Should I purchase a house?
April 20, 2011 6:51 PM   Subscribe

Am I crazy to want to purchase a house?

I moved to Fresno for a job last year. The job is very stable. Really. Currently I'm paying a reasonable amount for a small apartment behind a house--let's say $600 a month. Close enough. I'm in a good situation, but here's the rub: I look at homes on something like Zillow or Trulia and I see a wide variety of homes, and a few empty lots, that are pretty damn cheap.

Here's a link to houses in the area under 120,000.

Am I crazy to think I can purchase an older house in an economically depressed area that is cheap and basically sound? And am I crazy to think this is a good idea?

When I do the math, it turns out that I can pay less or the same as my rent if I get a place for under 100K. Of course tax and maintenance will add to the total bill, but we're still talking about the same monthly cost, or not much more.

(Using calculators; I haven't talked to my bank yet, but I make decent money, have been employed here for a year, can do 10% down in a few months, and have a credit rating over 700.)

I really want this. I have visions of purchasing a place for 50 or 60k that has no structural problems, perfectly sound plumbing and electrical, and maybe even some nice perks like hardwood floors because it was build in the 1950s (or, as is sometimes the case here, 1920s).

I strongly want to buy a place that has a mother-in-law unit in the back to rent out, or building one, or buying a duplex or triplex. Is it a pipe dream to think that doing so could turn purchasing a house into a huge savings over renting?

I watch Holmes on Homes, and I get scared. I know people who have gambled on renovating shit homes and basically lived The Money Pit, and I get scared. But I don't want to live my life in fear and pass up a great opportunity to save money while building equity at the same time. I feel like there is a wise move waiting to be made here, and that move may not be to continue renting.

Extra difficulties: Fresno is kind of a hell hole, with lots of unemployment and high crime, generally poor schools, gang violence, homelessness, etc. Detroit-lite. The upper-class areas (Clovis and a handful of bedroom communities twenty or more minutes away from Fresno) generally start out in the low 100Ks, which is enough to make me pause. Plus getting a place close to the core of the city gives me a great commute.

Extra postives: I'd be a first time home owner and likely qualify for many government programs.

I'd love some reality checks and encouragements, wisdom and guidance, personal stories, etc.

If someone with lots of knowledge and even more spare time looked through that link above and gave advice on what to look for, both positive and negative, that would also help.
posted by jsturgill to Home & Garden (27 answers total) 8 users marked this as a favorite
I'm a homeowner & I don't think it's crazy to want to buy a house under your circumstances. In addition to looking at the houses themselves, you should physically look at the neighboring houses and the general neighborhood. For instance, House #1 might be a terrific value, but the listing might not mention that there's a burned out hulk two houses down. Or House #2 might have just what you're looking for, but the business across the street gets robbed every Saturday night.

Other factors: the availability of basics like a grocery store, schools, and libraries. Even if you don't have a family of your own yet, the lack of these amenities means that people may not have incentive to join in the neighborhood later down the line.

I guess my point is you aren't just buying a single dwelling, you're buying into the whole ecosystem there. If you can't see yourself staying put long enough to get some equity, then it's not worth the hassle of sitting through the financing & closing processes.

Good luck!
posted by dragonplayer at 7:11 PM on April 20, 2011 [5 favorites]

Do you have handy skills?
Have you ever known anyone who was a landlord?

I know nothing about your market. But I know the process of "window-shopping" for houses, and thinking about how you could get that place with the great exterior and fix it up with a coat of paint and some quick carpentry or whatever. For me, that process encouraged illusions - so I want to warn against illusions. (Maybe you are not under any illusions; if so, ignore this)

Be aware that some or a lot of the houses that seem cheap (compared to whatever the normal market value is per sq ft in your market now) will be truly wrecked. We saw houses (not in your area) that looked fine on the outside but had wasp infestations, trees growing through part of them, with mold, with smoke damage, water damage that had rotted through the floors, etc. Electrical issues that would cost $15K to fix up enough that we could get house insurance; basement structural issues that needed $20K of work; roofs needing to be replaced to the tune of $10K. You need a tour and then an inspection to figure this out.

Even without big structural issues, in order to take a house that is wrecked and fix it up will take a LOT of time and hassle on your part. So you need to be honest with yourself about whether "buying a house cheap and fixing it up" is a nice idea or is something you're willing to devote your nights and weekends to for a year or more. Are you a genuinely energetic project-doing kind of person? Or are you a person who, to be honest, would rather enjoy other hobbies or sitting around reading or whatever? By renting, you are losing a chance to build equity but you're also buying yourself free time to pursue your hobbies, the flexibility to move cities if need be, etc.

Sit down and work out what kind of down payment you could put on a place, given your savings, and what kind of monthly payment you could afford; figure you'll pay some percentage between 1 and 10% for maintenance a year after initial fixes, figure some amount for initial fixes... and see what kind of places there are available for that amount. Go to some open houses and see what they're like. Take a construction-minded friend and tell the hosting agent you're unrepresented but not looking for an agent at this time. (Or, if you're really serious, ask around and get references, and get a buyer's agent) Find out what you would really be getting into.

Buying a house in a crummy area is risky, both because you may not like living there (crime etc), and because it may be hard to sell the house in the future, so it would be easy to lose money on it.

But if you think you could handle living there, and would genuinely feel comfortable being a landlord and doing the repair work, and the price on the house is so great that you don't care if you lose some money on the sale, then great - you just have to get honest senses of these things for yourself.
posted by LobsterMitten at 7:19 PM on April 20, 2011 [4 favorites]

Be sure to check out the local property taxes first. My property taxes are more expensive than my mortgage.
posted by qxntpqbbbqxl at 7:20 PM on April 20, 2011 [3 favorites]

You are not crazy. Consider the following factors though:
-rental rates vs. monthly mortgage payments
-real estate values-- have they hit bottom, or are they likely to go lower. They can go all they way to nothing just look at some areas of Detriot where they can't give houses away.
-how long to do you plan to live there?
-expected appreciation vs. transaction costs-- the house needs to go up 3% before you break even, that might be a while.
-additional expenses of home ownership -- what major repairs/upgrade are yup likely to need to make. -- for example if the house has an old furnace and hot water heater, or need a new roof soon, then factor those into your model.

Don't forget that location matters a lot in real estae. Better locations hold their price better in downturns and will appreciate faster when prices rise. Don't get stuck in some bad neighborhood when for $50/month you could be in a great one.
posted by humanfont at 7:22 PM on April 20, 2011 [2 favorites]

One of the benefits of owning a house is the freedom you get to do what you want. If you have renters on your property, that changes things, and not for the better.

If you want to be a landlord, you should do that. If you want to buy a house for you, you should do that. I would be very cautious about combining the two, however, because if one part of it doesn't work out as you planned, that will ruin the other part as well.
posted by markblasco at 7:34 PM on April 20, 2011

I'm about to sell my second house, and I'm looking forward to renting for awhile.

LobsterMitten is very correct. Read it and take it seriously. I was under the sunny impression that, because I grew up in a house that my parents were fixing up (it took them seven years), I would be interested in doing the same kind of thing around my house as an adult. It turns out that, no, I don't. In fact, these kinds of fixes stress me out like crazy.

Even a relatively new house will have issues and problems, and as the owner, you will be responsible. Even if it's a relatively minor issue, like a broken toilet, you'll have to take the day off to have the plumber come to look at it, and then it will cost $400 to fix. The exterminator is another day off work, and $75. The a/c will break and that's $4000. As my grandma told me recently, "Everything that breaks costs $5000." And she's right. It's one thing to estimate maintenance as a renter, and another thing to have to write those checks on top of a mortgage check. And don't forget that a standalone house will have higher utilities than an apartment or townhouse.

Think carefully!
posted by aabbbiee at 7:47 PM on April 20, 2011 [2 favorites]

I really want this. I have visions of purchasing a place for 50 or 60k that has no structural problems, perfectly sound plumbing and electrical, and maybe even some nice perks like hardwood floors
You said it yourself: You have visions.

Naysayer time.

First, qualifications: I'm a home improvement addict. I receive Journal of Light Construction and Fine Homebuilding and have paid access to their archives. Holmes? I have caught Holmes on Holmes missing things in his own renovations. I own more nail guns than I have limbs, I know roofing, electrical, enough framing to get buy, can do fractions and calculations using the pythagorean theorem in my head, know how to hang and finish drywall, do finish carpentry, I know historical wood finishes and carpentry and how to accurately restore historical structures while bringing them up to code, I'm familiar with the permit and planning process. This is my father's hobby, and this is my hobby. My girlfriend is an engineer, her dad is a master plumber and helps me out (when he's not shaking his head at the crazy shit I choose to do on weekends), and we literally spend all our weekends working on our houses. I own probably $10k in tools ... I have honestly lost count ... and use most of them regularly.

That being said: You are out of your mother-loving mind if you think you will be able to find an affordable property with an income unit in a shithole area of California and buy it on credit. If someone else has passed it over, you didn't "make a good find", you have simply missed the things that warned those experienced with renovations that this was not a good buy.

People who know what they're looking at are buying the properties you would be looking for, even in shithole neighborhoods, in cash. Government programs? Too much uncertainty for the seller; they'll take a lesser amount in a cash deal and close it before you can get the paperwork filled out.

Even if you ignore the preceding paragraph and think you can outsmart slumlords who make their living at this, do not do this unless you have an entire family ready and willing to help out that will not flake on you, are comfortable owning a dog and handy with a shotgun as well (knowing where in Fresno that you're talking about), have already spent the cash on the tools you will need and saved up another reserve IN CASH for emergency repairs. Do not do this entirely on credit. Try not to use credit cards at all. If you have a balance on ANYTHING, pay it before you buy.
posted by SpecialK at 7:50 PM on April 20, 2011 [9 favorites]

Response by poster: Some thoughts:

I managed (and lived in) a house for an out-of-state landlord for a few years. I learned a lot about what not to do--not that I screwed things up for them! But there was pressure to keep rooms filled, and we let people in that I would never have rented to left to my own devices. Many repairs were either not done precisely right, or they weren't done right away.

While I've never actually done it, I think, based on past experiences that may not apply to this area, that I could undercut going rates in order to help me be very selective with whom I rent to. I wouldn't mind extended vacancies while I try to find someone to fill the room (or better yet, mother-in-law unit). No matter what path I took, I would never purchase a home that I couldn't afford to pay for entirely out of my own pocket, if the right renter never turned up. The goal, in my head anyway, is to turn a $600-a-month rented apartment into a $600- or--with a renter--$300-a-month owned home.

I'd have to call electricians and plumbers and HVAC people in for major repairs, but I can stop a toilet from running and patch dry wall and fix leaking pipes under a sink. Very, very minor things, sure. I know that I'd be way over my head renovating a shithole. But I don't want to buy a "fixer-upper." Just a small, old house that's been kept up. I'm comfortable with researching repairs and taking on moderately complicated home maintenance on my own, and aware of how expensive it can be when random disasters strike that are beyond my skillset.
posted by jsturgill at 8:08 PM on April 20, 2011

One problem with your plan may be that if you buy your shit house in the shit neighborhood in the town whose whole economy is in the shitter, what do you do if you discover that you do not, in fact, enjoy living on the same block as a couple of crackhouses, and no potential buyers are interested in doing so either?
posted by SomeTrickPony at 8:11 PM on April 20, 2011 [3 favorites]

SomeTrickPony has boiled it down to the bone there. I'm not much one to care much what other people think, but there does come a point where it'll be difficult at best to unload a house at a reasonable price should you find yourself needing to do so. It's one thing to buy in a marginal neighborhood, but another thing entirely to buy into a bad neighborhood.
posted by wierdo at 8:42 PM on April 20, 2011 [1 favorite]

I wouldn't buy in an economically depressed part of Fresno. I'm sure you know this better than I do - the depressed parts of Fresno are pretty scary right now. I grew up spending a lot of time in the Fig Garden/Bullard area and when I go back (rarely, lately, since my grandparents passed) it seems like it's still a pretty pleasant neighborhood. Even there, it's not as sunny as it used to be. The house was broken into a few years ago, which was unheard of in that part of town when I was a kid. The rule I've always heard for a first home is to buy the smallest place in the best neighborhood you can afford. I think that's probably good advice. Ultimately you don't want to be stuck owning a place and discover you don't feel safe in the neighborhood. Much better to buy a tiny place in an area with good schools, and know you could always sell it off if you need to, and hopefully not take too much of a loss.

I think a lot of people who are reasonably well off in Fresno are sitting on inventory hoping the economy picks up. My grandparents' house is estimated just under $300k on Zillow right now, which is about half where it was estimated in 2006. That's a lot of imaginary money to leave on the curb if you hope Fresno might bounce back.

I absolutely would not sign up to be a landlord as part and parcel of your first home purchase. Especially not in a bad neighborhood.
posted by troublesome at 8:50 PM on April 20, 2011

Response by poster: I appreciate the feedback (and your extra insight into the market, troublesome), but I'd hate to see answers focused on that aspect of my plea for advice. Totally my fault in how I worded it. In my mind, pretty much all of Fresno but a few high-class streets are economically depressed compared to the real estate markets in other places. Doesn't mean they're Compton. The place just isn't a rising star in general. I feel capable of walking the line with location well enough. It's everything else that's complicated and that I'd really like to hear more success/horror stories about.
posted by jsturgill at 9:06 PM on April 20, 2011

Looking at the houses on that link and not knowing anything about Fresno or California real estate in general, it looks like you should be able to get the house you want at the price point you want. Some of those houses are cosmetically Just Fine.

The two biggest things about choosing a home for me are:
1) Where is it? Location is really the most important thing. You can fix everything else way, way more easily, even the really expensive things.
2) How are the mechanical parts of the house? Is the plumbing up to date and up to code? How is the electrical? In a house built before the 1950s, it might have knob-and-tube wiring, which is really unsafe. What about the HVAC? If it is an old house and it has new windows, how is it ventilated? How is the foundation? The roof? If these things aren't good to go, are you willing to fix them or pay to have them fixed?

I live in a house built in the mid-1940s that is cosmetically old-fashioned and structurally sound with good mechanicals. But there is always, always a project, and they're rarely cheap. Even painting the living room turned into a major project involving replastering. Because of that, I wouldn't be comfortable living in a triplex that I rented out part of. We did rent out a room in our house for a while and that was fine.

I say, if you can afford a house you like in the part of town you want to live in, go for it. I hated renting, and for me, the extra time and expense of homeownership is worth the permanence and the ability to do whatever I want to with the property. It's great.
posted by linettasky at 10:17 PM on April 20, 2011

I think most of the advices given above simply recommend you to research more on the downside of home-ownership and/or landlording. Me, I'm happy that you are excited about the prospect of this investment. Definitely go research and investigate this as much as you can; and if after 6 months and with newly-found knowledge, you still feel up to the task, then go ahead, pull the trigger and pursue your dream. I don't think housing price is going anywhere, so time is on your side. These are the things you may want to look for:

1. Your idea of a dream investment need to be more real. Do you have a friend who is a RE agent? Can you ask them to show you some houses you think has potential? What is the realistic price (not Zillow estimate, not asking price)? Have you talk to other fixers? And what are your financing options? I think you have an advantage over some other buyers with your steady/good income. However, you may be asking too much with: great houses in good shape, low price and easy financing. The housing market is slow now, but there are still buyers out there, some armed with full cash and a lot of experience. What you want may not be available at your price; and what you can afford may have a lot of problem that need specialized skill to mitigate (if it can be mitigated at all). It takes experience to find and evaluate these problems correctly; and every problem is different.

2. I think you need to plan your exit strategy. Are you planning to live in your house or is this strictly for investment? These plans are very different and will shape your choices and your decision. Also, how will this home/investment will fit into your lifestyle and your future? Keep in mind that the housing market may be illiquid for extended period of time, so you may not be able to undo your decision for some time (historically 7 years, but I think at least 10 years now).

3. You need to acquire some skills and resources. Take a real-estate class at your junior college if you can. I learn a lot from my real-estate class; and it put me in touch with a bunch of current and future RE agents/investors. Talk to them about your plan, read book, meet people.

Good luck. I think it's great owning property and being landlord; though it is a lot of work. You don't need to solve differential calculus, but you need to know a little bit of everything: zoning, building code, electrical, chemistry, building material, accounting, taxation, economics, property law, tenant law, ...etc, and be able to deal with people. It's fun though. Plan conservatively and be safe :) Sometime it can be surreal: I got robbed at gun point when working on a rental fixer-upper. The guy followed me into the house as I was carrying construction materials from my car. So... a bit different from just renting.
posted by curiousZ at 11:10 PM on April 20, 2011

If you're going to build a mother-in-law unit check out the Tumbleweed Tiny House company. Not the itsy-bitsy ones on trailers - they have larger models, meant to sit on foundations, up to 800+ square feet. Perfect for a single person/college student.
posted by IndigoRain at 1:53 AM on April 21, 2011 [1 favorite]

Do it. Buy the house.
There will never be a better time to buy real estate.

Like anything, it is a risk - but real estate can be an amazing investment.

I belong to a REIA (real estate investment association).
One thing we always tell newbie buyers - look at 100 homes before you buy anything. Really look at your market before you make a move. Studying the market a bit first will help you get a great deal.

(And you can not study the market from a computer screen, you have to do the foot work. Go to open houses, and FSBOs, and go into every house you can see)
posted by Flood at 5:10 AM on April 21, 2011

If you're putting down less than 20%, you will almost certainly be required to pay PMI, which I've only ever seen paid monthly, rolled up into your mortgage payment. You'll also be required to carry homeowner's insurance. So let's break down a mortgage payment, because I'm really tired of lenders pandering to renters by saying "mortgage is cheaper than rent!" Even if it's true, those happy statements never break it all down for you.

Hypothetical monthly loan payment itemization:

$900 principal & interest
$300 property taxes
$100 homeowner's insurance
$100 PMI
$1400 total

I'm not trying to discourage you; I want you to have a realistic idea.
posted by ImproviseOrDie at 5:14 AM on April 21, 2011

I don't know anything at all about Fresno, I'm absolutely far far away from there.

We recently bought a great house (and no matter what you buy, it will need SOMETHING done. Period.) and went ahead and did 100% financing because our interest rate was so low and it was an option. (We decided to not wreck our savings on a big down payment.) We also don't have PMI, and our property taxes here are super duper cheap.

I encourage you to do it, being careful and staying within your means. There's nothing like having your own place---and down the road you can *probably* rent it or sell it if necessary.

There's nothing like having your own place. Walls how you want them, cabinets how you want them, floors how you want them; and if it needs a spot of work and you do it, then you feel like a boss because you did it yourself.

If your job is stable and you're willing to make a reasonable commitment and can get a non-balloon, fixed mortgage--do it.

(Our picture looks like ~$800/month total including mortgage/insurance escrow/property taxes on a $113,000 1600 square-foot-ish red-brick. Your property taxes are almost certainly significantly greater than mine. Our home is actually insured at like $240,000 because that's the replacement value for red brick, although it costs less than $400/year for the hefty insurance we carry. We have spent about $4k so far on upgrades/fixes, and are probably going to go ahead and do the roof this summer--but then we'll be as done as any homeowner can be at any given time.)
posted by TomMelee at 5:43 AM on April 21, 2011

Okay, so we purchased a home that loosely fits your criteria. Here was our experience:

We bought just under that $120,000 threshhold you're mentioning, in a somewhat economically depressed city. Housing prices typically range from a low of around $10,000 (tiny old stock in poor repair in violent neighborhoods) to $300,000 (McMansions in suburbanish areas). Of course there are substantial outliers. We bought a 1950 bungalow in a stable, middle class neighborhood with two reliable neighborhood anchors: a public elementary school and a Catholic church & school. The parish is enormous and their school well-enrolled; the public school has never been in danger of closing during recent district cutbacks and closures. There are ALWAYS families willing to move into the neighborhood so their kids can walk to one school or the other. Houses in this neighborhood tend to move a bit faster than in other similar neighborhoods because of the two schools.

so, here's a few things to keep in mind based on our experience:

*We bought in a neighborhood that is stable and reasonably desirable. It's not a prestige neighborhood and the houses are older and smaller, but it is safe and has two schools anchoring it.

*My area has not had a housing bubble. Our housing prices were slow-and-steady before the bubble, remained slow and steady during the beginning of it, and now are merely stagnating (largely due to an excess of available homes from people who had to move for work but can't unload the house for as much as they want to to buy a new house somewhere with expensive prices). This means it IS a good time to buy local to me -- you can find bargains from people trying to unload a house quickly -- but we also don't have the price instability much of California has had.

*Owning, where I am, costs about the same as renting, but you MUST factor in all costs. Moreover, most rentals around here are apartments; people have less space and pay less money as a result. Renting a HOME comparable to ours (and taking out renters' insurance) costs about what our monthly total payment costs, including insurance and taxes. But if you're making the jump from an apartment, you should expect to pay somewhat more for a house (obviously), and you may not be aware of all the costs that go into home ownership. In our first year in the house, the dewatering system busted and we had to have it replaced to the tune of nearly $6,000 ... plus all the renovations we had to do from the water damage when the system broke.

*Up-to-date plumbing and electrical at a bargain price is a pipe dream if you're buying an older home in a not-so-great neighborhood. We had to have $3,000 of electrical work done when we moved in (we paid half, seller paid half) to bring the wiring up to code enough for a new insurance policy to be issued. (Apparently you can ride along on old wiring as long as the policy's already in place.) Since then I'd say we've had around $2500 additional electrical work done -- the upstairs bedrooms had one outlet each! Two prong only! Very 1950s. There were no 3-prong outlets in the house except the kitchen and bathrooms. No outdoor outlets for power tools or Christmas lights. Some very odd legacy wiring decisions including switches that do not appear to have been attached to anything in 40 years. Because the house is older and not prepared for modern electrical, our master bedroom can only have outlets on two walls even with the updating, which is a little weird. Once I dropped something heavy in the dining room and managed to break the circuit that goes to the dining room lights. That was a fun repair, since it involved locating where the wires had come apart. I had to have my (already at last semi-upgraded) kitchen circuits upgraded because running the microwave when the dishwasher was on would short out half the house. Etc. The plumbing worked fine when we moved in, but it was all older fixtures that used a lot of water (and/or gas) and were therefore expensive ... and prone to breaking because older. We have had almost EVERY fixture that uses water and/or gas replaced in the six years we've lived here. We're on a first-name basis with our plumber, who in turn knows our cats by name. (Replaced: washer, dryer, hot water heater, two toilets and a bathroom sink, two sets of shower fixtures, dishwasher, gas range, sump pump, dewatering system, water softener, plus sewer drain repairs; Not yet replaced: furnace (new when we moved in), one toilet and two bathroom sinks (but both have had repairs)). That's all in addition to the normal random things that go wrong with a house, like your furnace shutting down at random or your sump outlet freezing solid in the middle of February. Plus you have to deal with contractors, which is not the funnest thing ever. This is all in a house that could easily be described as well-maintained that was bought only slightly under market price.

*Older house = No. Freaking. Closets.

*Outbuildings in our neighborhood require a variance. We are allowed to have one concrete-footed structure OTHER than the house without a variance -- this includes, for example, children's play structures with posts sunk in concrete footings. Or a gazebo. Or, in our case, our garage, which may not be heated or cooled without a variance because that renders it inhabitable. CHECK THE ZONING CAREFULLY. If you want to put a "mother in law" apartment out back, you may have to deal with city hall to be able to do so, which brings me to my next point:

*Tax rates for rental properties are different than tax rates for owner-occupied properties. Typically, they are considerably higher. (Although, actually, they're the same; you just get an "owner-occupied" exemption for your primary residence that reduces your liability.) A partial rental property will probably raise your tax bill considerably, so you can't calculate it based on the property tax you'd pay for an owner-occupied house. Adding inhabitable outbuildings may raise your assessment considerably as well. In depressed urban areas, it is not unusual for property taxes to be as much as (or even more than!) the mortgage payment. Remember that your current landlord is paying property taxes out of your rent, so your "actual" rent (the part comparable to mortgage and interest) is probably much lower, if you're not remembering to roll in property taxes.

(We recently saw a gorgeous house on a large lot that needed some repair but was pretty reasonably priced; owner had died, heirs were trying to unload it ... until we saw that the monthly property taxes alone would exceed our current TOTAL payment for mortgage, interest, taxes, and insurance!)

I'd absolutely do it again; looking at the equity we have in the house gives me a comfortable feeling. And I do like living in an older house, with real wood interior doors and odd roof angles and so on. But you do constantly discover things like "three owners ago some guy put up this ceiling fan and the wiring has been waiting to kill you ever since!" or "Oh, hai, they don't make doorknobs in this size anymore so you can't replace that one unless you locate a buy a vintage one (expensive) or pay a handyman to come drill a newer, bigger hole for a modern one (also expensive, but less so than buying vintage or buying the proper-sized drill bit thingie)."

The two things I would not do: Buy in a bad or dangerous neighborhood for the savings -- it's a false savings, since it will be difficult to recoup the cost of the house (doubly so if you do any renovations -- who cares about up-to-date cabinets if people are getting shot down the block?) There are also bargains to be had in buying the most rundown house on a middle-class block, or buying a home that's had the same little old lady in it for the past 50 years who never updated the kitchen appliances, or whatever. I wouldn't buy "the most expensive home you can afford" but I wouldn't buy the cheapest one you can find either. And two, I am never moving again without a painting budget. This is our first house; what we saved up went towards the down payment, closing costs, and moving. We figured, "Oh, we'll deal with that ugly wallpaper after we've been there a couple years." NEVER. HAPPENED. And now the rooms are all full of furniture and moving everything to paint seems like way too much work. So any time I move in the future it will be with the knowledge that things must be painted (or floors dealt with) before I move in, or I will be living with that wall for at least 10 years.
posted by Eyebrows McGee at 6:34 AM on April 21, 2011 [2 favorites]

Heh. If anyone were looking to pick up a really awesome house cheap I would suggest the city that Eyebrows lives in. I've actually considered moving there myself, since I work from home.

Fresno? Not so much.
posted by SpecialK at 7:30 AM on April 21, 2011

We bought an awesome 1910 house 2 years ago. Good square footage, the right number of rooms for us - and a really bizarre floorplan that we were able to come to terms with. Floorplan meant an effectively 3-BR house was legally a 2-BR, and assessed accoringly; the odd decor and rudimentary maintenance of the place since the last owners moved in in 1995 meant that they weren't asking for more than the assessed value. We'd set our range of affordability, and this house came in right at the bottom, the cheapest thing we'd looked at even including some condos. We were delighted.

It's now 2 years later, and we're still delighted. We didn't have to upgrade the plumbing or the wiring, both had been worked on in the 80's; the furnace and roof will need help in the next 5 years but are still hanging in there. We did discover that the crumbling plaster walls were being held up by the ugly vinyl wallpaper, there was no insulation anywhere in the house, the carpets needed replacing in over half the rooms, the kitchen cabinets are made of particleboard and slowly crumbling under the weight of the sink, the bathroom's ridiculous floorplan is entirely avoidable if we just move a doorway... We really love our house, and we've had a great time working on it. We're super-fortunate to have a dad who's a retired engineer and hobbyist carpenter who is chomping at the bit for projects to work on. Because of his help, we've been able to fix all the things we wanted to - and these are largely cosmetic things - and really make the place into the house we wished we could afford to begin with.

If the replacement of the kitchen cabinets goes as planned, we will have spent $25,000 in supplies, and 6 weeks/year for 3 years of nonstop work (visits from Dad) plus about 2 weekends/month of project work. We have put so much time into this house. And no small amount of money - but if we didn't have help and had needed to hire contractors, though, the repairs would have been at least $40,000, or enough that (original price + $40k)>(the amount we'd set as "no way we can afford that" when we were house shopping). Not that the value of our house has increased by $40k. Not even $25k. We really don't expect to ever see that money again; the best we can hope is that the improved condition of the house means it won't sit on the market for months if we ever need to sell it, but the assessed value is the same (it's not like the assessment is going to go up because the bathroom is no longer scary, the assessor never came inside to see that it was scary in the first place).

So, after that story, my advice to you:
Do not buy a house for which the total mortgage+PMI+taxes is equivalent to your current rent, until you've saved up at least $10,000 to do immediate repairs on it.
Ask the banks about loans for remodeling and necessary repairs, and gather lots of information about how you could buy a house that costs $80k to buy and $20k to fix and $2k/year to insure, what kind of condition the house has to be in before the bank will let you buy it, before the insurer will insure it, etc.
Don't make plans assuming that the house you pay $80k for and put $20k into is worth more than $80k.

Only you know (or will be able to find out) if this is a good choice for you, but from the facts you've listed, my guess would be no, it's a bad idea.
posted by aimedwander at 8:18 AM on April 21, 2011 [1 favorite]

ImproviseOrDie's advice should be best-answered, and don't forget that more space = higher utility bills, plus there are a lot of costs associated with outdoor maintenance that don't come up with apartment living...

But mostly I wanted to say that the listings you link to are a bit scary because many are lacking pictures of the interior -- a red flag; anticipate that the inside is trashed -- or there are pictures, and, well, stained carpet and horrible bathrooms and so on. I would spend some time looking through for a reality check. This is not meant to discourage you, just -- be prepared.
posted by kmennie at 12:09 PM on April 21, 2011

My experience might be a good data point for you. I went to school in South Bend, Indiana, which is fairly rust-belt-ey, and is kept from Detroit level fallout by the universities and health care centers in town. I bought roughly what you're describing, a 3 bedroom house with good bones in a not-fantastic neighborhood close to campus, and rented out 2 rooms to fellow students. Their rent paid for my mortgage, since rents in town were high relative to property values. I bought the place for $54,000 on an FHA loan. The idea was to live for free for 3 years, then sell the place, putting as little money into it as possible.

When I moved in, most of the work was cosmetic. New paint, a new door, shored up the footings on the garage, that sort of thing. I rented it out to grad students to one summer, and to undergrads the following summer. The undergrads were morons, left the front door open, and were burgled twice in two months. When my roommates and I returned in the fall, we were burged twice in as many months. We all left the house, since none of us felt safe in it anymore. It sat on the market for roughly 8 months before I got my first offer on it: $38,000. I sold, since it was costing me money to sit empty, I didn't want to deal with it anymore, and I was able to get out of it for the price of a used car.

The lesson I learned is that the importance of location cannot be overstated. Now I'm living in a mediocre apartment in a great neighborhood, after moving from a great apartment in a mediocre neighborhood. I like the great neighborhood more.
posted by craven_morhead at 3:13 PM on April 21, 2011

Househunting can be fun. Go look. Be fierce about the numbers; I bought a house not long ago and did lots of financial modeling before I leapt. Get a fierce house inspector, and a good appraisal. I had a 2 family house; great way to build equity, and your experience will help. California is in tough economic shape, so be cautious.
posted by theora55 at 3:36 PM on April 21, 2011

Response by poster: Theora55--could you elaborate on yoru financial modeling?

The mortgage calculators I've been using takes into account:
Loan amount
Interest rate
Homeowners insurance
Possible PMI
Yearly Tax

Aside from that, I've considered the costs of utilities in older, less efficient homes, the costs of regular maintenance and yardwork, and the costs of possible major repairs.

What other items need to be considered?
posted by jsturgill at 4:20 PM on April 21, 2011

Other costs to consider:

- power tools for major repairs
- supplies for major repairs (eg drywall)
- appliances large and small
- everyday tools like hammers, screwdrivers, drill
- everyday yard implements like rakes, shovels, edger/trimmer, lawn mower
- window blinds, shades, curtains
- for that matter, do any windows need to be repaired or replaced?
- what attaches to the wall? light fixtures, plumbing fixtures, fans, vent covers, thermostats, smoke detectors, picture hanging stuff, hooks
- surge protectors, extension cords, updating electrical outlets
- driveway maintenance: gravel, tar, asphalt, concrete
posted by ImproviseOrDie at 5:58 AM on April 22, 2011

I just got a Neat Desk receipt/document scanner this week, and on a whim, scanned in all the receipts and invoices I could find. I have saved a lot of the important ones, but am missing a couple grand worth of tools and labor... either receipts that I lost, that got something spilled on them or left in a hot car and were unreadable, or transactions that were in cash. Note that the amount does include tools, because I started pretty much from zero. This does not include buying appliances (another $3,000).

The total just of receipts I managed to save for a year and a half of semi-intensive renovation: $24,951.81.

If you don't have that kind of cash going into a fixer-upper, you're right, you've got "visions." You should seek psychological help for those visions.
posted by SpecialK at 9:49 AM on May 1, 2011

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