can be fairly expensive, but I can usually get the current roof removed and a new one put on for less than $6,000, and it’s completed in just one or two days.
Now I don’t need to worry about the roof leaking on my rental property for many, many years, and I can factor that into my budget. Keep in mind that roofing costs can vary wildly depending on the contractor you consult. In my area, the two largest contractors will typically charge between $15,000 and $20,000 to replace a roof, and because they are the largest roofing contractors in my area, most people call both and get bids from both, only to find that the bids are within a few hundred dollars
of each other.
Little do they know that the companies are actually owned by the same person, so of course, the bids come in the same! If they took the time to call a few more contractors, they’d discover that the cost of a roof is usually less than $6,000 from nearly everyone else in town—same materials, same quality, but drastically different prices. So keep that in mind when shopping for your next roof. Don’t get taken advantage of! Shop around, ask for referrals, and then check up on those referrals. Don’t let a bad roof overwhelm you, but instead, look at the opportunity!
5. M…M… Mold?!
Uh oh, did I just say the M word? Yep! And yes, mold is one of best problems I look for when buying a property. You see, mold is a scary thing to the average consumer, maybe even to you, but it shouldn’t be. You see, mold is a fungus that grows naturally everywhere. It’s in your house right now. It’s in your car. It’s probably in your beard and in your hair. It’s in the air you breathe, all the time, if you live in a wet climate. (Still scared?) Mold is everywhere that there is moisture.
However, when mold spores begin to settle and accumulate in large quantities, suddenly the human eye can detect the mold and will start to see spots of black or green on certain surfaces. Now, if there is enough mold in an area, it can be dangerous to people with certain immune system problems, but in small quantities, it’s not like anthrax, as much of the U.S. population seems to think. But let’s just them keep thinking that mold is just slightly worse than eating a spoonful of ricin; while they are out there complaining about a few spots of mold in a property, I’m out there investigating why there is mold and snatching up amazing deals.
Mold is not a random occurrence; it happens for a reason. That reason is moisture. Eliminate the moisture, and you eliminate the visible mold! If you walk into a potential rental property, and there is mold all over the bathroom walls, and then you notice that there are no windows or a vent in the bathroom, guess what? That’s right, the mold is growing because the moisture from showers can’t leave the bathroom. Install a vent, and the problem is probably solved. Mold all over the ceiling? I would wager that there is
either a roof leak or no ceiling insulation directly above the moldy spot (so, condensation in the room is forming on the cold spot where the insulation is missing, causing mold growth).
The only mold I would really worry about is mold in basement walls, because it indicates water seeping in through the foundation—and that begins to scare me. Fixing a bad, leaking foundation can be incredibly complicated and expensive, so unless you are more experienced, I would steer clear of those issues.
6. Compartmentalized Configuration
Compartmentalization is the characteristic found in many homes, especially older properties, where the rooms were designed to be separate from each other. Today, there is a movement toward open-concept living, in which the living room, dining room, and kitchen have no clear borders and all kind of blend together. People want to cook in the kitchen while still engaging with the rest of their family in the living room or dining room, but properties that are severely compartmentalized do not allow for this and are therefore not as desirable to the average homeowner.
As with the rest of the items in this list, anything that drives away the general population makes me take interest. Compartmentalization is a problem that intrigues me for two different reasons. First, in a rental property, compartmentalization is not always a problem, so you can pick up a house for less than other similar homes, but it might not rent for any less. Second, compartmentalized properties can be “opened up” fairly easily to modernize them. Usually for less than $2,000, a contractor can go in and tear out a wall to open the property up, increasing the desirability, and thus, its value.
7. Jungle Landscaping
You’ve likely heard the term “curb appeal” before and probably know the importance of having a property look pristine from the street. After all, the landscaping is the very first thing potential buyers see when they visit the property. This is why I love to find properties where the yard looks less like a yard and more like Tarzan’s jungle. Long grass, dead grass, overgrown bushes, pink flamingos—it’s all good! Landscaping is not a terribly difficult or expensive thing to clean up, but the bad condition can drive away the bulk of the competition and help you snag a great deal. It’s amazing what a simple cleaning, mowing, and edging can do to a property, and typically for less than $1,000, a problematic landscape situation can become a nice yard.
8. Junk, Junk, and More Junk
Have you ever watched the television show Hoarders? This show takes you inside the homes of individuals who have the compulsive habit of saving or collecting an absurd amount of junk.
Sometimes the house is filled so high with junk that it’s impossible to get into certain rooms. While this makes for highly entertaining television, this is not some mythological thing: hoarding is a real and very common problem for people around the world. When these hoarders need to move or they pass away, the junk they leave behind can be a major roadblock for casual buyers. However, when I see junk, I don’t see a problem, I see opportunity. I might be able to get an incredible deal on the property because no one else wants to handle the problem! I can simply hire someone to come clean it out 100%, bringing it to a point where I can put in new carpet, perhaps paint it, and get it rented out for incredible cash flow.