Author Topic: Dream house or a money pit... offers must be in by tomorrow  (Read 5002 times)

tammyLav

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Dream house or a money pit... offers must be in by tomorrow
« on: August 27, 2015, 07:25:48 PM »
So there is this house in our neighborhood that we drive past often, and for the past year have been daydreaming about what it would be like to fix it up and make it beautiful. It is a gorgeous craftsman American 4square with the most amazing porch and views of the ocean. It is tired and needs work, but is a well-built home from the turn of the century.

It went on the market monday, priced to sell at 299k  (fixed up comps up the street go for 5-600k) There are currently 5 offers in on it, with all offers due in tomorrow.

We did a second walk through today, with a contractor friend and a plumber. Both went through carefully to look at any issues and it was decided that a)this is a gorgeous, one-of-a-kind stunner, and b) very well-made... the kind of house we could never afford fixed up, and  c)even in it's faded beauty, the problems are relatively minor so far (would need to have inspection still, naturally). The roof+furnice are new and foundation shows no cracks at all. There is some asbestos on pipes in basement and new windows and insulation will be needed.

So here is the breakdown of the two choices ahead of me, and I was hoping for some sage advice!

Old house fixer: Offer 350, if offer accepted, plan for a lot of DIY reno over the years, put new siding and windows on asap (+20k as per our contractor)  and fix insulation... otherwise just live in it, scrape wallpaper and gradually paint. Lots of effort + money spread out over several years.
Pros: Amazing water views, excellent location, 1/2 acre of property in a town where lots are 50 x 125 ft. ... but taxes are still low, walkable to town and parks and beach, as well as NYC commuter ferry Amount in the hole once all said and done: 450,000, hopefully worth 5-600k conservatively.

Stay in and go up: We still owe 260,  we could take out 100k construction loan to build up and make a layout that fits our needs. Our house would be new and finished, but our lot is tiny and not in a nice location at all compared to the other place. Still walkable to beach. Bikable to town. Nice neighbors. Amount in the hole once all said and done: 350,000, if we are lucky it would be worth 375 when that is done.

Neither of these options are about flipping so much as being smart and finding a home for my family . I am wary of buying a 100 yr old house, even if it's a stunning beauty, but then I am also a dreamer, and the house feels like home. It is so beautiful, and it's location so stunning! On the other hand, we weren't planning on purchasing a house at the moment, and all the expenses might stretch our budget pretty tight. I am starting a new job next week which will bring in more $$, but we are not financially where I would prefer to be before making an offer on a home... still, we are only months away from that, and I don't want to give up if the opportunity was a smart one.

What is your opinion on this? I am trying to be logical and not emotionally attached, but it is a challenge!

« Last Edit: August 27, 2015, 07:38:05 PM by tammyLav »

Argyle

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #1 on: August 27, 2015, 07:37:57 PM »
I think this is one situation where emotion is going to have to be the deciding factor.  Does the appeal of the Craftsman outweigh the hassle of doing some fix-up?

One thing I would say, as an old-house rehabber if you take the house and fix it up, do not replace the windows.  The companies that do this kind of thing will give you a big song and dance about how much you need new windows.  But those in the know, know that the new windows will almost certainly be shoddy badly-made things that will lower the value of the house and not last one-quarter as long as those original 100-year-old windows have lasted.  If you're contemplating this, go over to the old-house forum at wavyglass.org and ask them to explain why keeping the original windows is the much more sensible choice.  Bonus: it saves you a ton of money.

Gray Matter

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #2 on: August 27, 2015, 08:01:11 PM »
I'm the wrong person to ask (you did ask me, right?), because I always buy my houses with my heart, not my mind.  I go for the place that says "home" to me (without being stupid about it).  Plus, I'm a lover of old houses, especially when one is down-at-the-heels and is brought back to life.  Makes my heart sing.

So, yeah, you know what has my vote.

P.S.  Agree with Argyle about the old windows--they can be rehabbed, but I would never replace if I could help it--ruins some of the charm in addition to not being as well-built generally.  I love nothing more than looking at the world through wavy glass!

tammyLav

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #3 on: August 27, 2015, 08:05:34 PM »
So, full disclosure, I think with my heart more than I probably should sometimes, lol. It may not make me rich but it makes me happy. I place a lot of weight on MMM forum advice, because advice is always so sound here! I had another post about helping my mother out with a move.. this house has a mother's suite for her too. It is rather uncanny timing.

FIRE Artist

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #4 on: August 27, 2015, 08:20:23 PM »
If you really want it, offer an odd number to increase your chances of outbidding the others.  So 351 or 353 instead of 350.

sol

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #5 on: August 27, 2015, 08:26:22 PM »
The numbers offered don't help much without knowing your other numbers.  How much would this purchase set back your FI plans?  If you're talking about working an extra three months to live ten years in a house you love, I'd go for it.  If it means working an extra five years, probably not.  For cost comparisons, I'd just figure on paying people to do all of the labor so that you don't end up undervaluing the effort you will personally put in.  Don't forget the extra taxes and furniture you would need.

tammyLav

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #6 on: August 27, 2015, 09:09:56 PM »
That is the interesting thing. the older house is in a perfect location, and needs TLC, but nothing enormous.I think it could grow in value-to-investment at a rate higher than our current house, due to proximity to town, NYC commute, lot size, and area comps. For FI, I would think that if we could really ramp up the value of the home, the older home could pay us back in dividends. It just feels like a stretch now because we don't have a reno budget.

Our current house sits in a flood zone, and is small, and hindered in property values because our neighborhood is all well-kept, but tightly spaced small bungalows. There is only so much we can increase its value, because the location isn't amazing. As far as FI goes, we would be starting out with 350,000 in debt for either place. the difference is that 350k is the starting point for the older home, and the polished up and completely finished point for our current home. We risk stretching ourselves a little too thin at first with the older place, but then expenses would roughly even out, though the older house is larger, with bigger energy bills, maintenance costs, etc. My mom could live with us in the larger place, which reduces the costs. Taxes are almost the same for now, but I'm sure the older place would go up as improved. The older place is entirely livable and lovely even as it sits now.

This is such a hard decision! I swear my heart and my logical mind are at war on this one. I won't be 100% pleased with either result, I am sure of it. There will be regrets over money spent, or opportunities lost. I am inclined to just place our offer to see what happens. If another, higher bid is chosen, then we can move on without regret, though if our offer is chosen, we will be in the same spot!

alicet

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #7 on: August 28, 2015, 01:39:18 AM »
Did you consider consulting a real estate agent? I'm sure you will get a good piece of advice from them.

tammyLav

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #8 on: August 28, 2015, 07:56:25 AM »
We consulted an agent, a builder and a plumber.

Basically, they all agreed that this is a sound investment with a ton of potential for return, but a lot of work and money will need to be put into it before that happens. New Roof, new furnace, electric partially updated and completely not scary-old (builder said event the "old" electricity not so bad and circuit box is brand new). We love the house, and I feel like it's speaking to me, lol, not to be mushy, but this is an internal war for me between practicality and architectural romance!

Better choice for FIRE isn't clear  to me either, because it will require additional money spent over the years, but also has the space for my mother to move in and help us defray costs, as well as the potential for big returns down the road.

CashFlowDiaries

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #9 on: August 28, 2015, 08:06:10 AM »
Once you calculate how much it will cost to do the whole rehab, then add more because its always more then you think, then add up all the holding costs for the amount of time you will be rehabbing it, then add all the realtor fees when you sell it and when you have that number.  Let us know.   

kendallf

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #10 on: August 28, 2015, 08:16:06 AM »
Never mind the future potential of either house.  How's it look for your budget now?  Will it impair your cash flow to the point where you're likely to have problems saving elsewhere?  Can you put a reasonable amount down and avoid things like PMI?  Do you have reserves to handle expected repairs (the siding, windows, and insulation you mentioned) as well as unexpected repairs (they will happen, especially with a 100 year old house)?

Put your emotions aside long enough to evaluate these things.  What would your life be like if you took no action?  Do you really need a new house, or an expensive addition on the current one?  Maybe your answer will be yes, but run the numbers to see what it will cost you in freedom and time.

MissStache

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #11 on: August 28, 2015, 08:25:24 AM »
Remember that dream house and money pit are not necessarily mutually exclusive :)

I just want you to buy it so you can do a journal of fixing it up, so I'm not a lot of help. Sounds like a great opportunity, but I think Kendallf has a good point- can you afford a lot of expensive repair work?


MayDay

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #12 on: August 28, 2015, 08:47:54 AM »
DON'T REPLACE THE WINDOWS! 

Just needed to 3rd that, sorry.  Repair them, please don't put vinyl monstrosities in that will fall apart in 10-20 years.  And for a price of 20K including siding, that quote is definitely for cheap ugly vinyl windows.

Also, I will chime in with a second unwanted opinion:  building up is ugly.  They always have wrong proportions and look goofy.  Don't do it. 

So I vote either buy the cool old house, or find the right house for your family, or stay in your current house as is. 

Re. offering for the old house, there is a way to offer 350, but up to ______ to beat another bid.  Like 350K plus another 8k if someone else bids 355.  You might also consider waiving your inspection as that will make you a much more attractive buyer. 

Fishindude

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #13 on: August 28, 2015, 08:58:45 AM »
I like the older homes and live in a 100+ year old home.
They just look better, have more character and are typically on nicer sites with old growth trees, etc.

We've worked over just about everything in our place top to bottom, pay as you go, over the last 25 years and finally have a real nice home.

Good luck !

tammyLav

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #14 on: August 28, 2015, 09:16:23 AM »
It is a bit of a financial stretch at the moment, just because we are finishing up our "pay off debt" plan, and getting ready in the next 3 months to switch over to "build reserves." So we have no reserves. Just enough for small down payment which will mean PMI, and then a little left in savings for emergencies. Once we get past closing, the monthly regular expenses will be roughly even with our current house, due to the fact that my mother can live in the older home (not our current, small place) and pay rent to help with expenses. Of course those old houses have things that pop up! A really good inspection with a clause for backing out would be key. The pros and cons are just not clear cut enough for me to feel comfortable deciding yet! I feel like it just about all works, but then what if I'm wrong? I want more cash reserves first, and if this were a year from now, we would move on this house for sure.

cchrissyy

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #15 on: August 28, 2015, 11:06:39 AM »
I think you should do it bc you like it os much more than the current house, and it has more appreciation potential, but it does not actually cost more. So it's a change with known positives and no big cost difference.

and then (!) you add in the fact that you would not have to buy/rent a place for your mom anymore. considering that, it is a significant cost savings over your current plan, of staying put in your house plus buying/renting one for her.

backyardfeast

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #16 on: August 28, 2015, 11:18:30 AM »
Quote
Once you calculate how much it will cost to do the whole rehab, then add more because its always more then you think, then add up all the holding costs for the amount of time you will be rehabbing it, then add all the realtor fees when you sell it and when you have that number.  Let us know.

This is the key.  You are thinking that this is a decision between heart and head.  But it isn't.  Work on the premise that you want the new/old house.  Create a budget that would work for you now, take the quotes you have gotten from builders, consider them rock-bottom and add a big buffer.  From this, decide what $ amount offer works for your family and would make you feel comfortable and clear.  Then submit the offer.  If it isn't the winning bid, you know that you did what was right for you, and something else will come along, but you won't have regrets--you gave it a shot.

Remember, too, that this isn't a choice between this new house or stay in the house you have forever.  Other possibilities will open up over time!  But in the short term, it sounds like this is an amazing opportunity that's not worth missing out on because of a few months of opportunity cost lost in your aggressive debt paying.

Good luck!

Axecleaver

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #17 on: August 28, 2015, 11:29:30 AM »
Quote
I want more cash reserves first, and if this were a year from now, we would move on this house for sure.
There will always be another great house to fall in love with. If it were me, I'd wait until I had the down payment I needed, and then take my time looking for the dream house. Also be careful of making yourself house-poor; it sounds a little bit like you would need to stretch your budget to make this happen, and if it all comes together, you still don't have what you need for renovations.

Plus, you'd have to carry two mortgages for a while until your current home sold. That would put even more stress on your budget. With multiple list price offers expected, no seller is going to consider an offer contingent on another house's sale.

tammyLav

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #18 on: August 28, 2015, 12:24:30 PM »
Thank you all for your helpful responses! I thought you might like to hear what we decided to do. Ultimately, and this hurts my heart to say it, but truly it's best... this is too much house for us at this time.

We just went round and round, but what I keep coming back to is this: We have gone through some tough financial times, not all as a result of our choices, but things have happened that really put us through the financial ringer. We have no money to fall back on, and both of our families have no money either! Getting our ship right is all on us, and MMM has been a big part of decision making to get out of that awful place. We are right there... about to put phase II of our plan into place and start building our Vanguard account up. phase III is supposed to be next summer, and include purchasing our first rental income property. This house came along, and it just jumped way ahead of the rest of our plans... but it will put us in danger of being house poor, and derailing our carefully laid plans.

I do love that house. It really spoke to me, but it was mine for a week while I got the chance to get to know it and really explore it. My current house is little, and humble, but it keeps our finances on track for allowing for the rich life, full of experiences and adventure, that we deserve. It is very hard to walk away from this opportunity, but I really have to think of the big picture of our lives, and moving into this big old house would be like inviting another family member to live with us! We are not really ready for the level of commitment that it will require to keep the old girl happy and beautiful. I hope whoever is lucky enough to afford this opportunity does right by the house, but maybe, if we're lucky, we'll get another chance to take a shot at it, or another one, in the future.... this time on our terms ;)

ShoulderThingThatGoesUp

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Re: Dream house or a money pit... offers must be in by tomorrow
« Reply #19 on: August 30, 2015, 10:25:15 AM »
It sounds like you made the right choice.