What is Lipstick on a Pig in Real Estate Investing?

I am not sure the first time I heard the term “Lipstick on a Pig” but it stuck with me because it was funny at the time. However, I started relating it to the rehab work I was doing on homes because I was rehabbing very ugly (“pigs”) at the time.

What is Lipstick on a Pig in Real Estate Investing? I discovered that by doing minimal work on each property no matter how bad (ugly) it was, I was able to add substantial value to the property well in excess o f the rehab that I did. Actually, these partial rehabs included mostly patch and paint of the property and never any kitchen or bathroom remodeling.

The floor coverings (tile, carpet or wood laminate) should be considered as part of the patch and paint if you intend to “wholetail” the property. Wholetailing is the process of rehabbing in a minimalist manner for speed and cost. This rapid rehabbing process results in high speed combined with low cost and the end result is being able to sell the proper ty very near retail value (full market value).

As an example of the power of this “lipstick on a pig” process, our most successful Mentor Student does about 125 to 130 short sales a year. He wholesales these properties and was averaging about $10,000 to $15,000 profit per deal until he talked to me about how to kick up his profits.

I suggested he do the lipstick on a pig rehab especially since he was intentionally seasoning his wholesale deals for a couple of weeks. Some of these properties may have had deed restrictions but generally he felt most comfortable holding the properties before selling them.

Obviously this meant he had to buy and close on each one which required lots of cash. He had foreign private money investors who loaned him the money he needed at very favorable rates which are nowhere near hard-money rates.

The Student called me unexpectedly one day and asked me to have lunch with him. As I sat with him he suddenly burst out with “You made me more than a million dollars extra last year!” He went on to explain that he started putting lipstick on his properties and was now netting an additional $10,000 net profit on every deal. That is 125 x $10,000 = $1,250, 000 extra per year. He spent an average of less than $2,000 per property!

As an estimate of what a lipstick profit increase should d o for you is an additional 50% to 100% of the wholesale profit that you were originally expecting. Typically, if you have to redo the floor coverings (tile, wood, carpet, etc.) you should try and keep your budget to about 2% to 5% of the property purchase price. This is a guideline and can vary greatly because of the condition of the property before you start.

If you have the time, I strongly suggest you do some minimal landscaping as this is the first impression your potential buyers will see. If the exterior is plain ugly the only people who may stop are likely other investors.

What is likely most important is to keep your total expenses in control for a lipstick rehab or soon you’ll be doing a full rehab before you know it – fixing kitchens and bathrooms is not lipstick on a pig but a full rehab.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder