Re-building New Orleans and profiting from challenging home refurbishments, with Justin Mills

Q: How did you get started in real estate investing, Justin?

I got into the real estate business in 2005. I’ve always been open to business opportunities and locations with great potential – the book Rich Dad, Poor Dad was an early inspiration – so I decided to move from western Louisiana to Orlando, Florida and received my broker’s license. I focused on a lively niche in Florida, mobile home parks, and sold several for over $1 million.

My first house renovation had a clear, profitable exit. Someone held a property with a main home and a separate, spacious guest house, about 60 feet down a narrow alley. The owner had the idea that someone should be able to split it into two lots, and fix them both up. He didn’t want to invest the time or effort himself. After researching this possibility with the city zoning commission, the deal was very viable. This prior owner had purchased the property for $190K and I bought it from him for about $250K. After a few thousand dollars in legal fees and filings to rezone, some painting and floor finishing, plus a separate driveway, my profit on the two separated homes was roughly $110,000. The deal reinforced for me the value of building relationships with local real estate participants, and I’ve stayed in touch with the original owner ever since.

Q: When did you begin home projects in New Orleans?

My real estate career actually began a few months before Hurricane Katrina. At that point, of course, Florida was a better market to address. By 2012, my wife and I decided to move back to Louisiana. There were probably thousands of homes in New Orleans that were in need of repair – abandoned, suffering from water or termite damage, etc. They took time to be addressed in terms of ownership status and financial situation with the banks, and were coming back online in the market. We saw a major opportunity to be part of that turnaround, and I set up Mig Fund as my development company.

Q: What makes these attractive investments?

A lot of it is location: New Orleans will always be an attractive place for families, professionals, and students, not to mention tourists. A huge hospital facility is being built in downtown, in New Orleans parish. It will cover many city blocks, employ thousands of people and is getting closer to completion.

Because we are at an upward turning point for the city, timing and neighborhood are key investment considerations as well. In one neighborhood, Lake View, an average home that might have cost $90K a few years ago could now be worth $400K. The positive developments and energy in that neighborhood are feeding on themselves. Lake View was always a decent place to live, but now the largest, new construction homes might go for $800K or more. It’s attracting the families of professionals, such as doctors and lawyers, and great restaurants are appearing on more corners. It still feels suburban, but Lake View is just 5 minutes ride by local highway to downtown New Orleans. The Uptown Market district, south of St. Charles to Tulane Ave, is also in demand. These are the types of hot spots I look for.

Q: How do you manage projects involving older homes that may have been exposed to the elements?

I specialize in refurbishing older homes in New Orleans; they can have great potential. I’m fully committed to these types of projects; not many others are. There are many benefits to this approach.

Because there are few buyers for these properties, they often can be acquired for the cost of the land.

You need a good team to plan and budget properly. Given these houses are older vintage, you may be replacing terra cotta pipe with PVC, or completely updating the wiring. I’ll reserve funds wherever needed to replace wood beams, too. My contractors are very familiar with what needs to be done. Some are specialists in terms of skills and related city inspections. Others are experienced handymen that help me with a variety of tasks, from flooring to walls and bathrooms. I always serve as the general contractor, to think creatively about the big picture of beautifying a home, while controlling costs.

We’ll reorganize the floor plan wherever it makes sense. Because older homes here originally didn’t have air-conditioning, they were build railroad style, with no separators between the living areas, bedrooms and kitchen/dining areas and a need to walk through the bedroom to get to the kitchen. We’ll introduce hallways or sliding doors to guide activity in the house, and place the kitchen in the middle, next to the dining/living room area.

Materials are used that make sense for New Orleans today. Exteriors historically were made of wood. Today, the most accepted material is Hardie brand cement lap siding, which gives you a variety of wood looks, at an attractive cost, that weathers conditions well.

Finally, we add modern amenities like granite countertops in the kitchen, and expand the bathrooms.

The financial reward is of course driven by the difference between acquisition and construction costs, versus sales potential. I can usually build additional space at $40/square foot and sell it for $150/square foot. I’m looking at a deal now, where we can add a second story to a home, for a nice potential profit. I’ve had another successful project, a five-plex home, where we reorganized the floor plans of two units, modernized the others, and I’ve held onto it as a rental.

Q: What’s your interest in crowdfunding?

I feel I have a good handle on how to do the projects I’ve mentioned. My next goal is to expand my capabilities, especially access to financing, to sustain several projects at the same time. I’m doing one home flip right now, closing on a single family next week, and planning to close on a four-plex by the end of July. Crowdfunding can help with this vision.