Author Topic: May I get your opinion please? (Build 2nd Floor, Rental, Buy a House, or wait)  (Read 622 times)

tammyLav

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My financial situation:
-Took a shellacking in the housing crash (bought a cute starter home in great school district 13 years ago, you know what happened next)
- We both lost our jobs and almost lost said house. Now things are good. No debt + money in savings... (rapidly saving... 55k in savings and adding about 5k/month while business is good)
- House is now possible to sell at about 280k. We owe 239k. Needs a new roof and some cosmetic stuff.

Important to note:
*Our house was purchased with a HELOC that we need to get rid of no matter what
* Our location is just ok. Nice neighbors and good schools, but our lot is too small, no view except other houses and flooding is a small possibility (we are on the coast-- Sandy did not flood our street but it flooded 1 street over... elevation is 16 ft)... not our dream spot to stay put and we'd like a change.

My Options
- 1) Add a second floor to give a little more space, get rid of HELOC and improve value of the house
          -Cost to build: 200k... would more likely end up 250k as these things go... that means we would owe $490k, and I don't think we can sell for that!!!


- 2) We found a house that we don't love in current form, but that checks off what we need in a home, and is in a lovely setting in a more established neighborhood that we do love (more expensive, but higher home sale prices as well). Most importantly, it is in a neighborhood with 20% more value than my current neighborhood. House is tired, but needs only cosmetic work to be a beauty. School district is the same. If we did cosmetic work, house has all of the features I want (except the walk to the beach part.. but then there is the view) and his on high ground in a wooded spot that is scenic (can't walk to the ocean, but we can just about see it through the hillside trees)
          -We would bid no more than: 460k... + 20-30k to fix things... that means we would owe $490k, and it could be worth $525k
         - We do have to still sell our current home, so that complicates things. Should I rent until a buyer can be found? We have the downpayment without selling, but I don't want to be saddled with a rental as an investment... it would be just a short-term solution.

-3) We suck it up, stay put, refinance, put that downpayment money into just fixing up our house as is, and then plan to sell it eventually... as long as we don't flood or have another market crash.

My Thoughts
So I am contemplating just putting in a low offer--house is on market for too much $$--to see where things fall. If my price is accepted, I have room to improve it and immediately make it more valuable.  If seller does NOT accept, I go with plan #3 and hope the housing market doesn't crash again (this feeling of doom is in the back of my mind constantly, because it was so awful last time and I'm tired of feeling stuck in my situation). The more I think of it, Plan #1 is bonkers unless we are building a dream house, which we are not. 

Do think I'm thinking of this correctly? What would you do in my situation, given that my goal is to make a sound investment that will grow over time, and that my current house can't accomplish that goal.

Jon Bon

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My financial situation:
-Took a shellacking in the housing crash (bought a cute starter home in great school district 13 years ago, you know what happened next)
- We both lost our jobs and almost lost said house. Now things are good. No debt + money in savings... (rapidly saving... 55k in savings and adding about 5k/month while business is good)
- House is now possible to sell at about 280k. We owe 239k. Needs a new roof and some cosmetic stuff.

Important to note:
*Our house was purchased with a HELOC that we need to get rid of no matter what
* Our location is just ok. Nice neighbors and good schools, but our lot is too small, no view except other houses and flooding is a small possibility (we are on the coast-- Sandy did not flood our street but it flooded 1 street over... elevation is 16 ft)... not our dream spot to stay put and we'd like a change.

My Options
- 1) Add a second floor to give a little more space, get rid of HELOC and improve value of the house
          -Cost to build: 200k... would more likely end up 250k as these things go... that means we would owe $490k, and I don't think we can sell for that!!!


- 2) We found a house that we don't love in current form, but that checks off what we need in a home, and is in a lovely setting in a more established neighborhood that we do love (more expensive, but higher home sale prices as well). Most importantly, it is in a neighborhood with 20% more value than my current neighborhood. House is tired, but needs only cosmetic work to be a beauty. School district is the same. If we did cosmetic work, house has all of the features I want (except the walk to the beach part.. but then there is the view) and his on high ground in a wooded spot that is scenic (can't walk to the ocean, but we can just about see it through the hillside trees)
          -We would bid no more than: 460k... + 20-30k to fix things... that means we would owe $490k, and it could be worth $525k
         - We do have to still sell our current home, so that complicates things. Should I rent until a buyer can be found? We have the downpayment without selling, but I don't want to be saddled with a rental as an investment... it would be just a short-term solution.

-3) We suck it up, stay put, refinance, put that downpayment money into just fixing up our house as is, and then plan to sell it eventually... as long as we don't flood or have another market crash.

My Thoughts
So I am contemplating just putting in a low offer--house is on market for too much $$--to see where things fall. If my price is accepted, I have room to improve it and immediately make it more valuable.  If seller does NOT accept, I go with plan #3 and hope the housing market doesn't crash again (this feeling of doom is in the back of my mind constantly, because it was so awful last time and I'm tired of feeling stuck in my situation). The more I think of it, Plan #1 is bonkers unless we are building a dream house, which we are not. 

Do think I'm thinking of this correctly? What would you do in my situation, given that my goal is to make a sound investment that will grow over time, and that my current house can't accomplish that goal.

I think we need more information on your financial situation to give advice. Like you have 55k in savings is great, but what other assets do you have? How much does you guys make a year? etc.  You can look up the how to write a case study sticky.

That being said. I dont like either option. Adding onto the house feels like a loser, and buying too much house (again) feels like a loser. Markets are starting to top out it looks like. At minimum Id hang tight for six months and see what happens.

Buying a big ass house right before the next recession feels like deja vu does it not?

Tell us more about your current house, any vacation/air bnb rental possibility there?


waltworks

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If *all* your savings is $55k, you are desperately house poor and the last thing you should do is add on or buy another house. Stay right where you are, save money, and *maybe* when you have at $200k+ in liquid investments/cash, you can think about a different house.

-W

cchrissyy

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how about selling the house and being renters for a while?

tammyLav

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We own a business that was in shoestring startup mode until the past year, and is expanding now... so I'm a little embarrassed that there isn't more in savings actually. By next year That number should be more like 125k. Net income is 250k/year and yes, I'm thinking renting might not be a bad idea until we get just the right situation. I was just curious about your thoughts on our current options, though we are getting clarity there as I talk to realtors, mustacians (or is that mustacios?) bank, etc. We had plans drawn up for the second floor, and it's a lot of fun to image designing a space around our tastes, but I'm really starting to realize that it would be a huge expensive undertaking. Our realtor felt we could sell current house for 425-450 with the addition (which would cost 460k+ in current form)... obviously not good. The other house would be about 480 all in with minor updates, and immediately worth 525. That's getting closer to what I want, which is to have a home with equity. Our current home's value has been under water since the meltdown, and there is that HELOC to contend with. Between the bum market and our business startup phase, it feels like we've been stuck with it forever at this point, so what I really want is the flexibility that equity would bring . Other houses in our area have risen in value, but not in our home's pricepoint & neighborhood (that was the whole point of the reno... originally, we thought if we improved it, we could build back some equity).

« Last Edit: November 16, 2018, 06:26:36 AM by tammyLav »

tammyLav

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Amen to the big ass house in the recession point!  I hear that loud and clear! I am so nervous about a market correction. The other house isn't really a big ass house. It's 2,000 sq ft, it's the wooded hilly ocean-viewy neighborhood (as opposed to mine that floods, lol) but I see your point about the expensive part. We are commutable to NYC here, so one of the ideas we had was to buy a house that could be paid off over time, and then in retirement we could rent it while we live in a cabin somewhere cool and cheap, kwim? Maybe that's still crazy talk, but that's why I'm here asking you what to do :)

Perhaps we should take the downpayment money we have and do cosmetic fixes on current house, and then just sell it and rent for a bit. We would probably make no money on the sale, but we'd at least be out from under it and freed up to move on a better deal in the future? What about that HELOC? Should I just stop stressing about it and worry more about selling? What I really want is to get out of my current house and have flexibility. Then I want to buy in a location that is high and dry, and will hopefully appreciate in value over time.
« Last Edit: November 16, 2018, 06:25:29 AM by tammyLav »

waltworks

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Facepunch time: you have already proven that you buy houses at bad times and do poorly. You are almost 40 and have negligible net worth. Don't compound your previous bad decisions/poor behavior by doing the same thing again. Your obsession with having a house with a lot of equity is weird when you have almost no money!

Stay the hell away from real estate. Live in your house and save money like crazy (if you're making 250k/year, how are you only saving $5k/month? That's *awful* even after accounting for taxes...)

Post a case study at some point. If FIRE is your goal, you probably want to sell your house and rent, and save money a lot faster than you are right now. You definitely don't want to put more money into RE, regardless of your feelings about the RE market right now (I am bearish on RE like most people at this point).

-W

Lmoot

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Facepunch time: you have already proven that you buy houses at bad times and do poorly. You are almost 40 and have negligible net worth. Don't compound your previous bad decisions/poor behavior by doing the same thing again. Your obsession with having a house with a lot of equity is weird when you have almost no money!

Stay the hell away from real estate. Live in your house and save money like crazy (if you're making 250k/year, how are you only saving $5k/month? That's *awful* even after accounting for taxes...)

Post a case study at some point. If FIRE is your goal, you probably want to sell your house and rent, and save money a lot faster than you are right now. You definitely don't want to put more money into RE, regardless of your feelings about the RE market right now (I am bearish on RE like most people at this point).

-W

I donít think that is fair. Nobody on the ground knew what was coming, so I donít think it has anything to do with the OPís abilities or lack thereof, in timing the market. That is an unfair expectation for anyone.

I agree with another poster who said to give it a while as there are signs something may be happening on the horizon. Except I would give it closer to a year. Do not renovate, at least not to the level of adding a second story. Renovating a house you like in an area you like is a nightmare enough. Investing in a home you donít even want to stay in is not a good idea.

Interest rates are going up, I say use this time to save save saveÖ Keep any cash you may want to use within a year for a down payment in a high-yield savings account or CDs. In the meantime do small things around the house to prepare it for a sale. This could be clearing things out, doing some DIY landscaping, addressing any little repair issues. If you decide youíd like to replace the roof in order to improve your return, keep a lookout on good deals. And also keep a lookout for good deals in the areas you want to live in. Often times a good deal is found at the ground level and not through a market shake up.

Jon Bon

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Amen to the big ass house in the recession point!  I hear that loud and clear! I am so nervous about a market correction. The other house isn't really a big ass house. It's 2,000 sq ft, it's the wooded hilly ocean-viewy neighborhood (as opposed to mine that floods, lol) but I see your point about the expensive part. We are commutable to NYC here, so one of the ideas we had was to buy a house that could be paid off over time, and then in retirement we could rent it while we live in a cabin somewhere cool and cheap, kwim? Maybe that's still crazy talk, but that's why I'm here asking you what to do :)


Ok ok, maybe just a big ass (mortgage payment) house?! :)

Lets talk about the here and now though. Sure your business is doing well, which is great news. But the good times might not last forever. The absolute last thing you should do is commit your new found income to a 30 year note on a house you can* afford.

I think you need to stay put. I dont even think selling would work because you would lose a bunch in the transaction costs.  Reassess when you have a 20% down payment AND six month emergency fund.  I would also recommend a full case study, sounds like you could use it.


*Can afford during the good times.

Fishindude

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If *all* your savings is $55k, you are desperately house poor and the last thing you should do is add on or buy another house. Stay right where you are, save money, and *maybe* when you have at $200k+ in liquid investments/cash, you can think about a different house.

-W


Good advice above.