1. Home
  2.  / Gut Feeling
Gut Feeling

Gut Feeling

Bought sight unseen, this formerly derelict home has given its new owner both capital gains and a steady income stream, writes Joanna Mathers.

By: Joanna Mathers

1 January 2020

Michael Burge lies in bed at night dreaming of dumps. Not the kind you put your rubbish in, rather, homes he can get for peanuts and transform into decent dwellings.

The 31-year-old was having such a moment last year when he spotted a place that fit the bill perfectly. Graffiti on the walls? Check. Broken windows?

Check. Potential in spades? Check. “As there is a 30% deposit needed for investment properties, I always look for properties I can pick up cheap,” he explains. And this one definitely fit the bill.

Located in the Western Heights suburb of Rotorua, the home was a mess. The Trade Me listing said “renovate or Bought sight unseen, this formerly derelict home has given its new owner both capital gains and a steady income stream, writes Joanna Mathers.

Gut Feeling detonate”, which sums up the state it was in. The tenants had vacated the home in November 2018 (they had

been particularly bad) and the place was smashed up a few days after they left. But (and this was a big “but”) it had potential.

The three-bedroom, one-bathroom home had been built in the 1960s and was structurally sound. Burge called a mate in Auckland who is an experienced investor, and they did the sums together.

If he got it for the right price, he would be able to make it work. “The figures looked good, so I put in an offer with the agent right away. As it turned out, there was another offer on it already. But I went back with an offer of $176,100 which was accepted.”

On The Tools

Burge was based in Auckland at the time (he has since moved to Tauranga) and he zipped down to Rotorua to see what he’d bought. He had expected something bad; it was worse than he could have imagined.

“It was completely ruined,” he says. “I knew I had to gut the place and start all over again.”

Which is exactly what he did, alongside tradies and his best mate, he spent a few days demolishing walls and ceilings, tearing up carpet, and ripping out kitchen and bathroom. “It was actually really fun and exciting,” he says. “Pulling everything out and then starting again.”

With an empty shell to work with, the first job was re-plasterboarding the entire place. This took two-to-three days, his friend who is a builder then took on the job of plastering. At the same time, the builder also started to create the shell of a bathroom.

One of the jobs that took a lot of time, and that Burge didn’t realise would be so labour intensive, was reinstalling all the trim. “This was a big job, with all the plastering and painting afterwards.”

Burge went to his usual suppliers, Trade Depot, for all the kitchen appliance and bathroom fixtures. His usual strategy is to rent to solo mums on WINZ benefits, so he decided to put in a bath “so it’s easy for them to wash the kids”. The plumbing was undertaken by Hutchinson Plumbing, a small Rotorua company.

‘It was actually really fun and exciting. Pulling everything out and then starting again’ MICHAEL BURGE

They had to remake the bath cradle for this: they also installed a new vanity, shower and toilet. The kitchen was replaced, with a new stove and 500mm x 600mm wall units and a new sink.

As the place had been gutted, all the wiring was put in place by Peter Fraser Electrical, another small local company. Burge has a friend who works at a carpet company, so he was able to get a good deal on vinyl and carpet, which was laid throughout the house.

As “the weather was rubbish” over the period of the renovation (between August and October this year) the roofing was a problem. At this stage Burge was “running out of money” and the roof needed to be replaced. Luckily, they happened upon a roofing team who managed the herculean task of completely replacing the roof on both the house and garage in two days.

“They were incredible. My mate and I just watched them with our mouths open. They managed to complete the job so quickly. This is why you sometimes need to get the professionals in.”

The exteriors of the home “weren’t too bad”, says Burge. There were no outside fences, so he popped some up, painting them black “because they are easier to keep clean”.

He also washed the house with a spray gun. Some of the windows had been broken when the house was trashed in November 2018. These also had to be replaced.

A Tidy Gain

The entire renovation job took around eight weeks to complete. When it was finished, the house was, essentially, completely new.

Burge has an excellent relationship with a valuer in the area and chatted with her about the potential value of the renovated property at the outset.

She gave a figure of $400,000, which is what she ended up valuing the renovated property at. “I was pretty pleased with that,” smiles Burge. The budget for the renovation was $50,000, but it went over to $60,000, but nevertheless, the capital gains are significant.

There were also no problems finding renters. He put it on the market for $500 a week and soon had a tenant; a WINZ beneficiary whose money is redirected to Burge every payday.

“The best thing about doing this is that you know you will never have a rental default,” he says. It’s been a very successful project for Burge, and he’s keen to get on to the next one. He’s going to stick with his formula of finding houses that are as “cheap as possible” and giving them new life. It’s proving to be a winner for both him and the tenants who he chooses to inhabit them.