Author Topic: Case study: Should I buy an old (1920s) foreclosure?  (Read 5283 times)

mturn

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Case study: Should I buy an old (1920s) foreclosure?
« on: October 27, 2015, 10:57:20 PM »
Dilemma - 1) Is it financially wise for us to buy a home? 2) Is it more expensive/ risky to go with a cheap foreclosure compared to a newer, but more costly home? 3) Reviewing our case study, what advice do you have to empower us to achieve financial independence? Is this home purchase a reasonable way to help us achieve that goal?

Overview: Looking at a $55k foreclosure in a relatively low crime neighborhood in Michigan. 3 bedroom, 1 bath. My husband and I have a lot to learn about DIY and what it'd take to live in such an old home. But we have good friends with experience in this and think we could learn.

Income/expenses:
We currently make $69,120 combined gross annual income. $4236 monthly take home.
Jobs - husband works at a call center, no degree, no college debt; job is within cycling distance from our prospective house. I work at a marketing company; have degree and college debt; allowed to work from home, but average an hour commute, twice a week.
Newlyweds (ages 26 and 30, no kids)

Transportation: We sold our old cars and put the money towards a 2014 used car w/ 6000 miles; averages 60mpg; (paid 11k and warning, we have a loan of $1000. We still owe this $1k on it but have the cash to pay it off and decided to wait another month as our checking account gives us 4 percent back monthly and the car loan interest rate is less than 3, so we are making a bit by waiting). I technically work an hour away, but only have to physically go in once or twice a week, if that. My husband cycles to work sometimes.

Expenses: We are currently saving half our income
-Debts: The aforementioned $1000 car loan. We also slowly chip away at a $30k college tuition loan each month. The debt is 0% interest as it came from my dad. No official pay off date. Unfortunately I do now owe almost a thousand in medical bills from an unexpected medical issue this month. Again, we have the money, but that just impacts how much we can use for the house.
-Housing: 700 plus utilities for a one bedroom apt. (Note on rent vs buy:  we ran all the numbers, including property taxes, PMI, utility estimate, insurance, and it will be cheaper monthly to buy a home compared to rent.)
-Food: groceries ($270) and restaurants ($57) monthly
-Gas: budget $300 but we definitely don't use that. This month, we haven't bought gas at all (but that was due to Speedway rewards points accumulating to a $180 gas card; regardless, with our 60mpg vehicle, we don't pay much in fuel costs)
-Car insurance: $65 per month
-Car loan: $100 per month (remember - we are better off making the min payments on this 1k loan due to the 4% monthly dividends from our checking/savings account)
-Health & Personal Care: $100 monthly (will be more because of that $1000 medical bill I mentioned)
-Home: $25 monthly (misc stuff like sponges and laundry soap. We don't always use 25, but budget that just in case)
-Internet: $40 per month
-Phones: $50 per month (for both of us)
-Utilities: $70-$100 per month (we know we need to lower this, but it's been hard to manage and track, as our apartment doesn't give us access to even VIEW the meter, much to our frustration. They estimate often, too, so our bills are all of the place)
-Church tithe: $350 monthly
-College debt: $300 monthly (remember - 0% interest; $30k debt to my dad)
-Credit card debt: Essentially, nothing. We use credit cards for the rewards points, but pay them off right away.
-Savings: Right now, just about 7k. We are saving aggressively and will save 2k each month going forward.
-A couple hundred in a mutual fund. Not eligible for employer's fund yet (new employee probationary period)
-About a hundred in a Health Savings Account

Now about that house:
We can put just 10 percent down. Preapproved for 3.12%interest rate, 15 year mortgage. and still have enough in savings for emergencies and to work on the house. Unless, of course, I'm grossly underestimating. I simply made a spreadsheet with most common repairs needed on 1920s homes and used the avg narional cost. We also had a handyman friend do an unofficial inspection and he found nothing wrong, other than recommending more energy efficient windows, as only half have been replaced. The Furnace is five years old. They also did a new roof this year. New circuit breaker box/electrical. No garage, but we want to build one. Lots of windows and in great placement for energy efficiency! No appliances, but we get to buy at cost through a friend. I really want to forgo the fridge purchase and convert an ice chest into a fridge for optimal efficiency.

Am I too optimistic about our abilities to own and maintain this home? Any advice?  I know an official home inspection might  prepare us for common problems, like termite damage or structural damage. But just wonder if anyone out there has gone a similar route and might be able to offer up some wisdom!
« Last Edit: October 28, 2015, 12:31:57 AM by meintsturn »

Argyle

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Re: Should I buy an old (1920s) foreclosure?
« Reply #1 on: October 27, 2015, 11:09:30 PM »
This is not an old home.  A house from the 1700s is an old home.  A house from the 1920s will be built very sturdily.  You'll want to get a formal electricity inspection (not just from a friend), as this is the part that might require updating.  However, my own house (or I should say one of my houses) is from the 1920s and the electricity is just fine.  Some updating had already been done, and the rest is fine. 

But for heaven's sake do not replace the windows.  This is a kind of dangerous urban legend, that old windows need replacing.  The beautifully made original wooden windows will last another 95 years easily.  The poorly made vinyl windows that anyone will replace them with will need replacing again within twenty years.  If you don't believe me, go to wavyglass.org, which is full of vintage-house professionals, and pose the question of your windows to them.  After they stop screaming in alarm they will explain in great and convincing detail why paying thousands to replace well-made original windows with modern badly-made windows is a terrible idea. 

If you are worried about air leaks in the windows (which you should check out don't assume there will be leaks), there are easy fixes.  Most leaks are actually from the window not fitting tightly enough, so sealing the gaps is the answer.  Or storm windows.  Anyway, ask the professionals and don't replace those things. 

As for the rest, almost certainly your house will be better made with better materials (old growth wood, and lots of it) than a modern house.  Of course you want to make sure that previous owners haven't monkeyed around, caused problems, damaged stuff, etc.  But if not, it can be a very good deal.

mturn

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Re: Should I buy an old (1920s) foreclosure?
« Reply #2 on: October 27, 2015, 11:19:09 PM »
Hey! Thanks for the perspective! My mother just about cried when I told her we were considering a 1970s home, so that jades my perspective. She also wanted us to set our budget at 150k, so she will be in for a shocK once I have the heart to tell her what we are planning.
As far as the windows... the previous owner replaced half already! Your response cautioning me against the window replacement now makes me so sad. Half new, half old? :)
« Last Edit: October 27, 2015, 11:20:44 PM by meintsturn »

Telecaster

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Re: Should I buy an old (1920s) foreclosure?
« Reply #3 on: October 27, 2015, 11:21:25 PM »
But for heaven's sake do not replace the windows.  This is a kind of dangerous urban legend, that old windows need replacing. 

Cosigned. 

ShoulderThingThatGoesUp

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #4 on: October 28, 2015, 05:44:34 AM »
I would have an electrician inspect to verify that they didn't just replace the visible parts and leave knob-and-tube everywhere in the walls. A friend found out that that had happened with his 1920s house when dealing with another problem (his slate roof finally bit the dust).

Another thing to check is whether you have good water flow to all fixtures. If not you might want to consider some PEX - lots of people here have said it's not terribly difficult.

My house is from 1910 and we love all the windows and the old hardwood floors (although they are sagging in one small spot on the first floor - getting an expert to look at that). But it got completely gutted in 2011 with a new floorplan, plumbing, and wiring. Best of both worlds!

If you might have kids someday, test a few spots for lead paint so you know. My house is too old for lead paint, much to the shock of the guys who came to replace some windows*. But our only original painted surfaces are woodwork, since all the plaster was replaced with drywall.

*We were replacing replacement windows, don't freak out, Argyle.

john6221

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #5 on: October 28, 2015, 08:08:17 AM »
As a new homeowner, I agree with having an electrician look for knob and tube throughout the house.

Also, something else I would recommend is to have a camera inspection done of your sewer lines. But, hire a company that only does cleaning/inspections so that they won't try to sell you a new main line, and have them record the video.

Other things to look at:
Water issues in basement?
Insulation in attic--asbestos?
Age of water heater/air conditioner?
Type and age of siding?
Any foundation issues?



mamagoose

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #6 on: October 28, 2015, 08:47:34 AM »
I wouldn't buy any house with only 10% down, regardless of the year it was born, but I'm old-fashioned. If I couldn't put 20% down I wouldn't buy it.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #7 on: October 28, 2015, 08:52:48 AM »
I agree that 20% is ideal, but in this case, mortgage (including PMI) is cheaper than rent. So it seems better to get a house w/ 10%. But we definitely are considering waiting until we have 20%.
« Last Edit: October 28, 2015, 09:00:18 AM by mturn »

charis

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #8 on: October 28, 2015, 08:55:54 AM »
We bought a 1924 house in 2009 and put 3.5% down on an FHA loan.  It was a fantastic deal and turned out to be a great decision.

The prior homeowner made the necessary upgrades to the wiring, etc, but the decor (and still is in the kitchen) was hideous.  There are several dark hardwood floor water/pet stains in most of the rooms, but we are putting off cosmetic upgrades for a while until we have the time and money and older kids to get it done.  We may need a new roof in 5-8 years. 

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #9 on: October 28, 2015, 09:03:00 AM »
As a new homeowner, I agree with having an electrician look for knob and tube throughout the house.

Also, something else I would recommend is to have a camera inspection done of your sewer lines. But, hire a company that only does cleaning/inspections so that they won't try to sell you a new main line, and have them record the video.

Other things to look at:
Water issues in basement?
Insulation in attic--asbestos?
Age of water heater/air conditioner?
Type and age of siding?
Any foundation issues?

Yes, all of the above.  Our 1926 house needed a new sewer line after the inspection, and we opted for new plumbing before we moved in, since the original cast iron will clog up and fail at some point, so you should check on the plumbing.  The insurance required that all the knob and tube wiring in the attic to be replaced for safety reasons ($4k?) and that we get new fuse panels, but the electrician said to leave the knob and tube in the walls-- will be fine if undisturbed.

Our house is on a hill and sloped toward the chimney, but I had two foundation guys come look and they both said that it's normal settling, and that they wouldn't worry if it were their own house (unofficial opinion, of course).  Our house is *solid*, the floors don't even creak!

KCM5

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #10 on: October 28, 2015, 09:13:43 AM »
We bought a 1924 house in 2009 and put 3.5% down on an FHA loan.  It was a fantastic deal and turned out to be a great decision.

The prior homeowner made the necessary upgrades to the wiring, etc, but the decor (and still is in the kitchen) was hideous.  There are several dark hardwood floor water/pet stains in most of the rooms, but we are putting off cosmetic upgrades for a while until we have the time and money and older kids to get it done.  We may need a new roof in 5-8 years.

We did almost exactly this. But with an extra 0% loan to pay down points on the mortgage and get an even cheaper rate (and no pmi). It was a great loan program.

I know the general advice is put 20% down, but using leverage to your advantage, as a disciplined individual, is not a bad thing.

And I should knock on wood before saying this, but my 1920s house has had no more issues than my sister's 1990s house. In fact, its had fewer and less costly issues. So age is not the only factor here!

Regarding the house itself, the smartest thing we ever did was make sure it was close to one of our workplaces so one of us can bike to work all the time. And our current place is only 3 blocks to the grocery store, which is pretty much the greatest thing ever.

Sibley

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #11 on: October 28, 2015, 09:40:24 AM »
My experience is on a 1929 house that was somewhat shoddy to begin with, then neglected for decades. Keep that in mind - some of this is worst case scenario.

Agree on keeping original windows and fixing them up. More work, but they last longer and look so much better.

Plaster - over time it'll start to seperate from the underlying lathe. Not really an issue, though some people hate the crackling. If the plaster is actually getting loose though (fairly rare in well kept houses), you end up replacing.

Electrical - get it fully checked. Also check that the number of circuits makes sense and you have enough plugs.

Plumbing - old cast iron gets brittle, so problems can get ugly. Plus, nonstandard sizes make repairs/replacement really fun sometimes.

Lead paint - unless someone already removed it, you've got it. Good news is it's only dangerous if you're eating it or breathing it. Do testing yes. If you have it, and it's painted over, as long as you don't sand or chew it you're good. When you do decide to remove it, you'll need to scrape/heat gun. Do not sand it, or you make a huge mess and have to go all out on clean up.

Asbestos - also a good chance you've got it, as pipe insulation if nothing else. Again, it's ok undisturbed and intact (you need to ingest or inhale it for a problem). My parents replace it piecemeal as there are problems.

If it's brick, you may find that the mortar needs some maintenance, "tuckpointing."

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #12 on: October 28, 2015, 09:43:11 AM »
Lead paint - unless someone already removed it, you've got it. Good news is it's only dangerous if you're eating it or breathing it. Do testing yes. If you have it, and it's painted over, as long as you don't sand or chew it you're good. When you do decide to remove it, you'll need to scrape/heat gun. Do not sand it, or you make a huge mess and have to go all out on clean up.

Thanks! This particular house has a new paint job, so the lead paint is covered up. This might be a classic dumb questions, but is it dangerous to hang new fixtures on the walls, as we'd be getting to the lead paint layers?

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #13 on: October 28, 2015, 09:46:25 AM »
Thanks for this! One of our local credit unions is offering us a deal, 3.75 interest, no PMI, and no downpayment required. We really want to put down a downpayment, but we might consider doing 5% instead of 10% and using the money for repairs and/or put in our mutual fund. This house is within cycling distance and it's walking distance of elementary school, grocery store and other shops. We love the location! It's also right down the street from some good friends who will likely help with the renovations.
« Last Edit: October 28, 2015, 05:37:09 PM by mturn »

kite

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #14 on: October 28, 2015, 09:59:17 AM »
Could you live there forever?

When the answer to that question is yes, buying at a good price is an excellent idea.
If the future you envision is not being in that house the day you make your final mortgage payment (15 years from now) it's a tougher call. 

It's certainly affordable.  I bought my first place with only 5% down.  Like you, even with PMI, it was cheaper than rent.  It has worked out well.  We expect to live here until we die.  No one who does lots of DIY was born great at it, all had to learn.  You may learn and love it.  You may learn and decide you value your time and the excellent workmanship of a professional even more and decide it's worth paying someone else to do.  But don't let being a novice scare you. 

Best of luck. 

Argyle

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #15 on: October 28, 2015, 10:37:18 AM »
The lead is not dangerous in any way unless you start sanding or releasing it into the air.  Hammering a nail on the wall will have a negligible effect on the lead.  If the outside is wooden and painted, as may be the case, you'll want to keep it painted before it begins to peel.  The peeling lead isn't so much of a problem (it will just drop off), but new painters will then want to sand it, which would release the lead into the air.  As waiting until your paint is peeling isn't something homeowners generally want to do, that wouldn't be an issue beyond the maintenance you'd do anyway.

In houses with lead paint, which is basically any house before the 1970s, the greatest source of lead is raising and lowering the windows, which can scrape off tiny bits of lead which then sit in the windowsills.  So my lead-paint-expert friend said that the single best thing you can do is just clean the windowsills every now and then.  Swipe with a wet paper towel and throw the towel away.  No special methods needed.

There are little kits you can buy cheaply that test for lead.  There's no point in general because your house probably has it.  But at one point some workmen did some things very wrong and the ceiling in one of my rooms collapsed. (That's another story and unrelated to the age of the house.)  The repairers were all upset about how the clean-up was going to involve lots of lead paint dust.  But I got it tested by an actual company, not even by one of those little tests and there was no lead at all.  The ceiling had been whitewashed all those years, not painted with lead paint.  So no need to assume the worst without evidence.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #16 on: October 28, 2015, 10:53:04 AM »
Could you live there forever?
When the answer to that question is yes, buying at a good price is an excellent idea.
If the future you envision is not being in that house the day you make your final mortgage payment (15 years from now) it's a tougher call. 

Thanks for your reply! I could live there forever, but our current goal is to stay no more than 10 years, have a kid, and move closer to my work (we currently live an hour from my office, but I am allowed to work from home) and have my husband retire first and care for the child.  Cities closer to my work are nice and have lower property taxes, which is really appealing. But for now, we want a place to live that's close to my husband's work and that's cheaper than our rent. Our realtor seems to think we could rent it out in 5 years and have some cash flow from it. We have many young friends that rent and would potentially be interested in renting from us, but that's years from now and a lot can change. It's hard to think of purchasing a home that I would want to live in "forever", but I suppose, I would be fine living in this one forever.

Sibley

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #17 on: October 28, 2015, 11:23:37 AM »
I would also recommend getting a professional inspection, and have it done by someone who has experience with older homes. A handyman friend is good, but this is a lot of money and you need better. It sounds like a lot of the problem areas have been addressed, but older homes can have big issues sitting right under the surface. New houses can too of course, but age adds risk. You want to be aware of those things, if any.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #18 on: October 28, 2015, 11:36:28 AM »
I would also recommend getting a professional inspection, and have it done by someone who has experience with older homes. A handyman friend is good, but this is a lot of money and you need better. It sounds like a lot of the problem areas have been addressed, but older homes can have big issues sitting right under the surface. New houses can too of course, but age adds risk. You want to be aware of those things, if any.

Thanks! Yes, definitely planning a real inspection. Our realtor is guiding us towards getting a radon inspection, pest inspection, home inspection, and then jdcstp2013 recommended a camera inspection on the sewer lines. Is this overkill? I imagine all these inspections are going to be really expensive. We can also have my master electrician FIL take a look at the electrical in addition to the home inspector.

Meowmalade

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #19 on: October 28, 2015, 11:55:40 AM »
I would also recommend getting a professional inspection, and have it done by someone who has experience with older homes. A handyman friend is good, but this is a lot of money and you need better. It sounds like a lot of the problem areas have been addressed, but older homes can have big issues sitting right under the surface. New houses can too of course, but age adds risk. You want to be aware of those things, if any.

Thanks! Yes, definitely planning a real inspection. Our realtor is guiding us towards getting a radon inspection, pest inspection, home inspection, and then jdcstp2013 recommended a camera inspection on the sewer lines. Is this overkill? I imagine all these inspections are going to be really expensive. We can also have my master electrician FIL take a look at the electrical in addition to the home inspector.

We did a radon test using a kit after we bought our house.  I don't think it's very expensive to mitigate if there's a problem (but please look it up yourself since I don't really remember).

What does she think you might find from the pest inspection?  The home inspector should be able to look for signs of termite damage and could probably check for rodent droppings if you ask specifically to look for that.  We definitely have a few mice in the basement, but it's just a fact of life in an older home.

I was going to tell you that sewer line inspection is a must (maybe $150-200?), since ours resulted in the sellers paying $4-5k for new sewer lines since tree roots got into the old ones.  But if you're buying a foreclosure, I suspect all these inspections are more so that you know what you're getting yourself into, not for negotiating.  This might be one of those things where you choose to take care of the sewage line once you actually have issues, although backed up sewage is no fun....

Kaplin261

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #20 on: October 28, 2015, 11:56:26 AM »
Overview: Looking at a $55k foreclosure in a relatively low crime neighborhood in Michigan. 3 bedroom, 1 bath. My husband and I have a lot to learn about DIY and what it'd take to live in such an old home. But we have good friends with experience in this and think we could learn.

What are comparable homes selling for per SQFT that are not foreclosed or being sold as AS-IS? If you invest $50k in unexpected repairs and sell in 10 years will you recoup your investment?

Another red flag here is that you have no experience in construction. If you are taking this on as a investment are you going to be able to fix a leaking pipe, then patch the drywall + plaster + paint? If a panel box is later discovered to be one that is at high risk for fires would you be willing to take the risk and replacing it yourself or know at least enough about it to get a good deal from a electrician and know with confidence he replaced it correctly?

Quote
I agree that 20% is ideal, but in this case, mortgage (including PMI) is cheaper than rent. So it seems better to get a house w/ 10%.
Did you factor in repair bills? I do %100 of my home repairs and it costs me  on average $1000 per year for repairs for a 1988 home that is 1600 sqft... Not knowing the homes sqft my guess would be your average yearly repair costs will be $5000 a year, that's if you tackle basic DYI repairs and hire out more complicated repairs.

I would advise you learning more about construction, meet people in the trade. This could come from a career change, weekend work or even donating your time to non profits like Habitat for Humanity.

charis

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #21 on: October 28, 2015, 12:06:47 PM »
Overview: Looking at a $55k foreclosure in a relatively low crime neighborhood in Michigan. 3 bedroom, 1 bath. My husband and I have a lot to learn about DIY and what it'd take to live in such an old home. But we have good friends with experience in this and think we could learn.

What are comparable homes selling for per SQFT that are not foreclosed or being sold as AS-IS? If you invest $50k in unexpected repairs and sell in 10 years will you recoup your investment?

Another red flag here is that you have no experience in construction. If you are taking this on as a investment are you going to be able to fix a leaking pipe, then patch the drywall + plaster + paint? If a panel box is later discovered to be one that is at high risk for fires would you be willing to take the risk and replacing it yourself or know at least enough about it to get a good deal from a electrician and know with confidence he replaced it correctly?

Quote
I agree that 20% is ideal, but in this case, mortgage (including PMI) is cheaper than rent. So it seems better to get a house w/ 10%.
Did you factor in repair bills? I do %100 of my home repairs and it costs me  on average $1000 per year for repairs for a 1988 home that is 1600 sqft... Not knowing the homes sqft my guess would be your average yearly repair costs will be $5000 a year, that's if you tackle basic DYI repairs and hire out more complicated repairs.

I would advise you learning more about construction, meet people in the trade. This could come from a career change, weekend work or even donating your time to non profits like Habitat for Humanity.

Um, what?  We bought a 1924 house six years ago and never once have repairs come out to $1K/year or more.   We spent quite a bit on a new furnace, windows, and remodeling the basement, but not repairs.

justajane

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #22 on: October 28, 2015, 12:07:22 PM »
We have a 1920s home that we have lived in for 9 years. Here's what we have encountered:
Plaster problems - it would highly advantageous for you to learn how to repair this yourself. Old houses often need repairing.
Minor wiring problems - we have some knob and tube and consulted multiple electricians and fire experts who said the fear of knob and tube is overblown. The biggest problems we've had have been with newer wiring not installed properly. YMMV
Plumbing - oh, dear. Where to start. We are about to drop 15k on gutting the original bathroom not for aesthetic reasons but because the original cast iron stack is failing. A plaster wall will have to be replaced and the floor removed to the joists. There's also some more recent galvanized steel in there that is corroding.
Insulation (or lack thereof) - Back then they usually did not insulate the exterior walls and our home is brick on plaster. Very hard to keep it warm or cool. IMO this is the worst part about owning an older home. If you have a home with siding this is more easily remedied.

Kaplin's 5K number is way off base. We rarely do repairs ourselves, and I would say the average that we spend on yearly repairs is closer to 1,500. These homes were built to last.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #23 on: October 28, 2015, 12:09:29 PM »
Hi Kaplin - yes, it is risky that we don't have the experience, but the asset we do have is family and friends able and willing to both help and teach. A neighbor is a good friend who also bought a foreclosure in this neighborhood and redid the home. We also know people who buy, fix up, and rent out properties for income and are hoping to learn from that expertise to be able to rent out this home after we're done with it instead of selling, as it's in a good location for that (near university and in a neighborhood w/ mix of rental & single family homes). Your scenarios do sound alarming, but I feel confident about it, since I know who to ask to teach us how to make those repairs in your scenario - FIL is a master electrician and neighbor in construction. For the leaky pipe scenario, we at least have patched drywall before :) I helped with a gutted house from Hurricane Katrina back like 7 years ago and seemed to pick up on things okay.
I estimated $1200 for repairs (yearly) in that rent vs buy estimate. this particular home is 1184 sq feet - do you think I should estimate more?

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #24 on: October 28, 2015, 12:23:00 PM »
I think it sounds like a good buy.

ShoulderThingThatGoesUp

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #25 on: October 28, 2015, 12:24:56 PM »
For the record, I have probably spent $30,000 on things that were hard to know about on my house since I bought it in May of last year. Still less expensive than buying a much newer house, and these things will average out over the next 20 years.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #26 on: October 28, 2015, 12:33:29 PM »
Thanks, MMM friends! All the advice is really helping us out. We made an offer, but unfortunately, so did someone else. This house has been on the market over 300 days. In that time, they redid the roof, floors and painting and then lowered the asking price by 5k two weeks ago. When we put in our offer, the seller's realtor said we were the only one. Then, like an hour later, another offer came in. Seems suspicious to me. Anyway, we will find out if our offer is accepted in a few hours or if we lost to the other interested party. If we lose, a lot of this advice will still help us in our home search! And if we win, we have a better idea on what to look for in the inspection and see if we still want to proceed.

Kaplin261

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #27 on: October 28, 2015, 12:53:23 PM »
Kaplin's 5K number is way off base.

Things I have replaced the last 4 years on a home built in 1988
HVAC change out $5k
Water heater change out $1k
Water line to meter to home replaced $3k
New asphalt shingles $5k, multiple sheets of plywood had to be cut out and replaced another $1k
Vapor barrier to stop moisture damage in crawlspace $1k
Not to mention all the small things like faucet replacements, toilet repair, new exhaust fan and the list keeps going.

I never paid those prices, those are prices that were quoted to me from the licensed contractors. I was able to do all the work my self saving a substantial mount of money. I doubt I will recoup my investment in these repairs, however it may help the house sell quicker if I decide to sell.


« Last Edit: October 28, 2015, 12:56:07 PM by Kaplin261 »

index

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #28 on: October 28, 2015, 12:58:53 PM »
Windows - Keep the old ones. Put storm windows on the outside. You can strip and reglaze them slowly and they will last another hundred years.

Lead paint - probably just your trim paint. lead was used to make high gloss paint. Plaster walls were originally painted with flat paint or wall papered to hide cracking in the plaster.

Asbestos - 1920 is actually too old for asbestos as part of the original construction. Subsequent renovations may have used vermiculite insulation or your duct work may be taped with asbestos tape. Both are pretty easy to deal with. Wet it and remove it carefully by hand.

Plumbing - horizontal cast iron drain runs are likely corroded; check for cracks at the top of the pipes. You can get these replaced with PVC pretty cheaply. Vertical stacks are probably fine because the sewer gas doesn't hang in them.

Electric - The new box is great! Check and make sure your circuits make sense and aren't over loaded. If they are run a couple extra circuits to isolate the over loaded ones.

How much is this house worth if you were paying retail for it? Do you have plans to renovate room by room? Are you hoping to make money off it?

If you are planning on renovating, be prepared for it to be a labor of love. You may get more out of it than you put in, but you are never going to get a good return on your time.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #29 on: October 28, 2015, 01:07:39 PM »
Hi index,
This is a great list. Really appreciate it. I think the home is $75k if we were paying retail. As far as renovating, not really. We just need appliances to make it "livable". We might add a garage or another bathroom. We do want to make money off it, hopefully by renting it out when we're ready to move.

index

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #30 on: October 28, 2015, 01:30:32 PM »
Hi index,
This is a great list. Really appreciate it. I think the home is $75k if we were paying retail. As far as renovating, not really. We just need appliances to make it "livable". We might add a garage or another bathroom. We do want to make money off it, hopefully by renting it out when we're ready to move.

Sounds like a pretty good deal! If you are planning on living there then renting later be careful not to go overboard on your finishings especially if it is a 75k house.

I would urge you to go for a 30 yr loan over a 15 yr if your plan is to rent the home though. You never know what the rental landscape will look like in 10 years. Say you can only get $700; it would be nice to be cash flow positive. On a 55k loan you are only paying an extra ~$3800 in interest over 10 years to have more flexibility in your budget. 

NoraLenderbee

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #31 on: October 28, 2015, 02:20:06 PM »
The old house may have been built well, but you need to check for repairs by previous owners that may have been botched. Our 1929 house was "upgraded" by an electrician who left LIVE knob-and-tube dangling in the garage. An earlier owner "patched" the roof on the cheap, resulting in leaks. That kind of stuff.

mturn

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #32 on: October 28, 2015, 02:33:37 PM »
Well, they accepted our offer. Sort of. We said $54,900, w/ 1 year home warranty, seller pays closing costs.
Our realtor just called and said the offers are "really close" but they will go with ours if we pay 2% of closing costs and they pay 1%.

We have 30 min to decide.  This seems like a trick to pressure us. The other buyer might have a real crappy deal. What would you do?

charis

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #33 on: October 28, 2015, 03:10:52 PM »
Say no if you don't like the offer and are ok with walking away.

justajane

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Re: Case study: Should I buy an old (1920s) foreclosure?
« Reply #34 on: October 28, 2015, 04:20:49 PM »
Well, they accepted our offer. Sort of. We said $54,900, w/ 1 year home warranty, seller pays closing costs.
Our realtor just called and said the offers are "really close" but they will go with ours if we pay 2% of closing costs and they pay 1%.

We have 30 min to decide.  This seems like a trick to pressure us. The other buyer might have a real crappy deal. What would you do?

Probably too late, but I would counter with something more in your favor. You have to be willing to walk away from a home. Homes are a dime a dozen. Unless the location or lot is perfect, don't cave to their pressure tactics. 30 minutes is absurd. That makes them seem unreasonable and like they will give you trouble during the inspection and closing.