Should we buy this house?
July 13, 2015 12:05 PM   Subscribe

We're house-hunting in the craziest market ever - SF Bay Area. Will you help me think this out?

First off, we have realtors and mortgage brokers we trust, I have a call in to a CPA to talk about this, and we are adults who will not base this decision solely on advice from random internet strangers. However, I could use all the help thinking about this that I can get, so please feel free to offer your unfettered advice and know I will take it with a large container of salt.

We want to find a place where we can spend the next several decades, finishing raising my kid, feel safe, and ideally, be able to walk to amenities. I was born and raised here in Oakland, and we'd very much like to stay here. We're not looking to flip or make money.

From my reading of the data, home prices do fluctuate here, but looking at an overall pattern they steadily go up and up and up since many decades. Even during the last bust, overall, prices didn't sink as low as the previous peek.

We are only approved for 450 and have only about 10% down payment. There are few neighborhoods where we can afford and where I feel safe about my daughter or myself walking down to the local store, catching the bus, etc. We could wait a couple years and save more, but I'm afraid we'll be totally priced out by then.

My ideal would be to move to what used to be a "transitional" sort of neighborhood, North Oakland, where you can easily get a bus, walk to a coffee shop, feel safe, easily get to our jobs, schools, etc, but now has houses for 700 and up. People offer as much as 100k above asking price in scenarios where as many as 12 offers are submitted. It is as crazy as possible.

So here's the deal:

We have a lead on a house being offered below market rate, in (the top end of) our price range, in North Oakland. The current owner has tons in common with me (same, somewhat unusual profession centered around helping marginalized people, based on home decor seems to also be queer and have very similar lefty politics to mine). I have reason to think she's not especially concerned with making money on this sale. So we're thinking of making an offer at asking price, and then sending a letter pitching why we would be the best people to sell to, even though she will get offers well above asking.

But the house needs everything! Inspections aren't even done but I can see right away we would need floors, windows, paint.. If we did do that work, the equity would basically double. However, we couldn't' afford to do all that work because we'd be at our max with the mortgage payment! Plus, we don't care that much about equity for now because we want to stay, not move in 2 years (when the market is likely even worse and we wouldn't be able to afford to move anyway!) The house has the potential to expand into an inlaw unit downstairs for more income, but that would be an insanely expensive project.

How do I think about this!? Should we blow this "opportunity" off? Should we go for it? Should we just hunker down and wait till we have more money?

As I said, I am seeking lots of advice to help me think about this very emotional issue, but not to worry, I am not going to make a decision based only on your ideas. It will just help us think out whatever factors we're not considering.
posted by latkes to Work & Money (22 answers total) 6 users marked this as a favorite
When you say it needs everything, is this because things are literally falling apart to the extent that it's unlivable, or that things are wearing out and/or outdated? Because that makes a huge difference.

I just recently got a screaming deal on a house which needs every single surface redone: wallpaper stripped and walls painted, old vinyl flooring torn up and new floors laid, paint needed on every piece of trim, etc. It's livable though, so we're just budgeting $200-300/month to work on it slowly, one thing at a time. If this is the kind of situation you're describing it's totally doable, as long as you're OK with looking at the ugly wallpaper for the next few years.

On the other hand, if it was unlivable, then no, I wouldn't do it.
posted by rabbitrabbit at 12:13 PM on July 13, 2015 [8 favorites]

So this is what I've done before. I bought a house that had been semi-unitized (there were two separate people living in different parts of the house but no crazy new walls built).

We had to re-paint every room right away. We took out a dropped ceiling. We removed a second kitchen. We eventually re-wired and re-drywalled a third floor room. We redid the bathroom. We redid the kitchen. Just not all at once - we did it over 5-ish years.

It's definitely possible. You have to watch your money. The good news is that inflation kind of reduces your mortgage payments over time - assuming you expect to get raises to track cost of living increases then in 10 years your mortgage should be less of your income.

But it depends on how livable the house is or whether it needs actual structural work which can be a big money pit. I think these kinds of houses are a great opportunity to build sweat equity.
posted by GuyZero at 12:26 PM on July 13, 2015 [1 favorite]

If it is livable and in a location that you like, I would buy it. For my first house, I painted, replaced the flooring, replaced the windows, and eventually replaced the roof. I was also able to rent out a room to reduce the mortgage a little.

But renovation projects take a lot of time and effort, and can be incredibly frustrating, especially at first when you don't know what to expect yet. You will make mistakes, and spend more than you expect to (even just to repaint the walls). And if you're doing a major renovation, and the house is not that big, you'll basically be living in a construction zone until you're finished. Even if you get contractors, it takes time and more money, and you will have miscommunications with them.

I think ultimately it comes down to whether you prefer having your own house--enough that you don't mind working around its quirks and having to spend every spare moment fixing it up--or if not, you'll just hate the giant todo list you've bought for yourselves.
posted by ethidda at 12:33 PM on July 13, 2015

As someone starting to look into the housing market in a totally different area:

Don't buy a house you can't afford.

Just...don't. Do you expect your earning potential to go up? If not - if you can only stay in step with mortgage payments and inflation...

what do you do if it is currently livable, but you're one repair from your roof needing $10,000, or you need a new water heater, or whatever? I grew up in a family of flippers, so I know how to tile, drywall, pour concrete, paint walls, and refinish hardwood - but it's a pain in the ass, a huge time investment, and there IS stuff I wouldn't touch, like electrical.

However, if you DO expect your earning potential to go up, or have a plan for reducing other monthly debt, then recalculate. Can you totally dump your car if you get this place? That's an 'easy' way to get $300-500/month freed up for a maintenance budget! Is only one of you working, and in a crisis situation, can the other take up some slack? (In my situation, my husband is attempting to break through in writing and thus has no income at the moment. All our plans are assuming the current income, so if something did go sour, he could potentially work soul-killing telemarketing until we dug ourselves out of the ditch.)

Do you have good credit? In Canada, mortgages below 20% downpayment suffer an insurance premium. A clever friend mentioned that, if our credit was excellent (I'm a 20-something with the credit rating of a 55 year old, hurrah!), we could borrow from a good line of credit the remainder we needed. We're currently sitting on about 10% as well.

So. Don't buy a house you can't afford, unless there's *reasonable* ways to make it something you can afford. But I would be REALLY sketched out about topping out my mortgage potential. I've been looking at places about $20,000 below my max mortgage, myself.

Recently, my parents bought a "great deal" cottage on the ocean for $40k.

$100,000 later, they've moved the shell of the home, repoured a foundation, moved the house back on the foundation, resided, redrywalled, retiled, and refloored the home. My mother's spent several months of every year doing it on the cheap by herself while my dad pulled extra side contracts to pay for this.

This is their hobby and they hope to retire there - but that's a 'fixer-upper' for you.
posted by aggyface at 12:36 PM on July 13, 2015 [5 favorites]

To be a bit more helpful - are you excited about learning to renovate a house? Have you wanted to spend from 2 to 10 hours a week on a hobby but you don't have one? Do you enjoy painting? Are you curious about basic electrical, plumbing and carpentry work?

If yes, buy this house. If no, keep looking and good luck.
posted by GuyZero at 12:38 PM on July 13, 2015 [2 favorites]

If you have a line on a house in the Bay Area that you can purchase below market rate, that you can afford (even if it's a stretch), and it's in a location that is safe and that you like, you should absolutely pursue it. Opportunities for reasonably affordable long-term housing in the Bay Area don't come around often. A decent deal on a house that you can put 10% down on is likely to insulate you from rising rents, evictions, and other fluctuations in the market.

However, there are a couple of pretty substantial concerns:

1) Are the repairs that the house needs cosmetic or foundational? Few people have the luxury of completely renovating a home before they move in, and it's in no way uncommon to very gradually mold the house to your liking as allowed by your budget even if that means that the house is pretty rough for several years. However, there's a world of difference between worn floors, problematic paint and windows falling off their tracks and issues with the plumbing, foundation, wood rot, the roof, heating, electric, etc.

You will fix cosmetic issues in time, and within your budget. However, an inspection is essential to determine if there are more serious livability issues. Get a thorough one so that you can have a schedule of prioritized repairs and costs, and then you should over-budget for them - houses are notorious for expensive surprises, and you'll want to limit as much of that as possible.

(Did you see INSIDE OUT? Note that the main character's family, who was likely upper middle class by national standards, ends up moving into a house with some pretty serious and ugly cosmetic issues in San Francisco. That's just the way it is in the Bay Area - the chance of getting a decent deal on a beautiful, affordable house is equivalent to winning the lottery. You shouldn't be dissuaded by livable but ugly cosmetic issues.)

2) While I am someone who believes strongly in the public school system and the opportunities that it creates - and who has a daughter in the SFUSD - I would nevertheless do research on the public school options that will be available to you in your new home. There are public schools in the Bay Area that are excellent and there are others that have deep problems, with large variances even within the same district. Before you buy your house, you should look into the path that your child will most likely take given residency at that address. While I believe every child should receive a quality education regardless of their parents' finances or address, sadly, that is not necessarily the case in the Bay Area. It could go either way.

3) Consider public transportation at that specific address. How far is it from AC Transit, BART? What will your commute(s) look like across each different mode, and how much will they cost? Will your transportation costs go up or down?

4) If it ends up being just a little too much of a stretch, consider looking at an FHA loan to reduce the down payment and to possibly get a 203(k) loan to cover needed renovations. Few of the people I know in the Bay Area who have bought houses did so with a conventional loan, so don't be afraid to shop around and look at FHAs.

Hope this helps!
posted by eschatfische at 12:44 PM on July 13, 2015 [7 favorites]

Paint, floor and windows may need to be done at some point, but those things are mostly cosmetic. What you need to be concerned about in terms of needing to be done are things like: roof, foundation, furnace, electrical, major plumbing. Those things are far more critical as they can quickly damage your investment or be dangerous if left undone.

You're trying to buy at the bottom end of a very difficult market, so many of the general rules for buying won't apply here just because lots of parts of the Bay Area don't conform to the usual rules. I think that your idea to write a letter is a great one. Even better would be a face-to-face if that's possible. I would try for it. You won't have lots of opportunities like this if you want to buy at your price point. You should bank on having to do a lot of work on a property if you're buying at the bottom end. Cosmetic stuff shouldn't stop you. Structural or major non-cosmetic overhauls should be the things that give you pause.
posted by quince at 12:48 PM on July 13, 2015 [1 favorite]

It depends on what you mean by "need"--but every property I've bought (or been involved in the purchase of) "needed" paint and was re-painted before move in--fully half have been re-carpeted. Those are common things people do when buying someone else's house. As many people have pointed out above--if it's just cosmetic stuff (or things you want to someday do--like convert a room into an in-law unit with separate entrance), buy the house.

We replaced the windows in our home before move-in and several lighting fixtures, but there's still a lot of things the house "needs" we have not done 7 years in. We still have not gotten around to the ALL the flooring (which includes one entirely broken floorboard in the living room) although we did the carpeted areas and I replaced the flooring in my office last year. But we have not yet replaced the hideous bathroom vanities, although we've finally ordered a new garden window for the kitchen.

So, I guess, the point is: what do you mean by "needs everything"? Some things won't and can't wait: water heaters, malfunctioning ovens. Some things should not wait: windows leaking climate control or worse rain water. But ugly light fixtures, paint choices you don't like, carpet in a room where you'd rather have hardwood? You'll be so relieved when you finally get that done, but if you're not moving any time soon, you'll get to it.

You can slowly rebuild your house as you like form the inside as often as you like, as long as it's structurally sound. My parents' bought their last house more than 20 years ago. Since they've lived there, my mother has hired architects and contractors who have remodeled the kitchen three times, moved the laundry room, moved the staircase, built and later removed a butler's pantry, turned the existing master bedroom into a mother-in-law-suite while building a new master suite at the other end of the house. replaced all the windows, recarpeted, repainted, moved the side door. Now mom's having a studio carved out in the basement. But they've only had to replace the HVAC or water heater once and only had to reshingle the roof recently.
posted by crush-onastick at 12:55 PM on July 13, 2015

It must be quite a deal for 450k in North Oakland. We bought a condo downtown several months ago and faced similar obstacles of buyers with all cash and going way over asking. We got the place solely because of our letter to the owner, but they still wanted 20k over asking.

Are you wedded to staying in Oakland? Once the kid is out of elementary school, the schools in Oakland don't compare well to other cities in the area. Perhaps looking in Hayward (ok schools) or Castro Valley (much better schools) that would provide the long term benefits you're looking for and current affordability. A family member just got a lovely place in Castro Valley a few months ago and it's the perfect house to have a growing family, imho, and prices are far more realistic.
posted by homesickness at 1:36 PM on July 13, 2015

Once the kid is out of elementary school, the schools in Oakland don't compare well to other cities in the area.

Oakland Technical High School is sending kids to Ivies on a regular basis. It is possible to get a good education in Oakland without going to private school.

latkes, if you're still not sure, you might find a better deal in a more obscure neighborhood than North Oakland. The Dimond and Laurel Districts, for instance, are not on BART, so haven't been subject to quite as much price increases as other neighborhoods. And yet they're walkable, with plenty of services and regular bus routes to SF and downtown.
posted by suelac at 2:39 PM on July 13, 2015

I agree with eschatfische. I'm not clear on whether the house is on the market or if they're probably going to do a private sale. If it's private, go for it. Make sure you write the hell out of that love letter and have your realtor present the offer in person to their agent.

Is the Bay area doing the whole pre-inspection route like Seattle, where you pay for an inspection up front so that you can feel comfortable waiving the inspection contingency? (You said it hasn't been inspected but you can tell it needs work--but I'm wondering if these are cosmetic or structural fixes.) Have you gone on an inspection of any houses yet?
posted by purple_bird at 2:58 PM on July 13, 2015

The thing about houses that need everything fixed is that you only see the tip of the iceberg. Even an inspection can't catch everything. So assume that the inside of the walls, under the floors, and any bits of roof space you can't inspect are in equally bad condition as the rest of the place. If the current owner has not been able to keep up with maintenance on the bits of the house that are really obvious, you can bet they haven't been doing the maintenance that is less obviously needed.

That said, if you can see yourselves being able to put aside bits and pieces of money every month to work on the house bit by bit, it might be okay. The problem will be if your mortgage takes every cent you earn and you can't manage to put by anything for repairs in the coming months and years. Or if something major and essential breaks in the early months when you haven't been able to save a cushion. (E.g. Heating, the roof, important wiring, etc)
posted by lollusc at 4:25 PM on July 13, 2015

Response by poster: Thanks so much so far folks. We're trying to contact the seller to at least have a conversation. To answer questions:

The house is on the market, offers due tomorrow night. It's listed below market but I would anticipate her getting offers up to a couple hundred thousand more than asking

No inspections have been done. It is possible and perhaps likely that core issues such as the foundation need work. The house was built in the 20s. No visible knob and tube but likely lots of old pipes, wiring, etc.

We will get inspections but that adds up and is not refundable. So we could blow several hundred on that.

We could live in it today, if we could stand really nasty old carpet etc. At minimum I'd rip out the carpet myself, maybe sand the floors (? It's soft wood) and pain at least some of the inside rooms before we moved in just for sanity sake. The windows look look like they all need to be replaced.

We are already priced out of the Diomond and Laurel (where we are actively looking) but would happily move there if something possible comes up.

I know Oakland very well (have lived here forever) and understand the schools (kid is 12 now) so more thinking about her being a teen going out on her own on bus, bike etc.

I have little construction experience and am not super young and have to work full time but am up for learning new skills and doing repairs - but not up for giving up our lives to doing so.
posted by latkes at 5:10 PM on July 13, 2015

I have little construction experience and am not super young and have to work full time but am up for learning new skills and doing repairs - but not up for giving up our lives to doing so.

Then don't do this.

Anecdote: I have a friend who bought a house in an outer neighborhood of SF (what he could afford) that needed some moderate renovation - that he decided to head up himself. Unlike you, he is the son of a general contractor and learned construction skills while growing up plus his father has come to help him out on numerous occasions. It has been two years. I have barely seen him since he spends most of his free time working on the house. He is still not finished.
posted by psoas at 5:33 PM on July 13, 2015 [4 favorites]

However, we couldn't' afford to do all that work because we'd be at our max with the mortgage payment!

This statement is a red flag to me. I'm a bit jaded - we bought a place in El Cerrito in 2010 and were pretty much at the max mortgage our budget could support. We sold in 2013 and moved somewhere cheaper because it was just not a tenable situation for the long term. We just could not save money for repairs or renovations - let alone vacations, emergencies, and our future.

What if the foundation is crumbling? What if the wiring is an ancient mess? What happens when (not if) you need a new roof? What if you or your spouse loses a job or gets sick?

My humble opinion is that owning a Bay Area home is just not a money-wise decision unless you're making $200k/year. It sucks.
posted by gnutron at 5:47 PM on July 13, 2015 [3 favorites]

A house in North Oakland, listed in the low 400s, will sell way, way over that amount. Even if you managed to have your modest offer accepted, the lack of seller disclosures and the as-is nature of the sale is worrisome. If you're worried about eating the few hundred dollars it will take to do inspections and the very modest price of interior re-painting (compared to the cost of re-wiring, foundation issues/retrofitting, windows, etc) then you can't afford this house. I think I know the house you're talking about. It's adorable, and has a huge yard. I'm with you. I'd want it, too.
Are you sure you're priced out of the Laurel/Dimond if you consider something south of MacArthur? I don't know school district lines, but looking at "recently sold" listings for the last six months shows some houses in Lower Dimond/Laurel/Allendale-ish in the low 400s.
posted by missmary6 at 9:20 PM on July 13, 2015 [3 favorites]

If you were able to get something so far under market based on personal connection to the seller, I'd absolutely go for it, assuming you don't have to live with any safety issues (like knob & tube wiring) until you can do repairs. Have you factored in the sewer line requirement? And yes, prepare for it to take over your life.
posted by salvia at 9:44 PM on July 13, 2015

latkes: "No inspections have been done. It is possible and perhaps likely that core issues such as the foundation need work. The house was built in the 20s. No visible knob and tube but likely lots of old pipes, wiring, etc."

Does the house have a basement/crawlspace or is it on a slab? If it's the former, your foundation repair costs are much lower than a slab because you already have access to the underside of the house to do repairs. Knob-and-tube wiring can be well hidden, especially if the house has a current-looking circuit breaker panel. K-T wiring is fine as long as it has been cared for (which is unlikely but hey).

At a minimum, before signing yourself up for a half-million-dollar error, get a general and sewer inspection. Be prepared to possibly make compromises if you really want the house and know what you can afford versus what you can't. E.g., the roof is in terrible shape but you can replace it at the tradeoff of living with lime green walls for two years. Or the sewer line is in fair condition but needs to be cleaned and sleeved versus a full replacement.

latkes: "However, we couldn't' afford to do all that work because we'd be at our max with the mortgage payment!"

This worries me but if you're comfortable with your budget then it's for you to decide.

Personally, I say go for it if you are confident in your income and have taken a hard look at how much you spend each month so that you have identified places to trim and enhance your savings.

Good luck.
posted by fireoyster at 12:51 AM on July 14, 2015

Knob and tube is not a safety issue if it has not been insulated over and hasn't been had shoddy worm done to it. The second qualifier holds for any wiring. Some insurance companies will refuse to insure, but we didn't have a problem finding one that would at a reasonable price. Farmers and State Farm both were more concerned about overhanging branches than the wiring.
posted by wierdo at 5:32 AM on July 14, 2015

Response by poster: Well, for those following along at home, we messaged her on facebook asking (ingratiatingly, but hopefully not too ingratiatingly) for a face to face meeting or phone call, but she's older and I suspect she doesn't check her facebook that much. At the same time, some of the comments here about how this project will take over my life, plus a vigorous spin class, made me calm down about this idea a bit. I guess there's a chance she'll write back today and say, "sure, I'll give you, a stranger, my house for hundreds of thousands below it's value", but then on the other hand, if she doesn't, I think I can live with that.

(Re foundation: it's got an unfinished basement/bottom floor - not slab. I think that means the foundation is easily accessible and in fact has room to be converted to an in-law at the same time, which would be a great thing for us, but at the same time, I don't know how we would pay for that)
posted by latkes at 7:42 AM on July 14, 2015

I'd just flat out say that you should rent. Refinishing hardwood floors are 100 hours of work, and many people screw them up. A new HVAC unit is $10,000. A new roof is likely to cost you $10,000. New windows installed can be $350 each. Add another $100 to $200 if the window frames need repair. These are things you WILL need at some point. Maybe at the worst possible time. That's not to mention any dry rot, termite damage, plumbing or electrical problems, let alone replacing a kitchen or bathroom to make it nicer.

And you're going to, at a bare minimum give up $45,000 cash, your mortgage will leave you strapped, plus you'll pay for water/sewer/garbage ($100+ per month) that a landlord might pay for you.

You're also buying in area of $19 billion companies who do an instant messaging apps that a good software engineer could replicate singlehandedly in a few months. The tech scene is grossly overvalued. Maybe the real world will never catch up, and prices will increase forever. It's not outside the realm of possibility. But I wouldn't bet money on it.

The Bay Area is lovely and wonderful. That part of Oakland is excellent. Oakland overall is likely to improve as people are pushed out of San Francisco. But I'd invest my $50,000 and the money for the floors, HVAC, roof, etc., and just rent instead. Or move a few cities east, where it's cheaper.
posted by cnc at 12:19 PM on July 14, 2015

If you were my friend, based on what you've written here, I'd say you honestly cannot afford this house. That doesn't mean I know what you should do, because it's an insane market, but these kinds of repairs and this kind of financial stress will be really overwhelming for you personal emotional capacities, for your family financial stability and for your family stress levels.
posted by barnone at 3:20 PM on July 14, 2015

« Older OKLooptid   |   Does my platonic friend have romantic feelings -... Newer »
This thread is closed to new comments.