Author Topic: Currently Renting, Thinking of Buying.  (Read 7991 times)

GrayGhost

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Currently Renting, Thinking of Buying.
« on: March 30, 2015, 08:57:11 PM »
I have been doing the roommate thing since about October, and for various personal and professional reasons, it's time for me to move on. I have started to house hunt, and on Friday, I viewed a place that I think has potential for me.

It is farther from work than where I currently live, but as I work in a secure area, the closest I could conceivably live is 8 miles away, and that is in an extremely expensive neighborhood, where rent begins at about $700 a month for a one bedroom place. I currently live about 10 miles away, and I got a very good deal for my area, but I only get one room for $500 a month. new place is about 13ish miles away.
The house itself is advertised at $95k for 1900 sq ft. It will almost certainly need roof work right off the bat, and possibly a new AC and water heater. I am pretty sure that it's in my capabilities to get these problems dealt with at low costs and in short order, whether it's by doing it myself, tapping experienced friends, using youtube videos, or, in a worst case scenario, finding a decent contractor. If I close at $90k, my monthly payments will be extremely low, something like $400 a month.
I am pretty sure that I can find a roommate of my own choosing who would gladly pay $400-500 a month plus their share of the utilities.
Furthermore, the property is in a pretty decent neighborhood. With some work--landscaping, caulking, painting, washing, etc, I am pretty sure that this place could be sold for $150k+. It could certainly be rented out for $1500 a month if I decide to leave for any reason.

Overall, I am strongly leaning towards getting this place. It's one of the best deals I've seen in a long time, it's quite large, the price is right, it's in pretty good condition, and it'd be easy for me to find a roommate from work who would pay down my mortgage. I have already approached a guy who lives much farther away from work, and pays $700 for his room, and he seemed pretty interested in the idea.

What do you think of my plans? Are there any pitfalls I am missing? What should I be cautious about?

Thanks in advance, Mustachians.

mveill1

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Re: Currently Renting, Thinking of Buying.
« Reply #1 on: March 31, 2015, 01:41:53 AM »
Frankly, I don't see any downside if you're confident you can clean the place up in good time. Try to accumulate vacation time to give it a good go when you move in, so at least you'll have the painting and caulking done where it makes sense. Also, I assume you intend to stay at your job for the next 5 years plus? Also, I'd try and make sure that the structure of the house is sound, and that there will be no bad surprises with the wiring. That would be a lot to take on on your own. But you sound like you know about these things.

But other than that, if you're committed to mustachianism, doing things yourself, etc, it sounds like the right next step for you!
« Last Edit: March 31, 2015, 01:45:20 AM by mveill1 »

mveill1

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Re: Currently Renting, Thinking of Buying.
« Reply #2 on: March 31, 2015, 01:46:19 AM »
Actually, come to think of it, what are your finances like? Do you have a little stash to see you through unexpected problems?

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #3 on: March 31, 2015, 08:24:23 AM »
The best thing is that an inspection was done on this place hardly a month ago. There is some settling, but it's nothing a little caulking won't fix. No problems were spotted with the electrical system.

I have about 60 days of leave acrued at this point, so I will be able to take time off as necessary to do little projects on this place. I have also been saving up for a potential purchase for the past few months, and at the moment I have about $7k in my bank account. I plan to be in a position to get the roof fixed and possibly get the place painted upon closing, as I am not sure that I trust myself to paint it, lol.

As for my career and lifestyle, I am 95% sure that I will stay in this area for at least another five years. If I do not, I am pretty sure I will bump up the value of this place enough to sell it, and I am sure that it will be a good rental unit. Heck, I would consider buying it as a pure investment property, as it's so cheap for such a large place.

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #4 on: March 31, 2015, 08:49:23 AM »
Assuming your numbers are correct, it's a slam dunk. Almost 2% rule SFH is like a unicorn these days in the US.

-W

mveill1

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Re: Currently Renting, Thinking of Buying.
« Reply #5 on: March 31, 2015, 08:59:45 AM »
The best thing is that an inspection was done on this place hardly a month ago. There is some settling, but it's nothing a little caulking won't fix. No problems were spotted with the electrical system.

I have about 60 days of leave acrued at this point, so I will be able to take time off as necessary to do little projects on this place. I have also been saving up for a potential purchase for the past few months, and at the moment I have about $7k in my bank account. I plan to be in a position to get the roof fixed and possibly get the place painted upon closing, as I am not sure that I trust myself to paint it, lol.

As for my career and lifestyle, I am 95% sure that I will stay in this area for at least another five years. If I do not, I am pretty sure I will bump up the value of this place enough to sell it, and I am sure that it will be a good rental unit. Heck, I would consider buying it as a pure investment property, as it's so cheap for such a large place.

Well, given what you're saying here I say pull the trigger.

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #6 on: March 31, 2015, 09:58:24 AM »
I don't think it's a 2% ruler at all, more like a 1.5%er, and that's only after some repairs. It is certainly one of the better deals I have seen as far as SFHs though. I'm currently fighting a battle to close on a four unit place that is about a 1.7-1.8%er.

I truly appreciate the support, but can you guys give me some red team analysis? I will be a first time homebuyer, and although I have painted, done flooring and other stuff by myself and am confident enough to use youtube and buddies for advice and assistance, the fact is that I have never done anything nearly as significant as swapping out a hot water heater. I guess my question is, how much trouble should I expect a home that's a couple of decades old (albeit built out of concrete!) to take me to maintain it? Is this really something a single guy can do while holding down a demanding job?

Bob W

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Re: Currently Renting, Thinking of Buying.
« Reply #7 on: March 31, 2015, 10:19:55 AM »

Sounds like a good match for  you.   Don't forget to figure about 4K per year in ongoing (sinking fund) type of maintenance. 

If it where me,  I would hit the hell out of it when you first buy it rather than doing a little at a time.   That little at a time crap can eat away at your psyche while not living in a finished project.     So I would do 100% of what needs and you want done asap and dump your time and money into it big time until it is done.    Don't move anything in until the project is done.  Set a deadline for  yourself and stick to it. 

You will need a huge "punch" list and to prioritize it based on -- Me do  -- friend do  -- pro do.  Don't skimp on fun stuff like an glass oval front door, new fixtures,  perfect paint finish etc..

Painting seems easy but if you haven't done a lot it can be time consuming.   Prep, sanding, perfect edging all take time.   Don't be too creative with colors.  IMHO stick with basic china whites and ceiling whites.   

Once it is good to go,  pull yourself a nice ongoing maintenance check  list of the web and modify it as needed.   

Sounds like a helluva deal!   You go!

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #8 on: March 31, 2015, 10:30:06 AM »
Ok, RT analysis/facepunching (keep in mind, I'd buy this place, so I'm stretching here).

1: Your numbers might be wrong. Call some actual listings that are for rent in that price range and show up to see them as if you actually were wanting to rent. How do they compare to your place? Hire a contractor to price out all the jobs you are going to do yourself, just to get an idea what you'll pay if you f everything up and/or get lazy. Double check your property tax numbers and call around for insurance quotes, etc. If it seems too good to be true...

2: Roof/AC/H20 heater are all pretty cheap to replace. If this place is such a steal and could sell for $150k+, why hasn't someone else already done the easy-peasy painting and landscaping and flipped it? Get your own report, from an inspector you know to be a deal-killer or who seems very, very diligent. Follow them around and watch them work/talk to them as they do the inspection.

3: Assume life circumstances or job stress mean you will no longer want roommates, and run the numbers based on that, plus all the other pessimistic assumptions you can make. Still breaks even or maybe cash flows a little bit?

I mean, with the info we have, there's not much red-team meat to work with here. Which is good!

-W

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #9 on: March 31, 2015, 10:43:24 AM »
@Bob W

I like the idea of making a prioritized list of things to be done. Then I have a good way of keeping myself honest and not wasting time, or putting things off.

One thing I did forget to mention was that at present, there's very little insulation in the attic, currently it amounts to R-9, and you can't exactly crawl into the attic as it's too small. I'm thinking this is a good candidate for blown insulation, as soon as (if) I get any wiring and lighting arrangements up there taken care of.

@Walt

1) Renting isn't that popular in the neighborhood, but a current listing a couple of blocks away in a very similar neighborhood is $1,500 a month for a place that's about 1500 sq ft. Great idea to call around about insurance and verify property tax numbers, and I'll be sure to call around about the various jobs I'd need to get done long before I move in.

2) It actually was a flip job. The seller bought it back in October for about $65k and he did a fair amount of work replacing drywalling, renovating bathroom and kitchen fixtures, sealing and buffing the terrazo subfloor, et cetera. He said that if he replaces the roof and hot water heater, he's going to try to sell it for $115k. At present, I am fairly sure that what's scaring people away is the roofing and the fact that the place could use general cleaning and landscaping.
As for comps, they are a bit problematic, as houses in this neighborhood tend to be about 1000-1100 sq ft, and they seem to be selling for $70k-$100k depending on how jacked up they are. Houses on the canal are going for much more than that, obviously. So my $150k selling point may be a bit high, simply since houses in the area are much smaller. However, I am pretty sure that the fun things I plan to do to it--landscaping, redoing some tiling, and pressure washing the bloody siding (what an easy way to make it look much better, eh?) will max out my theoretical selling point.

3) Even without roommates, I'm looking at about $600-700 a month all-in for mortgage, insurance, and taxes. That's a solid 50% ruler right there.

One thing I ought to mention is that I don't have too many tools, just the basic drills, hammer, toolboxes, a circular saw, and not too much else. I guess it won't cost me very much to gear up for the stuff I have planned, especially since I have every intention of outsourcing the roofing work (or maybe finding someone who's willing to teach me how to do it while I work alongside them), but am I being optimistic here?

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #10 on: March 31, 2015, 07:12:05 PM »
That is more like it. Why is the flipper quitting now? I'd *never* buy a flip unless I wanted to live there or the flipper was some kind of idiot who ran out of money or something. Meat's gone from the bone, right?

-W

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #11 on: March 31, 2015, 07:30:34 PM »
Yeah, I think if I budget a very generous $12,500 for the stuff that I need to do right away, like get a fridge, washer and dryer, repair the roof and replace the water heater, it's still a good deal. Except for two houses that are not in a good neighborhood at all, the next cheapest house in the area that's habitable is $150k. I really liked it a lot, but even financed, $50k is a lot of money to spend.

Does the fact that it's a flip really equal that big of a red flag?

I'm not going to rush, but I am seriously interested in this place, and even if it does take me some time to find a roommate, I think it'll be a positive change of lifestyle for me, and furthermore I do think it's a good investment.

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #12 on: March 31, 2015, 09:17:55 PM »
To me, yes. Flippers are in the business of making any and all profitable fixes/improvements to the place, selling it ASAP, and moving on. There are people who are good at it and people who are bad at it, but NONE of them is going to skip spending $500 on landscaping and $10k on a roof and some HVAC to get an additional $50k profit.

So if a flipper is offering you an amazing deal, there are 2 possibilities:
-They're idiots and/or having some life crisis where they desperately need money.
-They have extracted all the profit available right now.

That doesn't mean it's not worth buying to live in, necessarily, but it means you should look very hard at your assumptions about the value of the house. If it's being sold on the open market and needs a roof, it's value with a new roof is... wait for it - the selling price plus the cost of the roof.

-W

Does the fact that it's a flip really equal that big of a red flag?

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #13 on: March 31, 2015, 09:40:52 PM »
Quote
If it's being sold on the open market and needs a roof, it's value with a new roof is... wait for it - the selling price plus the cost of the roof.

That would be true, if we lived in an entirely rational world where everyone had the time/willingness to do these repairs. In such a world, the value of a house wouldn't be dramatically affected by paint, the amount of dust present, spaghetti sauce stains on the walls, and other such things.

I appreciate the challenge, but in this area, it's extremely hard to find a house that's not a junker, nor in a very bad area, for under six figures. There are a few houses that are on sale for about $60-80k, but they are extremely jacked up or in pretty bad areas. The biggest issue with this place as far as value is concerned is that since it's one of the biggest houses in the area and the area itself isn't known for beautiful homes (except for those on the canal) it's not going to go for top dollar, but I am confident that it will be a great place to live and a very good place to rent out. Selling is admittedly less of a great model.

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #14 on: March 31, 2015, 11:09:15 PM »
You would be right in some cases, but like I said - this is someone who flips houses. If they aren't putting more $ in, it's because they think they won't get any more $ out. You might be smarter than they are, but it's most likely (especially if it's listed on the MLS and hasn't attracted other offers) that it's worth about what you are going to pay.

Like I said, that doesn't mean it's a bad deal. It still sounds like it's well worth doing once you do your due diligence.

-W

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #15 on: April 04, 2015, 10:14:29 PM »
I'm still interested in the house that spurred this thread. I may well try to pick it up for $85k. At that price, I can deal with any of the issues I have seen.

There's another place, much nicer, that was on sale for $150k, but the price just dropped to $140k. I've already seen it, and I know the neighborhood. $120k would be a great price for this one.

Yet another place is on sale in a quite nice neighborhood (I think--have barely been there) and it's on the higher end of my spectrum at $165k, but the area is so nice that I expect that it could go for a bit over that if I got it up nice. It's been on the market for a while, so if I can talk the price down, it might be a deal.

Finally there is a place that just came on the market today. "Motivated sellers" are offering it at $150k, but it doesn't look like it's that nice, plus it's right off of a relatively major roadway. This is another one that I could see myself picking up for $20ishk below asking price, because that would make it a good deal.

I'm glad I found these three others. I still really like the first house I found, but finding these deals has taken the pressure off of me a bit. I know I haven't included much information, but I just wanted to let you guys know that even now, when I am severely interested in one place, I am still watching the market and won't move until I am good and ready to.

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #16 on: April 04, 2015, 10:24:32 PM »
Awesome, keep us updated! FWIW, in my experience great rentals are seldom great flips and vise versa, unless the deal is just amazing.

In your shoes, though, it's sort of a no-brainer to get your own housing costs down and get some RE experience at the same time, and it sounds like there are plenty of decent options (ie, Arebelspy wouldn't projectile vomit if hard numbers were posted. Probably.)

-W

JLR

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Re: Currently Renting, Thinking of Buying.
« Reply #17 on: April 05, 2015, 03:29:35 AM »
Yes, definitely let us know what happens. :)

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #18 on: April 05, 2015, 06:46:02 PM »
The two places I saw today were no good... the cheaper one had an uneven floor, teeny bedrooms, and a breezeway that's got to be a royal PITA to clean when it rains.

The more expensive one had a really claustrophobic and weird floorplan, plus really ugly faux-stone veneer on the outside and on a fireplace inside.

Looks like I'm back to the original two. I'm going to focus on work and other stuff for a few days while I figure out what a good price would be to offer for each, and then I think I may submit verbal offers for each of them. Hopefully I'll close around June or so.

isaakthepirate

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Re: Currently Renting, Thinking of Buying.
« Reply #19 on: April 06, 2015, 02:36:03 PM »
Hey GrayGhost,

Sounds like you've gotten some great advice already from some real experts. I'd just say from my experience of looking for my first property to get super clear about what your ideal property is. I made a bulletted list of what I was excited about (and willing to do) and it really helped me sort through my options. I could turn down things that looked good to other people but didn't meet my standards. For example, I wanted a triplex with at least one vacant unit, so I didn't spend too much time looking at fully occupied fourplexes (rent control and evictions are big consideratins in my market).

It also meant I waited a little longer to get the right place. If you're able to stay somewhere temporarily, I am really glad I waited out for the property that met all my standards. I did get antsy, but I kept my standards in mind and it helped immensely.

Best of luck!

Isaak

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #20 on: April 06, 2015, 05:06:00 PM »
I totally appreciate your advice Isaak, thanks very much. I think I am already implementing most of it, though. My lease is month to month (I was adamant about that when I signed it). My major concern is cost and distance from work, and since there isn't very much close by to work in my price range (there are duplexes and such outside of my price range, but they utterly fail real estate investing rules, like the 1% rule. Seriously--I'm seeing stuff go for barely the .5% rule. No thanks!) my options are limited.

From a purely financial stance, I could live another five to ten miles from work and have a lower mortgage for a similarly sized house, but the area wouldn't be as good, and my commute would be much longer. The area I'm looking at is close to work, close to where I may transition to within two-three years, is a good area, has great roommate potential, and I'd frankly rather live there if I were to stay here long term. The two places I'm discussing seem to offer the biggest bang per buck (except absolute junkers in bad areas) in the area.

ATM I am leaning towards the more expensive one. It has much better comps (the cheaper one requires work, as I mentioned, and even after repairs, I doubt it is a wise investment... it's about twice the size of houses in the area, and already the price point is one and a half times what they are going for.

I have been watching this market like a hawk for some months and I got extremely close to pouncing on a place that's been on and off the market since fall, but it went contingent the same day it came on the market. I am excited, but I am pretty sure I am not letting that get in the way of my rational faculties. If anything, I think I'd love to take on a project house and improve it into the pride of the neighborhood a la MMM, but while working a full time job, without a powerful and stable spouse at my side, without the certainty that I will live there for 10+ years... it just doesn't seem as wise.

I'm going for a second pass tomorrow, and this time, I'm going to take pages of notes as well as measurements. I'll keep you all posted...

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #21 on: April 09, 2015, 10:42:12 PM »
On Tuesday, I made a second pass at the place. Liked what I saw, liked the new price. Got home, made some phone calls to get financing prequal/preapproval, and told my realtor to write up an offer. He sent it to me within a few hours, along with the news that the property went contingent.

It was a frustrating moment for me, but oh well. I've submitted my offer anyway, so I'm in a backup position, and if the seller doesn't officially respond to it by tomorrow, I'll be first on the seller's mind if this deal falls through, yet I won't be locked into a contract in case another deal comes up.

I guess it just goes to show you that the real estate game is a tough business, and you have to move pretty fast if you want to snag a deal. I'm sure I'll be successful sooner or later, but this one, this time, just didn't work out.

More updates as they come!

bruce88

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Re: Currently Renting, Thinking of Buying.
« Reply #22 on: April 13, 2015, 02:00:35 AM »
Hey Gray, don't be too discouraged.  Could be you weren't supposed to buy that one.

Random thoughts from a 20+ year real estate broker, 30+ year flipper/investor:

On expensive fixes (roof), make an offer contingent upon seller re-roofing and using a contractor you both agree on.
It is much cheaper to pay on something like that with a higher mortgage (if he counters your price) at $44 month each $10,000 spent, then to spend your precious cash on expensive items after closing.

Also, look at enough properties and know the market so you can move very, very quickly when you find the right house.  I mean, in hours, not days.  Be pre-approved, and have your Realtor give you comps the moment you find a deal.  Move quickly and only give the seller 24 hours to take your offer. 

With serious issues, the seller KNOWS there is a problem (with the roof).  Eventually, they will consider an offer where they must fix it before selling.  (& Like previously mentioned, always get your own inspection).

Also, keep in touch with the other Realtor/seller about the one you like.  Many deals fall through these days because of tightened financing rules.

Good Luck.  Keep us posted.

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #23 on: April 21, 2015, 03:53:29 PM »
At present, I am the unofficial backup in no fewer than three deals. I also put in an offer on a Fannie Mae homepath place, but since it expires well before the seller plans to stop accepting offers, I will not be bound to it.

At the same time, I'm talking to a coworker about assuming her loan or possibly doing a lease option on her place, which is bloody beautiful and in a nice, quiet, area, but also far from work and more expensive than I'd prefer. Not very Mustachian, but I feel that the quality of life improvement that I'd feel in such an area might make it worth it, and there may be a bit more upside to it as well.

To sum up, I am presently committed to nothing but in a great place on several things. I am constantly watching the market like a hawk and I am sure that I'll get lucky, sooner or later. As I am not willing to commute very far at all, nor am I willing to pay top dollar for anything, my criteria are very narrow, and I do seem to have some pretty hawkish competitors of my own.

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #24 on: April 23, 2015, 05:16:53 PM »
There's a place that's been on and off the market for months, and my realtor was able to get the scoop that it may (read: almost certainly is) coming back on the market in a few more days. I've submitted an offer and trying to negotiate a way to snag it before it really hits the open market. It's still not as close as I would like to work, but as I work in a secure region about ten miles from residential property, and since there's little land here, my options are limited. However, the upside potential is great, it'd make an excellent rental, it's going to be easy to get a roommate there who will pay most if not all of my mortgage costs, and I'd quite enjoy living there.

The one my coworker selling is pretty much not going to happen. I'd love to help her out, but it's just too expensive and too far from work for my tastes. It'd be a sweet place to FIRE in, but while I'm still working, not going to happen.

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #25 on: May 03, 2015, 07:31:51 PM »
The target house has been released from contract. My realtor has informed me that I should receive my executed offer within a few days. I'm trying to set up a home inspection for next weekend, hopefully close sometime in June.

I'm pretty excited about this one. Superb price for the location, good square footage, good overall floor plan, and it's got an orange and an avocado tree on the property. The one major project I'd like to do in it is to renovate the kitchen. At present the sink is against the exterior wall and the stove's against an interior. I am considering demolishing the interior wall and putting in a large island with a range, or possibly going in the other direction and putting the stove against the exterior wall. Either wall, I'll have to learn how to install a hood and route it and all that. Should be a fun project.

waltworks

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Re: Currently Renting, Thinking of Buying.
« Reply #26 on: May 03, 2015, 08:02:00 PM »
Woot! Congrats GG!

On the flip side, we just sold rental #2 (1 left to go) within 6 hours with multiple offers - and got a tad over asking price. Rental #1 hits the market June 1st.

-W

GrayGhost

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Re: Currently Renting, Thinking of Buying.
« Reply #27 on: May 05, 2015, 08:14:32 PM »
I got the executed contract and applied for a loan today. I'll need to push back closing until mid June, as that's how long the loan process will take, but this will be no problem at all.

The fundamentals are very strong and I feel confident that the usual work will make this place a real beauty that can hopefully sell (or maybe rent?) for top dollar. Some painting, inside and out, will have to be done. Then there's pressure washing and landscaping, both of which can be done in precisely one seriously sweaty, seriously fun afternoon.

The kitchen is going to be more work, and I might have to put a few thou into that, but I'm looking forward to it bigtime. Other than that, I might redo one or both bathrooms later (the usual stuff, new tiling and vanities) but I can see myself making a pretty penny off of this one.

I am pretty hesitant about ceasing to max out contributions to my TSP, but a $1.6k chunk out of my paycheck is a pretty big deal as far as doing a slowflip is concerned. What do you guys think about reducing retirement fund contributions in order to focus more on house renovations?

My current budget goes something like this:
$4000 income
$1500-1600 to TSP
$500 in rent
$1000 on other stuff (food, utilities, travel, entertainment)

I'm obviously going to cut back on travel and entertainment, but it's still tempting to cut TSP contributions back so that I'd have an extra few hundred, at least for the first couple of months.

GrayGhost

  • Bristles
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  • Posts: 388
  • Location: USA
Re: Currently Renting, Thinking of Buying.
« Reply #28 on: May 11, 2015, 01:13:29 AM »
Home inspection was done. No major problems spotted, but I asked for $5k off for the smaller ones. I'm hoping to hear back within a few days. Still looking to close in mid June.

I budgeted every single repair/upgrade I'd like to get done on this place, and it should end up costing around $15k at most. With that budget, this is a great place to sell once I leave the area, or rent out if the market isn't where I'd like it to be.