Author Topic: Am I crazy to buy this old house? check my numbers please  (Read 1943 times)

hollyluja

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Am I crazy to buy this old house? check my numbers please
« on: April 06, 2017, 10:27:36 AM »
Hello!

I successfully made it through a twin pregnancy without buying a bigger house.  Now we have 3 month old baby girl twins, a 3 year old boy and a 10 year old girl in a 1000 sq ft house.  I'm looking to get a larger living space without moving further out. 

I've found a beautiful old (1909) house that is walking distance to work.  It has been somewhat neglected but has completely new HVAC system including ducting, and some updated electrical.  We could easily live on the (1300 sq ft) first floor and slowly update the second (1200 sq ft) as we have time and money.

The lot is big enough to build a cottage in the back for extra rental income:

Here are my most conservative estimations:

Cash after selling current house and paying transaction costs:  $220K

       20% down    $120K
Conven. loan      $425K
high int loan        $ 54K
Purchase price    $599K

Average cost to build a detached 1 bedroom ADU over a garage:  $90K

Median rent for a 1 bedroom apartment in this neighborhood:  $1400

The conventional loan including taxes and insurance would be $2534/month
The fill in loan would be $257/month

That would give me a mortgage payment of $2791/month, offset by a 50% of a $1400/month rental payment = $2,091 monthly costs to live there.  That's not much more than my current mortgage of $1500/month.  Both payments are well below 25% of gross household income.

Benefits:  2500 sq ft living space
    lower childcare costs from having space to bring in an au pair (saves us ~$1500/month by itself)
    off-street parking
    walking distance to work (can drop at least one car)
    walking distance to nice park
    great schools
    big fenced back yard
    beautiful old house with woods that you can't buy at any price anymore.

Downside:  unknown money pit of old home.
                 potentially buying high in a historic crazy housing price bubble?

ETA due to Oregon's  weird tax law, the taxes would be almost half of my current house as well!
« Last Edit: April 06, 2017, 11:08:09 AM by hollyluja »

patchyfacialhair

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #1 on: April 06, 2017, 10:55:13 AM »
Edited to add: is the conventional loan max amount 425k? if yes, ignore the below, if not...see my math. I think it's a great idea especially if you like the area and can walk to work.

I don't understand what the "fill in"/"high int" loan. If you're putting 20% down, wouldn't the only debt be for the mortgage?

The way I'm reading your math:

$220k proceeds from sale

$600k purchase price
-$120k down
$480k first mortgage

-$90k cottage construction

10k in cash remaining

Principal and interest payment of: $2291.59 (30yr, 4%)

less rent of $1400

Housing cost is: 891.59+home insurance+taxes+utilities+maintenance
« Last Edit: April 06, 2017, 10:57:04 AM by patchyfacialhair »

hollyluja

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #2 on: April 06, 2017, 11:06:27 AM »
Edited to add: is the conventional loan max amount 425k? if yes, ignore the below, if not...see my math. I think it's a great idea especially if you like the area and can walk to work.

Yes the lender I'm working with prefers to stay in conventional loan territory and $425 is the max for that.  They would do a second mortgage to make up the difference but it would probably be higher interest.  The way you laid it out is simpler, thanks!

patchyfacialhair

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #3 on: April 06, 2017, 12:21:38 PM »
What about shopping the lender for different equity loan options? Can you do something like this even if the equity loan puts you right above 80%?

600k purchase price
-175k down
425k mortgage which is $2029.02 monthly (4%, 30 yr)

45k cash toward cottage build
45k home equity loan for cottage build which would be $499.59 (6%, 10 yr)

So, $2528.61, minus $1400, is $1128.61 plus taxes, insurance, and maintenance, for the first 10 years, then $629.02++ after that point. Not too shabby! I guessed at the equity loan terms but a quick google search corroborates that term and rate.

Dee18

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #4 on: April 06, 2017, 01:27:51 PM »
Have a very thorough inspection of the home.  For example, be sure you have someone inspect the sewer pipes under your house; have them checked with a camera if under cement.  Are they crumbling iron?   Are there mice nests in the walls?  (Look for any signs of rodents at all; if you find those and you have plaster walls, you probably have mice nests in the walls).  Is there mold somewhere in the house? It might not be visible, but still have the potential to cause serious allergies in the kids so look not just for current leaks but  any evidence of leaks in the past that could have let in moisture.  What do you mean by "somewhat updated" electrical?  Is there original glass in the windows?  Lovely, but lets every sound in and is poor insulation.  Has the paint been tested for lead?  Water form the pipes? I fell in love with an old house.  It was a very, very expensive thing to do.  But more importantly, it was exhausting to always have something needing repair, taking up time from family.  I like do it yourself projects like painting and minor plumbing, but I will never again buy a 90+ year old house.

hollyluja

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #5 on: April 06, 2017, 01:38:48 PM »
What about shopping the lender for different equity loan options? Can you do something like this even if the equity loan puts you right above 80%?

600k purchase price
-175k down
425k mortgage which is $2029.02 monthly (4%, 30 yr)

45k cash toward cottage build
45k home equity loan for cottage build which would be $499.59 (6%, 10 yr)

So, $2528.61, minus $1400, is $1128.61 plus taxes, insurance, and maintenance, for the first 10 years, then $629.02++ after that point. Not too shabby! I guessed at the equity loan terms but a quick google search corroborates that term and rate.

that is even better!  I figured there were other ways to do it but just wanted to make sure I wasn't missing something big.  I've never seen myself in a house that big and expensive - I'm thrilled that I might be able to make it work!

Dee18 - we would be as thorough as possible with the inspection.  A house that old could have so many surprises.  The windows have mostly been completely replaced. 

MacGyverIt

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #6 on: April 08, 2017, 03:59:42 PM »
Have a very thorough inspection of the home.  For example, be sure you have someone inspect the sewer pipes under your house; have them checked with a camera if under cement.  Are they crumbling iron?   Are there mice nests in the walls?  (Look for any signs of rodents at all; if you find those and you have plaster walls, you probably have mice nests in the walls).  Is there mold somewhere in the house? It might not be visible, but still have the potential to cause serious allergies in the kids so look not just for current leaks but  any evidence of leaks in the past that could have let in moisture.  What do you mean by "somewhat updated" electrical?  Is there original glass in the windows?  Lovely, but lets every sound in and is poor insulation.  Has the paint been tested for lead?  Water form the pipes? I fell in love with an old house.  It was a very, very expensive thing to do.  But more importantly, it was exhausting to always have something needing repair, taking up time from family.  I like do it yourself projects like painting and minor plumbing, but I will never again buy a 90+ year old house.

I've been looking at "tiny" (i.e. 800 sq ft or less) homes in Florida and given the age and state of some of the homes, and from the experience described above, I ask you all: when does it make more sense to spend the money up front to take a house down to the studs so you can thoroughly check plumbing and electrical? There are many problems that aren't easily discoverable by a good home inspector -- I know a women who's home is over 50 years old and she recently discovered the iron water pipes under the home have rotted out so there's a ginormous hole where here newly re-done kitchen once stood, to the tune of minimum 15k.

If there's an amazing deal to be had on an older property, is it worth the peace of mind knowing the home has been reviewed inside and out as long as you can do so within your profitability margin?
« Last Edit: April 08, 2017, 04:08:31 PM by MacGyverIt »

tralfamadorian

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #7 on: April 08, 2017, 07:20:26 PM »
when does it make more sense to spend the money up front to take a house down to the studs so you can thoroughly check plumbing and electrical?

It's not necessary to take a space down to the studs to gain information on plumbing and electrical.  A portion of plumbing and electrical is going to be visible through a combination of basement/crawl space/electrical panel and hot water heater closet.  From there you just have to make sure you have a decent inspector and listen to what they have to say.
Basic questions I ask in every house I look at:
What kind of plumbing/hvac/electrical is there?  How old is the house?  Is it original?  If so, how much time is left in that product's expected life?  If not, was it a total replacement or a partial?

I'm sorry that your friend was surprised by her cast iron pipes.  Cast iron pipes have an expected life span of 50-65 years so it sounds like they failed right on schedule; it's a shame their replacement was not rolled up with the kitchen remodel. 
 

MacGyverIt

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #8 on: April 09, 2017, 08:35:29 AM »
I'm sorry that your friend was surprised by her cast iron pipes.  Cast iron pipes have an expected life span of 50-65 years so it sounds like they failed right on schedule; it's a shame their replacement was not rolled up with the kitchen remodel.

Great list of questions, thanks! Yes, the ironic thing which I didn't think about until reading your post... her husband is a general contractor so he should have known to ask about the pipes (original to the house? yes. metal is? iron) and to just pull them up and out before he did the kitchen remodel. Ouch...

better late

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Re: Am I crazy to buy this old house? check my numbers please
« Reply #9 on: April 09, 2017, 10:14:18 AM »
Have a very thorough inspection of the home.  For example, be sure you have someone inspect the sewer pipes under your house; have them checked with a camera if under cement.  Are they crumbling iron?   Are there mice nests in the walls?  (Look for any signs of rodents at all; if you find those and you have plaster walls, you probably have mice nests in the walls).  Is there mold somewhere in the house? It might not be visible, but still have the potential to cause serious allergies in the kids so look not just for current leaks but  any evidence of leaks in the past that could have let in moisture.  What do you mean by "somewhat updated" electrical?  Is there original glass in the windows?  Lovely, but lets every sound in and is poor insulation.  Has the paint been tested for lead?  Water form the pipes? I fell in love with an old house.  It was a very, very expensive thing to do.  But more importantly, it was exhausting to always have something needing repair, taking up time from family.  I like do it yourself projects like painting and minor plumbing, but I will never again buy a 90+ year old house.

This. Especially the part about lead paint (do you really want to renovate areas with lead paint upstairs with your family living in the home?) and it being a very, very expensive undertaking to fall in love with a 90+ year old house.   

Having owned an older home I would caution you against this purchase.