Author Topic: First Home Stress - Paying too much for needing roof, bathroom, garage  (Read 2538 times)

PolymathPaul

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My wife and I have saved tremendously over the last year, enough to go from barely enough to buy a home in our old (cheaper) city, to being able to buy a nice place in our new (more expensive) city. We're currently planning on the short-end, 3-5 years until parents retire and settle into retirement, and possible future offspring will determine where we want to be (we're currently on opposite side of country).

We're trying to keep ourselves from buying too much house. The average home sells for $310,000 in our city of 60,000, we've got 21,000 colleges students, and they create incredibly annoying demands on both traffic and housing.

We're renting for $1400 a 2bed/2bath apartment. We really want a yard. We can both ride bike to work. We can't find a house with a yard for rent for less than $1500, and if we do, it increases our commute by 10 to 20 minutes, not because of mileage, but because of traffic. In our neighborhood rental prices on single family homes are north of $1650.

We did however, make an offer on a house that is literally right across the street from our current rental apartment.

It's a 3 bed, 1 bath, shared-roof carport, block foundation rancher built in 1950 with a nice front and back yard and good neighbors. The neighborhood is gentrifying, slowly. VERY SLOW TURNOVER. This is only the second house in this neighborhood listed this year.

It's been flipped. New kitchen and bathroom, new appliances, new plumbing, new paint and doors, new fixtures. Listed at $262,000 in a neighborhood where most houses sell for $220,000 because most are 3 bed 1 bath houses without garages built in the 1950s and most are kinda junky. 

At $262,000 it got a single other offer in 3 weeks on the market in a town where good deals last for a few hours.

Inspection revealed that it'll need a new roof in 5 years. Foundation is ok. Concrete walkways and carport are pretty cracked. Siding is junky, but looks nice. Interior is 8/10. Needs a second bathroom. Laundry is cramped. Few other minor repairs are necessary, nothing more than a few hundred dollars.

We got estimates of around $15,000 to do the little stuff, as well as the conrete replacement, not including the roof or addition of a half-bath.

Seller lowered to $245,000.

Our realtor is absolutely of no assistance in helping us determine whether the house is worth $262,000, much less $245,000, and whether she believes the house is worth putting another $20,000 into in order to get more offers when we sell.

My wife believes passing up this house means potentially waiting a few months for another in our desired neighborhood, and potentially ending up with a house that may have 3 bed/2 baths/1 car garage, but not the recently updated interior.

I think it's worth waiting.

Suggestions?
« Last Edit: July 05, 2016, 03:13:34 PM by PolymathPaul »

fishnfool

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Your title says it all.....paying too much for a house that needs a lot of work...ugh!

It doesn't make since unless it's your forever home and everything you dreamed of.

dragoncar

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I can't do the comps for you but here are my thoughts.  This is location dependent -- not sure where you are-

Cracked concrete is mostly a cosmetic problem (but maybe not if you get snow?).  Where I live, all concrete will crack eventually so it doesn't bother me.

Turn the laundry room into a bath, put the washer in the carport?

Rent out extra room to the abundant college students.  If you do leave the town, you could continue to rent it.  How much could you get if you rent three rooms vs. the entire house.

Doesn't seem crazy to me, but of course we don't know your finances.

PolymathPaul

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Unfortunately the layout of the house prevents us as a young married couple hoping to have kids from renting while we're living there. As much as I'd like to own a home with a MIL Suite, I fear those would be too expensive in this town.

As far as renting it to college students? $500 a room would be a bargain in this town.

You are correct about the concrete.

Washer/Dryer in Carport would be fine, except that it faces the street and would look really bad, as well as exposing the appliances to the elements. I'd be more inclined to move the hot water heater to the carport, but if I'm going to be framing I might as well just do on the back of the house.
« Last Edit: July 05, 2016, 05:17:06 PM by PolymathPaul »

Dicey

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Can you clarify, please? You think you will only be there 3-5 years? If that's true, this die-hard homeowner votes for you to continue to rent. Too short a timeline to count the on making money on a home purchase.

PolymathPaul

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My issue with the age old addage of "don't buy unless your planning on being there at least 5 years" is that you don't know if you'll be somewhere for 5 years until you've been there for 6!

My wife and I have only been in our new town for a little over a year, so we're fresh in our jobs and friendships. We know that it'll be at least 2 or 3 years before we start looking for any other jobs, and who knows who long it will take before we get any other offers.

We're not college students, we're working professionals who have families on the opposite side of the country. I'd say our situation is fairly common, and lots of people make money on real estate in those situations.

We know lots of people who put off buying for a very long time because they thought they'd eventually leave town, only to stay in town much longer than they expected, at great (rental) cost.

We also know people who made money on owning homes for as short as 16 months.
« Last Edit: July 05, 2016, 05:39:06 PM by PolymathPaul »

PolymathPaul

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One good piece of advise I like is that since our timeline is shorter, we should look at real estate as an investment, that is, look at homes like Flippers.

The only way we'll make any money owning for 3-5 years is to buy cheap, put in sweat equity, and sell in a strong market.

Ensign1999

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There are some really good rent vs buy calculators out there that take a lot into account.  Your decision will ultimately be based on what is the most important to you.  Once you have your priorities decided, then the choice becomes a bit more clear. 

If your top priority is your march to FI, then run the calculators and see if it makes sense to buy, or to invest the down payment and continue to rent.  The idea of a flip is appealing in that there is a chance of making a good return when you go to sell, but you have to be ok living in a work in progress for an extended period of time and potentially not getting to enjoy your labors.

If location and a yard is more important than the risks of potentially losing money, or not making as much as you might have if you had invested your down payment, then work hard on getting the best deal you can where you want to live with the amenities you want.

The house doesn't sound as bad as it might seem.  If you have concerns about the cost or needed repairs on main house systems (roof) then if you make an offer, take those into account and communicate them to the seller through your realtor on why your offer is lower than they were hoping for.  Worst case, they turn you down and you continue with your search.  If you aren't in love with the house then it is easier to treat it as the business transaction that it is.

Not sure if this helped any and I wish you luck in your search for your next home.

PolymathPaul

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If location and a yard is more important than the risks of potentially losing money, or not making as much as you might have if you had invested your down payment, then work hard on getting the best deal you can where you want to live with the amenities you want.

The house doesn't sound as bad as it might seem.  If you have concerns about the cost or needed repairs on main house systems (roof) then if you make an offer, take those into account and communicate them to the seller through your realtor on why your offer is lower than they were hoping for.  Worst case, they turn you down and you continue with your search.

After much discussion I think this will be our new approach. We cancelled the contract on our current offer, and told our agent "we might come back to the table if they repair the roof and lower the price a bit more as well."

We decided that at 245, needing a new roof is too much, but at 238 with a new roof, it'd be one of the better deals in the neighborhood. At that price, we could confidently add a bathroom knowing that we could probably ask 250 for the house in a few years.

GuitarStv

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Most brand new shingled roofs will need to be replaced in 15 years.  A roof that might need replacement in five years really doesn't sound like a deal breaker to me.

PolymathPaul

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Most brand new shingled roofs will need to be replaced in 15 years.  A roof that might need replacement in five years really doesn't sound like a deal breaker to me.

It is when the house needs siding, gutters, concrete repairs, back door hung correctly, window pane crack fixed, electrical issues in attic and crawl space access botch job that not only weakened the dining room floor, but also exposed the floor joists to termite and water paths.

Then there is the issue of the lack of second bathroom, which in a community filled with both high-paying college students and lots of families, having that second bathroom would really help the resale, if not in value at least in offers.

The roof isn't a big deal, and if the house had a garage and second bathroom, we'd have no problems fixing it, but in this case its another expense on an already expensive house.

dragoncar

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Most brand new shingled roofs will need to be replaced in 15 years.  A roof that might need replacement in five years really doesn't sound like a deal breaker to me.

It is when the house needs siding, gutters, concrete repairs, back door hung correctly, window pane crack fixed, electrical issues in attic and crawl space access botch job that not only weakened the dining room floor, but also exposed the floor joists to termite and water paths.

Then there is the issue of the lack of second bathroom, which in a community filled with both high-paying college students and lots of families, having that second bathroom would really help the resale, if not in value at least in offers.

The roof isn't a big deal, and if the house had a garage and second bathroom, we'd have no problems fixing it, but in this case its another expense on an already expensive house.

Yeah it sounds like this home isn't for you.  If it was, you would look at those things as a fun adventure, mr polymath

PolymathPaul

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Yeah it sounds like this home isn't for you.  If it was, you would look at those things as a fun adventure, mr polymath

Don't get me wrong, I like a good project. I'm a DIY kinda guy. I've never owned a car that cost me more than $3,000, and never payed a mechanic more than the cost to mount tires. I can also say that in total vehicle ownership I've probably made more money than lost.

What I don't like doing is paying more money than I have to for something that is nearly guaranteed to lose me money. To me, $245,000 for this house seemed like a losing bet.

If I'm gonna lose money on a house it might as well be one that I'm happy with from day 1.

dragoncar

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I'm saying it sounds like you are trying to talk yourself out of buying this house, which is a bad sign

PolymathPaul

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Bad sign for buying the house?

Or bad sign in passing up a potentially good deal?

In either case, we've let it go. I figured we'd rather regret not buying something than regret buying something that cost us more than we wanted. We've learned a lot in this process, and now we have the chance to look at other properties with a clearer lens and a better agent.