Author Topic: Unpermitted addition to garage?  (Read 3979 times)

Bearded Man

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Unpermitted addition to garage?
« on: June 07, 2014, 05:32:25 PM »
I am buying a house that has an unpermitted addition in the garage. Basically, they built a little utility room in the corner of the garage taking up half of one parking space. It is around the area of the water heater and washer/dryer HOOKUPS.

FHA appraiser from previous buyers that backed out of their 220K offers (due to financing issues, as I was told) marked it as a $1,000 repair to remedy. I would want it taken down, it looks tacky. It really also needs new carpets and paint in the bedrooms upstairs but ONLY in the bedrooms upstairs (four bedrooms), and a couple new doors, a new toilet, as well as fridge, washer/dryer, and shoring up the vents in the attic so birds stop nesting there. I am buying the place for about 195K not counting closing costs. I think the repairs would be less than 10K, if that.

Mortgage will be about $1,050 and rents are estimated to be about $1,650. Current appraisal values this house as is at about 225K+. Similar homes in the area without the need for repairs are selling for 250 to 280K.

For some reason I am unsure about this deal, but I am not sure why. In the past I've bought places move in ready although they would benefit from a new coat of paint in some areas. This one definately needs upstairs bedrooms painted and carpet replaced. Not a large feat, but still more than I've done historically. Probably why I am a little unsure. Hoping the voice of reason will tell me whether my paranoia is justified of if this is a killer deal that I should jump on.

Cassie

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Re: Unpermitted addition to garage?
« Reply #1 on: June 07, 2014, 05:54:13 PM »
Since it needs about 10,000 in repairs why not try & split the difference with the owners?  The items you mentioned do not seem like a big deal to take care of.  If you are not handy find a painter that will work on the side for much less money.  We have done this & it works out well.  The carpet you would want professionally installed so it looks good. YOu could consider laminate floors instead of carpet because they will last a lot longer.

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #2 on: June 07, 2014, 07:43:05 PM »
It is a foreclosure. As is. I was actually considering laminate floors, but it depends on what kind of deal Lowes has at the time. ;-)

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #3 on: June 07, 2014, 07:47:17 PM »
I would pay to have the work done since I need to get it move in ready ASAP. It would take me too long on the weekends in my spare time. Plus my time is worth more than the time for this anyways. I figure:


1.5K laminate flooring
2K paint
1.5K appliances (washer, dryer, fridge)
1K garage restoration
1k doors, toilet, miscellaneous items
3K buffer room

waltworks

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Re: Unpermitted addition to garage?
« Reply #4 on: June 08, 2014, 12:01:29 PM »
Are you buying the place to live in, or as a rental?

-W

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #5 on: June 08, 2014, 02:07:35 PM »
Primary, but with an eye to renting it out for a while if I end up not liking the place. Turning around and selling a place right after you bought it is a great way to throw tens of thousands of dollars down the drain.

I would rent out my current home, which has a very low interest rate and would be very cash flow positive. The other house is in a better neighborhood with a similar commute. Also the neighborhood is very walkable. If I got a work from home job, which is common in my line of work, I would not NEED a car.

waltworks

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Re: Unpermitted addition to garage?
« Reply #6 on: June 08, 2014, 03:02:33 PM »
Got it. Is your current home going to be a good enough (ie 1%/50% ish) rental that you want to keep it indefinitely, or are you making an appreciation play there? Or do you plan to move back in at some point?

I guess that's all off topic, just trying to figure out what the background situation is for you. While it's true that turning around and selling a house right away is a waste of money in most cases, renting it out is sometimes even worse - just a slower way to lose the same $.

If I were unsure of my job future/where I wanted to live, I would be renting a place, not buying one. But that's just me. The place you're buying doesn't sound like a great rental property if you don't like living there.

-Walt

Primary, but with an eye to renting it out for a while if I end up not liking the place. Turning around and selling a place right after you bought it is a great way to throw tens of thousands of dollars down the drain.

I would rent out my current home, which has a very low interest rate and would be very cash flow positive. The other house is in a better neighborhood with a similar commute. Also the neighborhood is very walkable. If I got a work from home job, which is common in my line of work, I would not NEED a car.

Cassie

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Re: Unpermitted addition to garage?
« Reply #7 on: June 08, 2014, 03:08:28 PM »
When you look at the numbers it appears that even with the work it needs you are still getting a good deal. 

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #8 on: June 08, 2014, 07:24:21 PM »
You are right.

Purchase Price: 195K
Repairs: 10K (estimated high)
Closing Costs: 4K (estimated high)

Other homes similar to this are selling in the same development for 255K+

I'd have 45K presumed "instant equity" in addition to money I put down. It would actually be nearly a 100% return on my money in equity just by fixing it up. I contacted my home inspector who is a retired general contractor for an assessment of the unpermitted addition, complete with photos. Will see what he says. If it really is just 1K to take it down and there are no financing or insurance problems, it does seem like a good deal.

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #9 on: June 09, 2014, 07:26:51 PM »
Got it. Is your current home going to be a good enough (ie 1%/50% ish) rental that you want to keep it indefinitely, or are you making an appreciation play there? Or do you plan to move back in at some point?

I guess that's all off topic, just trying to figure out what the background situation is for you. While it's true that turning around and selling a house right away is a waste of money in most cases, renting it out is sometimes even worse - just a slower way to lose the same $.

If I were unsure of my job future/where I wanted to live, I would be renting a place, not buying one. But that's just me. The place you're buying doesn't sound like a great rental property if you don't like living there.

-Walt

Primary, but with an eye to renting it out for a while if I end up not liking the place. Turning around and selling a place right after you bought it is a great way to throw tens of thousands of dollars down the drain.

I would rent out my current home, which has a very low interest rate and would be very cash flow positive. The other house is in a better neighborhood with a similar commute. Also the neighborhood is very walkable. If I got a work from home job, which is common in my line of work, I would not NEED a car.

Sorry I missed your post. How do you mean renting out most places is a way to throw money down the drain? It's nearly 10K a year between principal pay down and cashflow, not to mention the appreciation, etc. I really like the area, it is a really nice area, walkable to everything except work. I won't live in it forever. Eventually I will sell one of my paid off rentals and use the money to retire into the sticks, then use 2 mortgaged low interest rentals to pay for my retirement. Cash in index funds will be an alternate/backup plan/get multi millionaire rich backup plan that I can also tap if there are evictions, damages, etc.

waltworks

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Re: Unpermitted addition to garage?
« Reply #10 on: June 09, 2014, 07:45:02 PM »
I think you misread me - I said it's "sometimes" even worse to rent a place out. If it's making the 1%/50% rules, it's probably worth renting. If not, it's probably not. My point was just that hanging onto a house because you just bought it is not *always* the best move.

Sorry if that was confusing. My point was just that if you think there is a high probability that you'll use it as a rental property, you should evaluate it as such.

-W

I guess that's all off topic, just trying to figure out what the background situation is for you. While it's true that turning around and selling a house right away is a waste of money in most cases, renting it out is sometimes even worse - just a slower way to lose the same $.

Sorry I missed your post. How do you mean renting out most places is a way to throw money down the drain? It's nearly 10K a year between principal pay down and cashflow, not to mention the appreciation, etc. I really like the area, it is a really nice area, walkable to everything except work. I won't live in it forever. Eventually I will sell one of my paid off rentals and use the money to retire into the sticks, then use 2 mortgaged low interest rentals to pay for my retirement. Cash in index funds will be an alternate/backup plan/get multi millionaire rich backup plan that I can also tap if there are evictions, damages, etc.

Bearded Man

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Re: Unpermitted addition to garage?
« Reply #11 on: June 09, 2014, 08:45:09 PM »
I think you misread me - I said it's "sometimes" even worse to rent a place out. If it's making the 1%/50% rules, it's probably worth renting. If not, it's probably not. My point was just that hanging onto a house because you just bought it is not *always* the best move.

Sorry if that was confusing. My point was just that if you think there is a high probability that you'll use it as a rental property, you should evaluate it as such.

-W

I guess that's all off topic, just trying to figure out what the background situation is for you. While it's true that turning around and selling a house right away is a waste of money in most cases, renting it out is sometimes even worse - just a slower way to lose the same $.

Sorry I missed your post. How do you mean renting out most places is a way to throw money down the drain? It's nearly 10K a year between principal pay down and cashflow, not to mention the appreciation, etc. I really like the area, it is a really nice area, walkable to everything except work. I won't live in it forever. Eventually I will sell one of my paid off rentals and use the money to retire into the sticks, then use 2 mortgaged low interest rentals to pay for my retirement. Cash in index funds will be an alternate/backup plan/get multi millionaire rich backup plan that I can also tap if there are evictions, damages, etc.

Oh, I got ya. Yeah, that makes sense. It meets the 1% rule and then some (1.5%) and no, I am not making an appreciation play here. I only invest if it has $400 a month or more in positive cashflow. The principal paydown, the appreciation, the tax benefits, these are the sprinkles, caramel, and cherry on top.

There were four rentals, all similar to this one advertised on craigslist Friday. I contacted each of them to see how long they've been vacant while I was posing as a prospective tenant, but never heard back. Today all of the listings are GONE. My realtor told me that it will be a great rental market when I told him of the limited number of rentals. I thought it would be, but damn, I didn't believe it until today!

I spoke with the city inspector, he said it is not a can of worms at all, it will be either him or one other guy who comes out, and they are both easy going. Just submit a plan to build something like what is, and it will be good. If I choose, I can take it down. I would rather have both slots in the garage to park in, BUT...the utility room conversion, once permitted, looks like it will add 30K to the value of the house at $150+ per square foot.

Also spoke with a contractor and my insurance company. Contractor said it's not a big deal, and insurance company said they don't even care and are not worried about it. I think I am going to go for it!
« Last Edit: June 09, 2014, 08:55:20 PM by Bearded Man »

waltworks

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Re: Unpermitted addition to garage?
« Reply #12 on: June 09, 2014, 08:53:53 PM »
Damn! Rents for $3k/mo? Where are you, if you don't mind me asking? I know some places where lower end SFRs are decent deals as rentals but almost nowhere in the US where you can get places in the $200k range that will rent for that. That is awesome.

-W